SRM paves way for new system for resolving banks

Original news:

The Single Resolution Mechanism (SRM), which implements the EU-wide Bank Recovery and Resolution Directive (BRRD) in the euro area, became fully operational on 1 January 2016. The SRM is intended to bolster the resilience of the financial system and help avoid future crises by providing for the timely and effective resolution of cross-border and domestic banks. The full resolution powers of the Single Resolution Board (SRB) will also apply from 1 January 2016.

Summary

The SRM entered into force on 19 August 2014. The provisions relating to the co-operation between the SRB and the national resolution authorities for the preparation of the banks’ resolution plans applied from 1 January 2015.

The Banking Union is mandatory for all euro area states and consists of 19 members: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

Benefits of the SRM to the Banking Union

The SRM Regulation establishes the framework for member states participating in the Banking Union when banks need to be resolved.

It provides that the Single Resolution Fund (SRF) will be built up over a period of eight years with ‘ex-ante’ contributions from the banking industry. Member states agreed to define some of the rules, particularly relating to the transfer of those contributions from National Resolution Authorities to the SRF, and for the progressive mutualisation of their use over time, in an inter-governmental agreement (IGA).

In the Banking Union, the SRM allows for:

  • more uniform financing conditions for individuals and businesses, thanks to a single mechanism to deal with the failure of banks irrespective of the member state of origin, reducing the interdependence between credit supply and the health of public finances
  • enhanced preservation of financial stability, with a more predictable environment for consumption and investment decisions, through centralised crisis management for large and cross-border banks, whose disorderly failure could otherwise cause contagion and panic
  • reinforced protection of taxpayers via the bail-in tool and if necessary a single resolution fund pooling financial resources for crisis management, to be provided by banks ex-ante, across all participating member states.

Source: Press Release: Single resolution mechanism to come into effect for the banking union

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