In May 2012 the Commission called for a banking union to restore confidence in banks and in the euro. This was reflected in the report on Economic and Monetary Union prepared by the Presidents of the European Council, the Commission, the Eurogroup and the European Central Bank. The SSM which is the first part of this process was formally adopted by ECOFIN in October and has entered into force. The next important step is the establishment of the SRM. Such a mechanism is considered necessary on the basis of the principle underpinning the banking union that where supervision is centralised it should be complemented with a centralised resolution authority.
The SRM proposal consists of the Single Resolution Board and a Single Resolution Fund, financed by contributions from the financial sector. As the Deputy notes the ultimate decision maker in this process is the Commission, as only an EU institution can carry out such a function and not an agency. While the SRM proposal is under consideration at the Council, the view of the Commission and most Member States is that we should proceed on the basis of the current proposal.
On the second issue raised by the Deputy regarding resolution of a bank, Article 16 of the draft proposal sets out the procedures to be followed.
The first step involves the ECB or a national resolution authority making an assessment whether:
(i) an entity is failing or likely to fail;
(ii) having regard to timing and other relevant circumstances, there is no other reasonable prospect that any alternative private sector or supervisory action would prevent its failure within a reasonable timeframe;
(iii) a resolution action is necessary in the public interest.
If the Single Resolution Board is of the view that all of these conditions have been met, it is required to make a recommendation to the Commission that the bank be placed into resolution. If the Commission agrees with the Board, then it will decide accordingly. If it is however of the view that the conditions are not met, there is a due process that must be followed, but ultimately it can decide not to place the entity in resolution and in such circumstances national insolvency law will apply.
In relation to the Deputy’s final point, there are a number of measures in the proposal which require the ECB to work in conjunction with the Single Resolution Board to ensure consistency so that the system works effectively. Both share the objective of ensuring financial stability and growth in the Euro area. This is considered a crucial step to overcome the current financial fragmentation and uncertainty, to ease funding conditions for sovereigns and banks and to break the link between the two. This is in the best interests of Member States and the banking system as a whole.
Furthermore, Article 12 of the SRM proposal sets out the resolution objectives, which include the need to avoid significant adverse effects on financial stability “in the EU and Member States concerned”. This means that account has to be taken of national interests in any resolution decision.
While this represents the current position of the proposal, the matter will be discussed by Ministers at the forthcoming Ecofin this week.
