Wednesday, 26 March 2014

Questions (44)

Pearse Doherty


44. Deputy Pearse Doherty asked the Minister for Finance the way the single resolution fund will play a role in banking union and the separation of banking and sovereign debt; and if he will make a statement on the matter. [14245/14]

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Written answers (Question to Finance)

The Single Resolution Mechanism (SRM) is a centralised resolution mechanism for Member States who belong to the Single Supervisory Mechanism (SSM). Its purpose is to ensure that resolution can take place at the same level as supervision, rather than being conducted at national level.  It is considered as an important contributing factor to breaking the link between the sovereign and the banking sector.

The SRM will allow decisions to be made in a more objective and independent fashion than if they were been made by national supervisors. The proposal which has been agreed sees the SRM taking its decisions in line with the principles of resolution set out in the Bank Recovery and Resolution Directive in particular that shareholders and creditors should bear the costs of resolution before any external funding is granted, and private sector solutions should be found instead of using taxpayers' money.  It is felt that in most scenarios, contributions by shareholders and creditors should be sufficient to finance resolution. If exceptionally, additional resources were needed a Single Resolution Fund with a target level of 1% of covered deposits within the Banking Union (approx. €55bn) will come into place as a last resort to finance the bank resolution process.

In the General Council approach reached on SRM at the extraordinary ECOFIN on 18 Dec, it was agreed that as part of the overall compromise that aspects of the SRM relating to financing be carved out of the Regulation, in particular the transfer of contributions from national resolution funds to national compartments in the SRM, and gradual mutualisation of national compartments in the SRM over a 10 year period. This approach was adopted because certain member states  were not satisfied that Article 114 provided an appropriate legal basis for the operation of the Single Resolution Fund. It was agreed that an Intergovernmental Agreement would cover these matters.

Under the recently reached agreement between the Greek Presidency and the European Parliament, the transition period to a fully mutualized SRF has been reduced to 8 years. In addition the pace of mutualisation has been significantly increased in such a way that within two years 60% mutualisation will occur with the balance being achieved in a linear fashion up until the end of year 8. What this means in practical terms is that if a bank is failing or likely to fail the first step is that the bail-in rules will be applied to losses. If there are still losses to be absorbed, the next point of contribution will be the funds within the Member State's national compartment in the SRF, followed by the mutualised part of the national compartments of other Member States. After 8 years the SRF will be fully mutualised.