The proceeds from the levy on financial institutions announced in Budget 2014 will be paid into the Exchequer. It will not be used to fund the Resolution Fund pursuant to Section 15 of the Central Bank and Credit Institutions (Resolution) Act 2011. Section 10 of the Central Bank and Credit Institutions (Resolution) Act 2011 established a resolution fund in Ireland. The purpose of this fund is to provide a source of funding for the resolution of financial instability in, or an imminent serious threat to the financial stability of, an authorised credit institution. Authorised credit institutions are required to make contributions to the fund in the form of a resolution fund levy. The domestic banks in Ireland are currently subject to the Credit Institutions Stabilisation Act (“CISA”) 2010 and are therefore outside the scope of the levy until December 2014. Upon expiry of the CISA the domestic banks will be required to pay into the resolution fund.
In July of this year the Commission published its proposal for a Single Resolution Mechanism (SRM) as the next essential step to the banking union. The SRM proposal includes provision for a single resolution fund for Member States participating in the banking union. It is anticipated that when the SRM comes into force the domestic banks in Ireland will contribute to this fund in place of our national resolution fund. Therefore, the domestic banks will be making a contribution as a result of the SRM. This contribution will be held in the single resolution fund to be set up at EU level under the SRM.
The purpose of the single resolution fund is to provide a source of funding for the resolution of banks in the EU banking union. One of the objectives of the SRM is to avoid that funds needed for such purposes come from national budgets. This in turn assists in minimising taxpayers’ exposure to the costs of bank rescues.
The fund is to be built up over a ten year period from the date of entry into force of the SRM. While negotiations are on-going, I expect the SRM to enter into force sometime in 2015.
