18 February 2014

Main results of the ECOFIN Council: SSM / SRM

BANK SUPERVISION - SINGLE SUPERVISORY MECHANISM

The Council, under "other business", took note of the presentation by the European Central Bank of its first quarterly report on implementation of the single supervisory mechanism for banks (6237/14).

The regulations establishing the single supervisory mechanism (SSM) were adopted on 15 October, entering into force on 3 November. The ECB's first quarterly report covers not only the three months to 3 February, but also the preparatory work conducted since the euro area summit of June 2012.

Danièle Nouy, the first ever chairperson of the ECB supervisory board, took up her duties on 27 January, following her appointment for a five-year term. The supervisory board held its first meeting on 30 January. Sabine Lautenschläger, recently appointed to the ECB executive board, was appointed vice-chairperson of the supervisory board on 11 February.

The ECB is currently undertaking a comprehensive assessment of banks over which it will have direct oversight under the SSM.

BANK RESOLUTION - SINGLE RESOLUTION MECHANISM

The Council discussed possible adjustments to its general approach on the establishment of a single resolution mechanism (SRM) for banks, with a view to giving more flexibility to the presidency in its forthcoming “trilogue” negotiations with the European Parliament.

The Council reiterated its firm commitment to reach an agreement acceptable to all parties on the SRM within the deadline set by the European Council, enabling a vote by the European Parliament before the end of its current term.

According to the presidency, the discussion showed that ministers recognise the need for compromises and flexibility towards the Parliament's position. Whilst not diverging from the key elements of the general approach agreed in December, ministers recognised the need to give the presidency some flexibility to explore various ideas in order to identify possible options that might lead to an agreement.

The presidency summarised the scope of such ideas as follows:

• The framing of the role of the plenary session of the single resolution board (SRB);

• A review of the thresholds for the involvement of the plenary, and of voting modalities, especially during the initial transitional phase of the single resolution fund (SRF), to have a balanced solution for the use of the SRF;

• A possibly better framing of the Council's role in order to limit its discretion and the grounds on which it can raise objections to the SRB's decisions, as well as a simplification and, if possible, shortening of the decision-making process;

• A more framed oversight of the SRB over national resolution authorities;

• A central role for the European Central Bank in determining whether a banking institution is failing or likely to fail, while the SRB should ultimately maintain a possibility to effectively influence that function too;

• Agreement that bail-in and not bail-out is the main guiding principle for bank resolution.

The presidency also acknowledged calls from many ministers to increase the pace of mutualisation of national contributions to the SRF. There were however divergent views on how to achieve this, with some ministers linking it with bringing forward the date for completion of the fund. The presidency will explore the possible alternatives and will report back to the Council on this issue.

Many ministers referred to the need to enhance the capacity of the SRF to borrow in the markets during the transitional period in order to reinforce the credibility of the system. The presidency concluded that further work would be needed in this area, which is linked to the establishment of a common backstop to the SRF.

Further work is also needed on the method for calculating individual contributions to the SRF in order to provide as much clarity on this issue as possible. The presidency will explore these ideas with the European Parliament and report back to the Council as soon as possible, in order to be able to take decisions on specific alternatives.

The discussion confirmed the wish of ministers to assess and most probably decide on all major SRM issues together with the final outcome of the intergovernmental agreement (IGA) on the SRF.

The presidency noted that the outcome of the trilogue negotiations would be the result of a global deal covering discussions on both the SRM regulation and the IGA. The aim is to enable the regulation on the SRM to be adopted at first reading, before the end of the Parliament's current legislature. This will require the Council and Parliament to reach a political agreement in time for the Parliament's plenary session in April.

Background

The SRM will form one of the key elements of Europe's Banking Union, along with the single supervisory mechanism (SSM) that entered into force in November 20131 (see page 18). Creation of a Banking Union is essential to overcoming market fragmentation and breaking the link between sovereigns and banks.

In December, the Council agreed on a general approach involving both a draft regulation on the SRM and a commitment to negotiate, by 1 March, an intergovernmental agreement on the functioning of the SRF. The Council's general approach provides for a single resolution board with broad powers in cases of bank resolution.

The intergovernmental agreement would include arrangements for the transfer of national contributions to the SRF and their progressive mutualisation over a 10-year transitional phase. Contributions would be financed by bank levies raised at national level. The fund would initially consist of national compartments that would be gradually merged. During the 10-year transition, mutualisation between national compartments would progressively increase. So while during the first year any costs outstanding for resolving banks – after use of bail-in provisions – would mainly come from the compartments of the Member States where the banks are located, the share would gradually decrease as the contribution from other countries' compartments increases.

The SRM would cover all Member States participating in the SSM, namely the euro area countries and those non-eurozone countries that decide to join. Under the Council's general approach, the SRM would enter into force on 1 January 2015 whereas bail-in and resolution functions would apply from 1 January 2016.

The regulation, based on article 114 of the Treaty on the Functioning of the European Union, requires a qualified majority for adoption by the Council in agreement with the European Parliament.

Intergovernmental agreement on the single resolution fund

Ministers held a special meeting on 17 February to discuss progress and outstanding issues in relation to a draft intergovernmental agreement on a single resolution fund (SRF) for banks. An intergovernmental conference on the SRF, at the level of experts, was held on 18 February.

Main results

Video of SRM-debate

Press release

Remarks by Eurogroup President on 17 February IGA on single resolution mechanism

© European Council