23 May 2013

ECB/Cœuré: The Single Resolution Mechanism - Why it is needed

The Single Supervisory Mechanism will comprise national competent authorities from the euro area as well as the ECB, with the possibility of non-euro area members participating. The scope of the proposed regulation is very broad, covering all of the more than 6,000 credit institutions in the euro area. However, not all of them will fall under the direct responsibility of the ECB. The ECB will directly supervise those banks and banking groups that are considered to be significant. The national authorities will retain their responsibilities for prudential supervision of the other banks. However, the ECB may at any time, on its own initiative and after consulting with, or at the request of, a national competent authority, decide to exercise direct supervision. The banks falling under direct supervision will be identified by using a methodology based on the criteria mentioned in the Regulation. We expect that it will cover more than 80 per cent, or more than €25 trillion, of the euro area’s banking assets. It will represent the largest single supervisory jurisdiction by assets. The precise assignment of tasks within the Single Supervisory Mechanism will be specified in a Framework Regulation that the ECB will publish six months after the publication of the SSM Regulation. A public consultation will precede this publication – it will be very important to have input from the industry on this matter.

The SRM would need several components to be effective. Although the European Commission is still defining the framework for the SRM, let me nevertheless mention what, from my point of view, the main features of such a mechanism should be.  First, the SRM should be based on a strong and independent Single Resolution Authority (SRA) entrusted with the necessary powers. This would enable prompt and coordinated resolution action to be taken, specifically where cross-border banks are concerned. Experience has repeatedly taught us that mere coordination between national authorities does not suffice in a cross-border bank resolution. Successful resolution needs prompt and decisive action. Although the organisational aspects of the SRA still need to be decided, in order to achieve its objectives, the SRA should be strong, independent and preferably a stand-alone authority and should collaborate closely with the SSM and the European Commission.  Second, the SRA should have adequate funds for resolution financing. Indeed, for the resolution framework to work well and be credible, the SRA must have access to a privately-funded European Resolution Fund. This Fund should be pre-funded by levies from the private sector. This would ensure that the SRA has access to the necessary financing to take resolution action and achieve least-cost solutions, as the Federal Deposit Insurance Corporation (FDIC) does in the US.  Third, in order to ensure the credibility of the Fund, it should have access to a temporary and fiscally neutral fiscal backstop at euro area level, to be used only as a last resort.

The third pillar of the banking union is an integrated framework for deposit protection. A first step towards this aim would be the adoption of the pending legislative proposal of the Commission on a Directive for Deposit Guarantee Schemes (DGS). This framework should ensure depositor confidence and enable the national guarantee schemes, built on common EU standards, to interact with the SRM. Bail-in rules, with a clear treatment of depositors in resolution and insolvency, and with depositor preference making it less likely that the DGS is drawn upon, will make this interaction much easier in a real crisis, and will facilitate the implementation of a common DGS at a later stage.

Full speech

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