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Implemented correctly, the Single Resolution Mechanism (SRM), would provide a common framework for the treatment of failing banks within the Banking Union. It would further alleviate contentious home-host issues in the recovery and resolution process within the participating Member States, as it would overrule national interests in cross-border bank failures. It would also speed up cross-border resolutions which should minimise the systemic impact and the cost of bank failures as well as the need for taxpayer support.
“This would further help to break the link between sovereign crises and the banking sector. It should promote a level playing field as well as provide an effective common crisis management framework for SSM supervised banks”, said Guido Ravoet, Chief Executive of the European Banking Federation.
Europe’s banks see the need for the SRM to be supported by resolution-financing arrangements. However, not all EBF Members believe that a Single Resolution Fund is feasible, at least not in the short term, as significant preconditions need to be fulfilled. Most importantly, these include an equal footing for all participating Member States in terms of the legacy assets of the financial crisis. As the primary component for resolution financing, the EBF fully supports the broad use of the bail-in tool. As a consequence in relation to the target size of resolution financing arrangements - be they national or commonly held - the EBF advocates limiting its size while ensuring that a significant timeframe of at least 15 years is given to build up these funds. Bail-in would absorb all or most of the cost of a bank failure in most circumstances.
“We strongly believe that the target level of a common fund should be set, taking into account the enhanced prudential framework, the crisis prevention role of Recovery and Resolution Plans and accompanying far-reaching powers of supervisory authorities as well as the early intervention regime and the broad loss absorbing capacity of bail-in”, said Ravoet. “This would reduce the amount of money left sitting idly when it is more needed towards economic recovery at present.”