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First, what we have achieved so far;
Second, what remains to be done;
Third, I’ll give an indication of what the SRB is doing to better equip itself to handle any bumpy roads ahead in financial stability terms.
Fourth, I’ll share with you the SRB’s position on the European Commission’s Crisis Management and Deposit Insurance proposals;
[What we have achieved]
Onto my first point then: After 8 years, we have come a long way from the inception of the resolution framework and of the Banking Union. All parties involved have accomplished much. The resolution framework is strong and tested and banks are substantially more resolvable, and so safer, than before.
I won’t come back to the building of an effective supervision and a better resilience in the system, as it was addressed earlier. Instead, I will focus on the resolution side in two big areas.
Most banks are making good progress towards full resolvability – building their capabilities in a number of areas. For instance, we expect the vast majority of banks to reach their final MREL target in the coming months.
Another piece of good news is that the Single Resolution Fund is on track to reach 1% of covered deposits – marking the end of the SRF build-up phase. And of course, that means next year, you should see a change to the amount you are being asked to contribute – we have to keep the SRF at least 1% of covered deposits, but the build-up phase is now over, and so future contributions should be smaller, assuming the Fund is not used in a crisis case.
[What remains to be done]
Moving to my second point now, what remains to be done. The job on resolvability, yours and ours, is far from done. Banks are still expected to close the main remaining gaps, notably on liquidity and funding in resolution, separability and restructuring.
Many of you will have already seen our priority letters for next year. We are asking banks to complete the work already started in being able to provide correct and granular valuation and liquidity data at the right time – these will be our priorities for 2024.
Let me insist on liquidity. The recent crises have confirmed that liquidity, unsurprisingly, is a key element for a successful resolution. We are in fact asking the banks to be able to produce data on all available collateral, at all times. We are also working on our end to be able to deal with all the data the banks will produce.
Beyond the bank’s capabilities, the SRB’s liquidity toolbox is strong – I mentioned the SRF earlier - but not complete.
The ESM treaty revision would help, as it foresees that if the SRF is depleted, the European Stability Mechanism can lend the necessary funds to the SRF to finance a resolution, thus doubling the firepower of the fund. It is vital that all countries ratify the ESM treaty revision as soon as possible.
It is true that beyond the SRF and the ESM backstop, there could be a remaining tail risk for providing liquidity in resolution for very large banks. As we have seen in the Swiss crisis, two large liquidity lines that were put in place but were only partially drawn up and fully reimbursed in about three months – a negligible “cost” for such a key support, and, in reality, a true benefit.
Another key lesson learnt from the recent crises is that resolution authorities need to plan to have the flexibility in the choice of which resolution tool to use depending upon the situation. We will certainly work on back-up options for our resolution strategies – including transfer strategies for larger banks and the combination of tools - and of course we will need your input....
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