How Single is the Single Resolution Mechanism?

Abstract

Since the first of January 2016, the Single Resolution Mechanism (SRM) has become fully operational. For the Member States of the European Banking Union the new regime entails a transferral of the decision-making on failing banks to the European level, specifically the Single Resolution Board (SRB). The political sensitivity hereof is illustrated by the European and Italian reaction to the mounting troubles in some parts of the Italian banking sector. The new European regime raises the question if, and if so to what degree, Member States participating in the European Banking Union (EBU Member States) retain discretion in determining the course of action for, and future of, a troubled bank. This question is explored along three lines of inquiry. First, we analyse the degree of harmonisation provided for by the BBRD and SRM. The second line of inquiry analyses EBU Member States’ influence in the SRB’s decision-making process. The third line of inquiry considers the possibilities (if any) for a public recapitalisation of troubled banks without applying the new general bail-in standard.

Our first line of inquiry leads us to conclude that the EBU Member States have surrendered the decision-making on bank resolution to the EBU level, specifically to the SRB. The SRM regulation, consequently, provides for maximum harmonisation, leaving no room for national resolution tools. National resolution powers which operate and compete in the same area as the SRM, such as the Dutch nationalisation law, must thus be held as inapplicable.

In the second line of inquiry we found that the SRM has both a supranational and an intergovernmental dimension. While the SRB in its executive session has a strong supranational character Member State influence in bank resolution decision remains present through the involvement of the Council and the SRB in plenary session in key decisions.

In the third line we conclude that the rules imposed by the BRRD and SRM Regulation in combination with the State aid regime have rendered public recapitalisation without a bail-in virtually impossible. Outside of resolution, NCBs may assist solvent banks through ELA. In addition, EBU Member States could turn to the possibility of precautionary recapitalisation to prevent that the control over a bank’s fate is shifted to the SRB. Such precautionary recapitalisation is however subject to strict conditions.

Keywords: EU Banking Law, European Banking Union (EBU), Global Financial Crisis (GFC), Single Resolution Mechanism (SRM), Single Resolution Board (SRB), Single Resolution Fund (SRF), Bank Resolution and Recovery Directive (BRRD), Government Financial Stabilisation Tools (GFST), Meroni doctrine, common fiscal

JEL Classification: G01,G21,G33