The SRM Regulation: How to Make Cross-border Resolution Effective Dr. Axel Kunde, Head of Unit Resolution Planning and Decisions Single Resolution Board
Index 1. Resolution framework in the EU and the SRM 2. Allocation of tasks within the SRM from 2016 3. SRM Governance: approval of resolution plans
Resolution framework in the EU Bank Recovery and Resolution Directive Regulation to create the Single Resolution transposed in all 28 EU Member States Mechanism adopted by 19 Member States of the Euro area (but open to all EU states) Content of the BRRD SRB constitution Scope and institutional framework For participating Member States, in the context of the Single Resolution Mechanism (SRM), a centralised power of resolution is established Recovery and resolution plans and entrusted to the Single Resolution Board established in accordance with this Regulation Trigger for resolution and to the national resolution authorities. That establishment is an integral part of the process Resolution tools of harmonisation in the field of resolution operated by Directive 2014/59/EU … (SRMR) Government stabilization tools The Single Resolution Board (SRB) is the Resolution Fund resolution authority within the European Banking Union and is a key element of the Cross Border Agreements newly created Banking Union. BRRD is a significant step ( … ) However, the Directive only establishes minimum harmonisation rules and does not lead to centralisation of decision making … • BBRD: Directive 2014/59/EU for the recovery and resolution of credit institutions • SRMR: Regulation (EU) No 806/2014
Function of the Single Resolution Board (SRB) Mission : to ensure an orderly resolution of failing banks with minimum impact on the real economy and public finances of the participating Member States and beyond Participating Member State (Euro area) Non-participating Member State (non- Euro area) Bank falls into trouble Existing recovery plan is used to try and recover Recovery fails anticipates resolution ECB determines that bank is likely to fail and informs SRB SRB finds systemic threat and/or critical functions and no private alternative Resolution scheme submitted to Commission Under supervision from the SRB, NRAs implement SRB plan/ resolution scheme uses existing plan/decides resolution scheme
Allocation of tasks within the SRM from 2016 EURO AREA In charge of resolution planning , decisions and Non SRB monitoring execution of Euro Resolution resolution decisions for : RA College • Significant institutions (SI) under the direct supervision of the ECB Crisis • Less significant Management institutions (LSI) with Group cross-border activities In charge of resolution Third SRB planning, decisions and Countries ’ Coordination execution of resolution RA measures for LSIs. NRAs In charge of executing SRB resolution decisions of the Engagement with non participating Monitoring SRB in their jurisdictions. Member States and third countries
SRB’s monitoring role on execution of resolution schemes • According to Article 28 SRMR, the SRB "shall closely monitor the execution of the resolution scheme by the national resolution authorities". • The NRAs have to provide to the SRB upon request, at regular intervals, information on the execution of the resolution scheme, the application of the resolution tools and the exercise of resolution powers . • The SRB may give specific instructions to the NRAs as to any aspect of the execution of the resolution scheme. • The NRAs have to take the necessary action to implement SRB decisions, including specific instructions, by exercising their powers under national law transposing the BRRD. • If an NRA has not complied with a SRB decision, the SRB may: • Directly order an institution under resolution to (i) transfer to another person specified rights, assets or liabilities; or (ii) require the conversion of any debt instruments which contain a contractual term for conversion. • In addition, the SRB may order an institution "to adopt any other necessary action" to comply with the SRB decision.
SRB coordination role in relation to LSIs • The SRB has the overall responsibility for the effective and consistent functioning of the SRM. • The NRAs are required to inform the SRB if they intend to take certain measures , including the adoption of resolution decisions and the application of resolution tools. • The SRB may also take certain actions in relation to such entities. In particular, if a draft decision does not comply with the SRM Regulation or with the SRB's general instructions, the SRB may issue a warning to the NRA concerned. • As a last resort, the SRB may decide to "take over" from the NRA the direct power and responsibility for an entity. • National Resolution Funds cannot be used anymore for the entities and groups that fall under the scope of the SRM. Therefore, if the resolution of a less- significant institution requires the use of the Single Resolution Fund, the SRB takes also the resolution decisions.
SRB Governance Plenary and Executive Sessions ´ Tasks Decisions in the Executive SRB/SRM Session made by 5 voting members only (Vice-chair only votes, if Chair is absent) Executive Session Plenary Executive Session Session (Chair + Vice-Chair + 4 - Decides on all (Chair + Vice- permanent Board Members + resolutions including on Chair + 4 perma- NRAs when relevant + Observers) the use of the single nent Board resolution fund. Members + NRAs Approval of Resolution Plans + Observers) Plenary Session - Meets at least bi- Resolution scheme annually – exception – use of Resolution decision - For general matters not SRF above 5bn EUR related to a particular resolution. Resolution scheme (a) non-objection procedure for resolution schemes Commission Council (b) Objection – Not fulfil public interest test
Approval of resolution plans Banks active purely inside the Banking Union (BU) For purely BU groups process involves setting up Internal Resolution Teams (IRTs), developing resolution strategies and drafting resolution plans Banks under the direct Banks under the direct responsibility of NRAs in the BU responsibility of the SRB and active solely in BU IRTs draft group NRAs drafts resolution resolution plan/MREL plans subject to determination/report on guidelines and general impediments instructions of SRB NRAs notify material Consultation of decisions and submit ECB/NCAs and NRAs resolution plans to SRB SRB Executive Session SRB adopts resolution approves resolution scheme in case the SRF is plans/MREL/report on used impediments
Resolution Colleges: Coordination within the EU • The SRB shall set up a resolution college whenever an SRB bank has at least one subsidiary or significant branch in a participating Member State and another one in a non-participating Member State (Art 12, 13, 16, 18, 45 and 88-92 BRRD, and the EBA draft RTS on resolution colleges) • "The resolution college should not be a decision-making body, but a platform facilitating decision-making by national authorities . The joint decision should be taken by the national authorities concerned." (recital 98 of BRRD) • Joint decisions should be taken on: ─ Group resolution plan and resolvability assessment ─ Minimum requirements for own funds and eligible liabilities (MREL) ─ Measures to address substantive impediments to resolvability (if needed) ─ Group resolution scheme (if needed) • Joint decisions are to be taken by the resolution authorities of the group and subsidiaries , after consulting the other members and observers of the college . If there is no unanimity: ─ Binding mediation by the European Banking Authority (EBA) ─ Partial joint decisions ─ Individual decisions
Resolution Colleges: Members and key roles Members Key roles within the College Group-level resolution Chairs & co-ordinates resolution college authority Prepares and circulates draft and final reports and joint decision documents Observers: Resolution Communicates with the Union parent undertaking and the consolidating supervisor authorities of Determines MREL for the parent undertaking subsidiaries or Takes joint decisions significant Resolution authority of Communicates with the subsidiaries and the branches in third subsidiaries competent authority in its member state countries may be Proposes MREL at individual level for invited to subsidiaries participate as observers Takes joint decisions Consolidating supervisor Consulted on joint decisions Competent authority Consulted on joint decisions Deposit Guarantee Scheme Consulted on joint decisions Competent ministry Consulted on joint decisions EBA (non voting member) Promotes and monitors the efficient and consistent functioning of the college Acts as a mediator if consulted
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