Brussels, 19 December 2014 What is the Single Resolution Mechanism? The Single Resolution Mechanism (SRM) complements the Single Supervisory Mechanism (SSM) which, once operational in November 2014, will see the
Brussels, 19 December 2014
What is the Single Resolution Mechanism?
The Single Resolution Mechanism (SRM) complements the Single Supervisory Mechanism (SSM) which, once operational in November 2014, will see the European Central Bank (ECB) directly supervise banks in the euro area and in other Member States which decide to join the Banking Union.
The SRM is the second pillar of the Banking Union and will ensure that – not withstanding stronger supervision – if a bank subject to the SSM faced serious difficulties, its resolution could be managed efficiently with minimal costs to taxpayers and the real economy through a Single Resolution Board and a Single Resolution Fund, financed by the banking sector.
The SRM will provide key benefits for taxpayers, banks, deposit-holders and financial and economic stability in the entire EU.
What are the Single Resolution Board and the Single Resolution Fund?
The Single Resolution Board is the European Resolution Authority for the Banking Union and will work in close cooperation with the national resolution authorities of participating Member States.
The SRM will be built around the Single Resolution Board, a fully independent agency of the European Union financed by contributions from the banking sector. This agency is established since 19 August 2014, which corresponds to the entry into force of the Regulation on the SRM. The Board will prepare the resolution of a bank. It will have broad powers to define the approach for resolving a bank. Upon notification from the ECB that a bank is failing or likely to fail, the Board will adopt a resolution scheme including relevant resolution tools and any use of the Single Resolution Fund. Depending on the total amount needed from the Fund in the course of one year, the Board will convene in its Plenary Session or in its Executive Session. (For more details on Banking Union, see MEMO/14/294 and on the Single Resolution MechanismMEMO/14/295).
National resolution authorities are closely involved in the resolution process. They assist the Board in preparing its actions and are in charge of implementing the resolution decisions in line with national company and insolvency law.
The Board monitors the execution by the national resolution authorities of its decisions at national level and, should a national resolution authority not comply with its decision, can directly address executive orders to the troubled banks.
The Fund is set up under the control of the Board to support its decisions and ensure the availability of medium-term funding to enable the bank to continue operating while it is being restructured. The total target size of the Fund will equal 1% of the covered deposits of all banks in Member States participating in the Banking Union. In absolute terms and based on 2011 data on banks’ balance sheets, it should represent around €55 billion when fully operational.
How will the Single Resolution Board operate?
The Board will operate in two sessions: an executive one and a plenary one. The voting rules in each session will balance the need to take into account the interests of all Member States and with the need to ensure effective European decisions.
In its executive session, the Board will take the key preparatory and operational decisions for resolving individual banks including use of the Fund, and the decisions addressed to national authorities to implement the measures. For this session, the Board will consist of the Chair (or the Vice Chair in the absence of Chair), the four permanent members and the relevant national authorities where the troubled bank is established. The executive session will adopt individual resolution decisions which involve the use of the Fund below a €5 billion threshold. The weighting of liquidity support is 0.5 (meaning that where only liquidity support is granted, the threshold would amount to €10 billion).
The plenary session will be competent to decide in individual resolution cases if the support of the Fund in a specific case is required above the €5 billion threshold. A silent procedure is foreseen to allow the executive session to decide when the €5 billion threshold is reached. The executive session will have to send its draft decision to the plenary. The plenary will have three hours to decide whether or not it decides to take over. If the plenary does not react within three hours, the decision enters into force. Any participating Member State has the right to call for a meeting of the plenary. If over 12 rolling months, more than €5 billion of the Fund is used, the plenary session adopts guidelines for the executive session to follow in subsequent resolution decisions.
Decisions in the plenary session will be taken according to the following voting modalities: any decisions involving the use of existing means in the Fund (both during the transitional period and in the steady state) will be adopted by simple majority representing 30% of contributions to the Fund; decisions involving borrowing or ex-post contributions will be adopted by a 2/3 majority representing 50% of contributions during the transition period; and by a 2/3 majority representing 30% of contributions in the steady state.
What is the timeline for the establishment of the Board and where will it be located?
The Board will start work on developing resolution plans for credit institutions from January 2015 and will be fully operational, with a full set of resolution powers, from January 2016 (provided that the conditions for the transfer of contributions to the Fund are met by that date).
The Board will be located in Brussels; as decided in the Regulation – exact location to be confirmed.
Who will work for the Board? How many people?
The staffing needs of the Board are estimated to be around 250 people (the Regulation mentions a maximum number of 309).The intention is to have 30-40 persons in the 1st quarter 2015, and to move progressively up to 100 – 120 by the end of 2015.
Staff members of the Board will be subject to the “Conditions of Employment of Other Servants of the European Communities (CEOS)“. They will be recruited as Temporary Agents for an initial period of three years which may be renewed once and thereafter – under certain conditions – lead to permanent contracts. Staff members of the Board will be recruited on a contractual basis following fully transparent selection processes (= screening of CVs, written test and oral interview).
Recruitment of staff has already started with the publication of some Temporary Agent posts on the relevant websites. For the specialised financial services/resolution profiles, a European Personnel Selection Office (EPSO) competition has been launched in the Autumn and is expected to be finalised by Spring 2015.
How were the five permanent Members of the Board and the Vice-Chair recruited?
The Chair, Vice-Chair and four other permanent Members of the Board have been appointed on the basis of merit, skills, knowledge of banking and financial matters, and of experience in financial supervision, regulation or resolution. They were chosen on the basis of an open selection procedure, which respected the principles of qualifications, experience and gender balance.
The recruitment process for the five permanent Members of the Board and the Vice-Chair was launched through the publication of vacancy notices in the Official Journal of the European Union and in the international press on 10 July 2014.
The Commission provided the European Parliament with a shortlist of candidates for the six positions and informed the Council. The Commission submitted a proposal for these appointments to the European Parliament for approval on 5 December (See Daily News).
Following the approval by the European Parliament on 16 December, the Council today adopted an implementing decision to appoint the Chair, the Vice-Chair and the four other permanent Members of the Board.
The five permanent Members of the Board and the Vice-Chair are expected to take office around early March 2015.
As stated in the Regulation, the term of office of the Chair shall be three years, renewable once for a period of five years. The term of office of the Vice-Chair and of the four other permanent Members of the Board shall be five years, non-renewable.
Their terms and conditions were decided by the European Parliament and the Council during the negotiations and are set out in the SRM Regulation. Salaries will be in line with comparable posts in the European Union institutions such as Judges or Registrars in the Court of Justice of the EU and they will be subject to the “Conditions of Employment of Other Servants of the European Communities (CEOS)“.
What is the current state of play and what’s happening next?
Until the Chair takes office, the Commission is responsible for the establishment and initial operation of the Board. A Commission official has been designated to act as interim Chair and exercises the adminitraive duties assigned to the Chair. To this end, the Commission Directorate-General for Internal and Services established, in May 2014, a dedicated Task Force composed of twelve experienced officials.
In order to ensure a smooth establishment of the Board, this Task Force is currently performing a certain number of preparatory tasks including the appointment of the Board’s management, the recruitment of some staff, the implementation of systems, rules and procedures, the sourcing of accommodation and the collection of the first bank contributions to fund the Board’s administrative expenditure.