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The Palgrave Handbook of European Banking Union Law pp 247–270Cite as

Palgrave Macmillan

The Single Resolution Mechanism: Authorities and Proceedings

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Abstract

The chapter gives an overview of the Single Resolution Mechanism as a complex and partial response to the problems of banking crises. The allocation of responsibilities and the decision-making process are centred around the Single Resolution Board, which acts under the control of the European Commission and the Council. National Resolution Authorities have extensive powers for the resolution of banks falling within their responsibility, but they have merely an executive function when national ailing banks fall under the competence of the Single Resolution Board. When the public interest required for the adoption of a resolution scheme is not deemed to be present, ordinary national insolvency proceedings apply, which are not harmonised and do not allow the use of the Single Resolution Fund. In this context, the chapter analyses the initial experiences under the new European rules and the interaction with State aid rules.

The opinions expressed are those of the author and do not necessarily represent those of her institution (Banca d’Italia).

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Notes

  1. 1.

    ‘This common destiny requires solidarity in times of crisis and respect for commonly agreed rules from all members’ (European Commission, Completing Europe’s Economic and Monetary Union, 2015).

  2. 2.

    Regulation (EU) No 806/2014 of 15 July 2014.

  3. 3.

    The Commission’s initiative to set up an EDIS (Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 806/2014 in order to establish a European Deposit Insurance Scheme, COM(2015) 586 final) has made no appreciable progress at the moment. The absence of sufficient risk control measures has been put forward by some Member States as an obstacle, but it should be noted that the regulatory reforms and the existence of a single Supervisor and a single Resolution Authority should provide sufficient safeguards for the more hostile countries. See more recently European Commission, Communication to the European Parliament, The Council, the European Central Bank, the Economic and Social Committee and the Committee of the Regions on completing the Banking Union (COM/2017/0592 final), pp. 9–13.

  4. 4.

    A proposal for a regulation to bring the European Stability Mechanism (ESM) into the Union legal framework, transforming it into a European Monetary Fund to be used as a backstop for the SRF, was presented by the European Commission (COM/2017/827 final). See also the ECB Opinion for a regulation on the establishment of the European Monetary Fund (CON/2018/20).

  5. 5.

    The failure to introduce an EDIS weakens the SRM itself.

  6. 6.

    The scope includes the countries that decide to establish ‘close cooperation’ pursuant to Article 7 of Regulation 1024/2013 establishing the SSM.

  7. 7.

    See Article 3 BRRD.

  8. 8.

    See infra paragraph 8.

  9. 9.

    Article 32(4) BRRD.

  10. 10.

    Those tools are provided for in Articles 56 to 58 BRRD.

  11. 11.

    See Article 19 SRMR. In the framework of the regulation, SRF aid is regarded as equivalent to State aid.

  12. 12.

    Article 18(7) SRMR.

  13. 13.

    The same recital 24 justifies the involvement of the Council as follows: ‘Given the considerable impact of the resolution decisions on the financial stability of Member States and on the Union as such, it is important that implementing power to take certain decisions relating to resolution be conferred on the Council’.

  14. 14.

    ECJ, UK v. Council and Parliament, C-270/12 (the shortselling case).

  15. 15.

    Anyway, the SRB enjoys a wide margin of technical discretion, e.g. in the MREL determination. See Appeal Panel, 16 October 2018, Case 8/18, https://srb.europa.eu/en/content/cases.

  16. 16.

    The complexity of current EU financial law also extends to the purposes of regulation, which seem to respond from time to time to different approaches and motivations: to facilitate market action, to foster investor confidence, to protect the stability of the system (Lamandini and Ramos Muñoz 2016).

  17. 17.

    Furthermore, it should be borne in mind that an intergovernmental dimension is also present in the SRM, because the transfer of national banks’ contributions to the SRF has been established by an intergovernmental agreement (Agreement on the Transfer and Mutualisation of contributions to the Single Resolution Fund (IGA), 21 May 2014).

  18. 18.

    Although it is difficult to reconcile this provision with the assumption by the ECB of a very broad set of powers as a supervisory authority, the SSM is generally operating without too many problems.

  19. 19.

    It is worth recalling that, according to Regulation (EU) No. 1093/2010, the technical standards developed by the EBA are also adopted by the Commission.

  20. 20.

    Article 5(2) SRMR.

  21. 21.

    See Article 3 BRRD.

  22. 22.

    ECtHR, Grainger and others, 10 July 2012; ECJ, C-526/14, Kotnik and others, 19 July 2016; ECJ, C-41/15, Dowling and others, 8 November 2016; T-680/13, Chrysostomides & Co. and others, 13 July 2018; T-786/14, Bourdouvali and others, 13 July 2018.

  23. 23.

    See Article 29 SRMR and Article 11 of the Framework for the practical arrangements for the cooperation within the Single Resolution Mechanism between the Single Resolution Board and national resolution authorities (SRB/PS/2016/07).

  24. 24.

    ECJ, General Court, T-133/16 to T-136/16, Caisse régionale de crédit agricole mutuel, 24 April 2018, § 84.

  25. 25.

    Article 43(3), second subparagraph, SRMR.

  26. 26.

    See Article 50 SRMR.

  27. 27.

    Article 55(1) SRM Regulation. In the case of a tie, the Chair has a casting vote (Article 55(3)).

  28. 28.

    Article 50(2) SRMR, second para.

  29. 29.

    See para. 2 above.

  30. 30.

    Article 45 BRRD.

  31. 31.

    Pursuant to the Article 6(4) SRMR, cross-border groups and all the cases in which the Single Resolution Fund is used.

  32. 32.

    Article 4(1)(c) SSMR, to be interpreted restrictively.

  33. 33.

    Other authorities, such as the European Commission and the national Ministry of Finance, have to be notified of the FOLTF decision.

  34. 34.

    Supervisory and resolution responsibilities may overlap in other situations, such as the assessment of resolvability (Article 10 SRMR) and the determination of the minimum requirement for own funds and eligible liabilities (Article 12 SRMR).

  35. 35.

    See above footnote 31.

  36. 36.

    The MoU was signed on 22 December 2015 and revised on 30 May 2018. See https://www.ecb.europa.eu/ecb/legal/pdf/en_mou_ecb_srb_cooperation_information_exchange_f_sign_2018.pdf.

  37. 37.

    ECB-SRB Memorandum of Understanding, paragraph 9.5.3.

  38. 38.

    The complexity of the ‘common proceedings’, involving the competences of both NCAs and ECB, is evidenced by C-219/17, Berlusconi and Fininvest, and the pending case T-913/16, Fininvest and Berlusconi. In the first case, see the Opinion of the Advocate General M. Campos, presented on 27 June 2018, and the ECJ (Grand Chambre) judgement (19 December 2018).

  39. 39.

    In several legal proceedings proposed before the ECJ and national courts, many banks are trying to obtain annulment of the SRB’s calculation decision, especially on the grounds that the respective role of the SRB and the NRAs, as well as the decisions by the SRB, are not themselves transparent. The ongoing proceedings against the SRB’s calculation decision for the banking levy demonstrates how complex, even in this field, the interaction between national and European authorities can be, and what consequences this complexity can also have in terms of identifying the judge with jurisdiction.

  40. 40.

    Article 11(3) of the Directive. See also recital 3 of the DGSD (‘In view of the costs of the failure of a credit institution to the economy as a whole and its adverse impact on financial stability and the confidence of depositors, it is desirable not only to make provision for reimbursing depositors but also to allow Member States sufficient flexibility to enable DGSs to carry out measures to reduce the likelihood of future claims against DGSs. Those measures should always comply with the State aid rules’).

  41. 41.

    Commission Decision (EU) 2016/1208 of 23 December 2015 on State aid granted by Italy to the bank Tercas (Case SA.39451 (2015/C) (ex 2015/NN)).

  42. 42.

    The following actions before the EUGeneral Court are pending on the case: T-98/16, Repubbica italiana v. Commission; T-196/16, Banca Tercas v. Commission; T-198/16, Fondo interbancario di garanzia dei depositi and Banca d’Italia v. Commission.

  43. 43.

    See also European Parliament (2018), paragraph 32: (The Parliament) ‘Is concerned at the mismatch between State aid rules and Union legislation related to the ability of deposit guarantee schemes (DGSs) to participate in resolution as provided for in the BRRD and DGSD, as expressed in the previous report; calls on the Commission to reconsider its interpretation of the State aid rules with reference to Articles 11(3) and 11(6) of the DGSD in order to guarantee that preventive and alternative measures provided for by the European legislator can be actually implemented’.

  44. 44.

    According to Article 32(5) BRRD and Article 18(5) SRMR, the public interest test under the resolution framework requires two questions to be answered: if resolution is necessary for the achievement of (and is proportionate to) resolution objectives, and if the national insolvency proceedings would meet those resolution objectives to the same extent as resolution.

  45. 45.

    See Article 2 BRRD.

  46. 46.

    Article 15(1) BRRD; Article 10(3) and (5) SRMR.

  47. 47.

    See ECtHR, Grainger and others, para. 36: ‘Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to appreciate what is in the “public interest”’.

  48. 48.

    See also Chap. 12 paras. 3 ff.

  49. 49.

    It is certainly true that, at the beginning of a crisis, the specific situation of the bank and the market could be fairly different from that envisaged in the recovery plan, but this is, in any case, a useful exercise to gain awareness of the expected problems and of the available resources to address them.

  50. 50.

    The BRRD was first applied in the case of four small or medium Italian banks, put under resolution at the end of 2015. The SRM was not yet operative at that time and resolution was conducted by the competent NRA, applying the BRRD rules relating to burden sharing (the provision on the bail-in tool entered into force on 1 January 2016).

  51. 51.

    SRB, Decision SRB/EES/2017/08, https://srb.europa.eu/sites/srbsite/files/resolution_decision.pdf.

  52. 52.

    The FROB adopted the measures required to implement the SRB decision: http://www.frob.es/en/n Resoluciones-del-FROB/Paginas/Resoluciones.aspx?k=2017.

  53. 53.

    SRB, Decisions SRB/EES/2017/11 and SRB/EES/2017/12, https://srb.europa.eu/en/content/banca-popolare-divicenza-veneto-banca.

  54. 54.

    See also Chap. 9, paras. 4 ff.

  55. 55.

    Article 80 and ff. Legislative Decree No. 385 of 1 September 1993, Testo Unico Bancario.

  56. 56.

    European Commission (2013), paragraph 79 and ff. Given that Article 107(3)(b) of the TFEU allows State aid subject to an internal market compatibility test by the Commission, if the aid aims to remedy a serious disturbance in economy, the Commission allows State aid for banks put into liquidation if the purchaser is selected through a competitive open bid after a due diligence process and State aid is granted only after equity, hybrid and subordinated debt have fully contributed to offset any losses (burden sharing principle, Banking Communication, paragraphs 84 and 44). See the decision text in http://ec.europa.eu/competition/state_aid/cases/264765/264765_1997498_221_2.pdf.

  57. 57.

    SRB, Summary of the SRB decision in relation of ABLV Bank, AS, and Summary of the SRB decision in relation of ABLV Bank Luxembourg S.A., https://srb.europa.eu/en/content/ablv.

  58. 58.

    In particular, the SRB took into account the banks’ inability to overcome the liquidity problem and the absence of available supervisory or early intervention measures applicable in the case. In respect of ABLV Bank Luxembourg, the SRB also considered the bank’s inability to obtain financial support from the parent company.

  59. 59.

    Insolvency proceedings involving credit institutions are generally, and not without reason, different from common bankruptcy procedures, precisely on grounds of overriding public interest at safeguarding the financial stability and protecting the savings.

  60. 60.

    ‘Such a tool should be underpinned by a harmonized creditor hierarchy (applicable also for purposes of the “no creditor worse off” safeguard) and would be especially useful for ensuring that cases involving cross-border banks are dealt with at a euro area level, facilitating needed coordination. Meanwhile, creditor hierarchies (…) and the availability of resolution tools under national bank insolvency frameworks should be further harmonized’.

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Authors and Affiliations

  1. Banca d’Italia’s Legal Services Directorate, Rome, Italy

    Olina Capolino

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  1. Olina Capolino
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Editors and Affiliations

  1. Emeritus Professor of Administrative Law, University of Florence, Firenze, Italy

    Mario P. Chiti

  2. Jean Monnet Chair ad personam of European Administrative Law, University of Florence, Firenze, Italy

    Mario P. Chiti

  3. Professor of Business Law, University of Siena, Siena, Italy

    Vittorio Santoro

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Capolino, O. (2019). The Single Resolution Mechanism: Authorities and Proceedings. In: Chiti, M.P., Santoro, V. (eds) The Palgrave Handbook of European Banking Union Law. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-13475-4_11

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  • DOI: https://doi.org/10.1007/978-3-030-13475-4_11

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