Judicial Protection in the Single Resolution Mechanism

The Single Resolution Mechanism (SRM) and the Single Resolution Fund (SRF): A Comprehensive Review of the Second Main Pillar of the European Banking Union (THIRD EDITION)

This paper analyses the most critical legal, institutional and governance issues underpinning the establishment of the Single Resolution Mechanism (SRM) which constitutes the second pillar of the European Banking Union. The architecture of the SRM combines a centralized model, where important powers are exercised at the EU level, with a decentralized execution of decisions carried out by the national authorities. The paper examines first, the legal and institutional foundations of the SRM which were of paramount importance during the negotiations for its establishment, since the EU Treaties did not explicitly provide for powers for the resolution of banks. Second, it analyses the complex governance structure, including the decision-making mechanism for the placement of a bank under resolution which is entrusted to the Single Resolution Board (SRB), an EU agency, enjoying significant powers. Finally, it assesses the role of the Single Resolution Fund (SRF) which will be endowed with EUR 55 Billion for the financing of resolution actions, and its relationship with the European Stability Mechanism (ESM).The authors review critically the structure of the SRM decision-making process, where a number of other actors are involved (ECB, Commission, ESM), in terms of: a) efficiency, as the declared objective of the SRM is the adoption of ‘efficient, effective and speedy resolution decisions’ that need to be taken within a very tight time frame, frequently overnight and which will have far-reaching economic and legal consequences; b) legal certainty, as the new edifice should be resilient to legal challenges against its legal basis or/and the delegation of powers to the SRB; and c) political legitimacy, as EU institutions should represent the European (and not national) interest and should be accountable when carrying out and implementing fundamental EU policies, such as in the field of resolution. The authors conclude that while the adoption of the SRM constitutes an important step towards the completion of the European Banking Union, some improvements, under the current EU institutional framework, may be necessary regarding, e.g. the reinforcement of the SRF financial capacity, the SRM decision-making process, the role of the ESM, the advancement of a certain form of a European Deposit Guarantee System. The increasing burden-sharing triggered by these financing mechanisms makes necessary the advancement towards the European Fiscal Union, which is indispensable for the credibility and sustainability of the European Banking Union.

The Single Resolution Mechanism (SRM), which has been in operation since 2016, is particularly complex. It is headed by a ‘specific’ agency, the Single Resolution Board (SRB), but national authorities as well as national legal frameworks continue to play a decisive role in its operation. The Meroni doctrine also sets limitations on the extent to which (discretionary) powers may be delegated to the SRB. For this reason, very complex mechanisms had to be devised to guarantee that the European Commission and the Council would be sufficiently involved. Also, the SRM only applies to Banking Union Member States (i.e., euro area Member States and states in close cooperation). The co-existence of the Internal Market/EU27 on the one hand and the Banking Union on the other is a further source of complexity, as is the fact that the SRM partially relies on international law (the Single Resolution Fund and perhaps the European Stability Mechanism in the future). In short, the complexities within the SRM are many, and this article sheds light on them by considering complexities of a procedural, institutional and legal nature. It concludes by demonstrating that complexity has increased over time, yet it is probably unavoidable at this stage of European integration. However, efforts could still be made to simplify the applicable legal framework.

Public International Law as a Means to Empower EU Bodies: The Case of the Single Resolution Board (SRB)

As a reaction to both the global and European financial crises, and as a response to the fiscal crisis in the Euro Area in particular, the political leaders of the European Union initiated the idea of a “European Banking Union” (hereinafter the EBU) on 29 June 2012. The EBU consists of three distinctive pillars.

How Single is the Single Resolution Mechanism?

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 decisionmaking 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.

This paper is aimed to examine the Single Resolution Mechanism (SRM) and the Single Resolution Fund (SRF), with particular reference to the effective level of control on their activity and the potential democratic deficit stemming from them. To this end, it first provides a definition of resolution for banks, followed by the examination of why the efficiency of prudential supervision in the Euro area is significantly linked to a centralised system of resolution. Within this ambit, it illustrates that the SRF is financed by contributions from the banking sector which transfer is based on a separate intergovernmental agreement between the Member States of the Euro area. After, it analyses the relationships between the SRM and the European Banking Authority (EBA) and their several implications. Finally, the paper tries to show whether, and to what extent, it is possible to overcome the democratic deficit in the SRM and the SRF and its contradictions.

The Commentary on the European Banking Union presents an article-by-article analysis of the legislation which constitutes the basis of the two main pillars of the European Banking Union, i.e. the Single Supervisory Mechanism, with the European Central Bank as single supervisory authority for significant banking institutions (mainly) in the Eurozone, and the Single Resolution Mechanism and the Single Resolution Fund, with the Single Resolution Board as a centralized decision-making body for the resolution of banks (mainly) in the Eurozone. With contributions by Martina Almhofer, Fabian Amtenbrink, Jens-Hinrich Binder, Seraina Neva Grünewald, Christos V. Gortsos, Georg Gruber, Elke Gurlit, Christos Hadjiemmanuil, Matthias Haentjens, Janina Heinz, Ann-Katrin Kaufhold, Alexander Kern, Klaus Lackhoff, Christoph Ohler, Chryssa Papathanassiou, Mikulas Prokop, Georgios Psaroudakis, René Smits, Emiliano Tornese, Andreas Witte, Karl-Philipp Wojcik and Georgios Zagouras.

European Banking Union B: The Single Resolution Mechanism

On Banks, Courts and International Law: The Intergovernmental Agreement on the Single Resolution Fund in Context

During the crisis a Single Resolution Mechanism (SRM) – composed both of a Single Resolution Board (SRB) and of a Single Resolution Fund (SRF) of € 55 bn – came into being. The chapter shows how EMU’s executive institutions converged on the need for a centralized regime but also documents how Northern Member States’ concerns over any further agency drift by the Commission, produced a fragmented decision-making. The chapter’s emphasis lies on the institutional design contests that surfaced when the detailed features of this additional fiscal capacity began to be discussed. Lastly, it describes how the Commission’s powers were tamed down while additional prerogatives were given to a new agency and veto powers mushroomed.

This chapter investigates the complex legal framework of EU banking resolution, insolvency, and public interventions under EU law. It begins with a brief overview of banking resolution and insolvency theories. The chapter then looks at the EU framework for banking resolution in the Bank Recovery and Resolution Directive by examining the preparatory aspects for resolution, the core resolution tools, and the powers of resolution authorities. It then moves to the rules of the Single Resolution Mechanism as the supranational framework for resolution where the Single Resolution Board is the EU agency in charge of orderly resolutions in Europe together with the national resolution authorities, and the Single Resolution Fund is the fund established to ensure sufficient financial resources in case private sources are insufficient. A section looks at the application or non-application of the resolution framework in case studies. Finally, the chapter considers state interventions under the EU state aid framework and discusses the (lack of) an orderly EU insolvency framework for banks.

This chapter analyses the institutional and legal framework governing the European Central Bank (ECB)’s responsibility in monetary policy, banking supervision, and resolution. It raises issues concerning the primacy of monetary policy and the price stability mandate and how this can be reconciled with the ECB’s support for the Union’s general economic policies (so-called secondary objectives) and for the discharge of its other responsibilities, including banking supervision, within the Banking Union. The chapter considers the institutional context of the ECB’s role in the Banking Union by analysing its price stability mandate and the importance of its secondary objectives in informing its role as a bank supervisor. It discusses how the ECB carries out its supervisory functions and the need for coordination with national competent authorities (NCAs). It also discusses the Single Resolution Mechanism (SRM), particularly the role of the Single Resolution Board (SRB) in ensuring that banks can be resolved in a centralized and coordinated manner and the role of the ECB in coordinating with the SRB. In this context, the legal and policy issues raised by the ECB’s role are discussed along with the questions it raises concerning the SRB’s effectiveness. The chapter concludes with future challenges facing the Banking Union including the need for further integration in banking markets and the need for the ECB as a supervisor to address emerging risks such as environmental sustainability risks.

The Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM) are a recent, and remarkable, piece of institutional architecture that form the core of the Banking Union, which comprise national competent supervisory authorities (NCAs) and national resolution authorities (NRAs) combined with the role of an EU institution, the European Central Bank (ECB) and an EU agency, the Single Resolution Board (SRB). The vast array of powers by the two entities, the complexity of coordination, and the fact that decision-making over some of the more sensitive issues in financial policy has been allocated to the EU make accountability a key requisite for the system’s success. Some of the provisions applicable provide a solid foundation for a system of strong accountability. We find however that there may be room for some improvements to effectively counterbalance the powers given to the SSM and the SRB and to increase their accountability at the European level without undermining their independence and within the boundaries of the current legal framework.