Significance and systemic importance in the European Banking Union

ABSTRACT The Single Resolution Mechanism (SRM) was designed to create a common framework for the recovery and resolution of ailing banks headquartered in the euro area. The Single Resolution Fund (SRF) was created to be this mechanism’s financial backbone and to effectively break the doom loop between banks and governments. However, SRF funds were widely seen as insufficient in the event of the need to resolve one or more large banks. In early 2021, euro area member states agreed to changes to the European Stability Mechanism (ESM) so that it could become the financial backstop for the SRF. This paper analyses the existing and proposed arrangements on the SRF backstops, using elements of the principal–agent model. We argue that the proposed use of the ESM as the SRF’s backstop would allow euro area national governments significant control and veto possibilities through the addition of the ‘permanence of the legal framework’ clause.

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.

The article focuses on the European Union’s crisis financial policy, which plays a pivotal role in maintaining economic stability amidst contemporary challenges, such as financial, sovereign debt, and energy crises. It provides a comprehensive analysis of institutional mechanisms, including the European Stability Mechanism, the Quantitative Easing program, and the Recovery and Resilience Facility. The study explores the functionality of these tools, their design to ensure financial and macroeconomic stability within the EU, and their evolution in response to crises, such as the global financial crisis of 2008 and the COVID-19 pandemic. The article highlights the critical impact of the Banking Union, comprising the Single Supervisory Mechanism and the Single Resolution Mechanism, on reinforcing regulatory frameworks and harmonizing financial governance across member states. Furthermore, the research delves into the RRF’s role in facilitating structural reforms and fostering investments in green and digital transitions. The financial architecture's emphasis on solidarity and shared responsibility underscores its effectiveness in mitigating economic vulnerabilities. The paper also evaluates the feasibility of adopting EU crisis management tools within Ukraine’s economic landscape. Emphasis is placed on the necessity of establishing national coordination platforms that align governmental bodies, regional authorities, and independent think tanks. The study identifies gaps in Ukraine’s regulatory and institutional capacities, proposing tailored strategies to overcome systemic weaknesses. Recommendations include developing mechanisms for financial risk insurance, enhancing SME credit access, and leveraging innovative financial instruments such as guarantee funds and asset securitization. The article underscores the importance of fostering international cooperation and aligning with EU standards to strengthen Ukraine’s resilience against external shocks. By adopting a multi-tiered governance approach inspired by the EU’s model, Ukraine can effectively address its economic challenges.

104 Recapitalisation of banks, as well as the whole banking resolution process, was fully public during the 2008 financial crisis. The Single Resolution Mechanism shifted from this approach and created a public-private system, where private individuals and entities can be called in to fund recapitalisation (bail-in). This article argues that recapitalisation (and banking resolution as a whole) should be fully public so it can be rapid, negotiation-free, and in the best interest of the State. The 2008 Irish recapitalisation illustrates well the rewards of having public recapitalisation, while it also tells where improvements are needed to protect recapitalisation process and taxpayers. Currently, the Single Resolution Mechanism has different recapitalisation methods, which creates some complexity and overlaps.

This article examines the participation of the Bulgarian National Bank in the Single Resolution Mechanism. After our central bank established close cooperation with the European Central Bank on October 1, 2020, it began to perform new functions as a supervisory and restructuring authority for credit institutions within the framework of the Single Supervisory Mechanism and the Single Resolution Mechanism. This necessitated changes in the Law on Credit Institutions and the Law on the Recovery and Restructuring of Credit Institutions and Investment Intermediaries, which was followed by a reorganization of the structure of the Bulgarian National Bank, to new practices regarding information services, administrative management and financing of these new activities.

The European Union’s fiscal policy framework has undergone significant evolution and faced numerous challenges since the establishment of the Economic and Monetary Union (EMU). This essay critically analyzes the development, reforms, and critiques of the EU’s fiscal rules, particularly in light of the sovereign debt crisis and the recent pandemic. Initially, the EMU focused little on fiscal integration, but the subsequent two decades have been marked by expansion and crisis management, with key reforms such as the ‘Six Pack,’ the Treaty on Stability, Coordination and Governance (TSCG), and the ‘Two Pack’ aiming to stabilize the EMU and prevent unsustainable public finances. Despite these efforts, the EU’s fiscal rules have been criticized for their complexity, rigidity, and lack of enforcement, leading to ineffective fiscal management. The Maastricht Treaty’s fiscal cap and public debt target, operationalized through the Stability and Growth Pact (SGP) since 1999, have been particularly scrutinized. Current proposals for reforming the EU’s fiscal framework are seen as insufficiently simple, flexible, and effective, potentially leading to unintended negative consequences. The essay also examines the role of the European Banking Union (EBU) in the fiscal policy framework, established in response to the financial crisis and designed to ensure the soundness of Europe’s financial sector. The EBU, with its Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM), plays a critical role in preventing banking sector problems from causing financial distress in EU countries.

Abstract The Crisis Management and Deposit Insurance (CMDI) legal framework brought important benefits in terms of protecting financial stability while avoiding contagion, safeguarding the functioning of the single market, minimising recourse to taxpayers money, significantly improving depositor protection and contributing to boosting consumers’ confidence in the EU banking sector. However, according to the European Commission, it could be further improved especially with regard to smaller and medium-sized banks. This article presents an overview of the European Commission’s legislative proposals addressing those shortcomings and aimed at strengthening the CMDI legal framework, which was presented in April 2023. The core part of this reform is made up of three legislative proposals amending the Bank Recovery and Resolution Directive (Directive 2014/59/EU), the Single Resolution Mechanism Regulation (Regulation 806/2014) and the Deposit Guarantee Schemes Directive (Directive 2014/49/EU). The fourth legislative proposal, would amend the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation with regard to targeted provisions on minimum requirement for own funds and eligible liabilities.

This article offers a thorough comparative law overview, analysis and discussion of the liability regimes which apply to financial supervisors and resolution authorities at the level of selected individual EU Member States and in major jurisdictions worldwide. There is a growing tendency to limit their liability in one way or another. The extent to which they are protected against liability claims, and the exact shape that this takes, is, however, not uniform across the jurisdictions studied. At the same time, a counter-movement is emerging, as limitations of liability are by no means undisputed and are under attack on various grounds. The large variety of approaches to liability of financial supervisors and resolution authorities is especially a concern within the European Banking Union (EBU). The European Central Bank (ECB) and the Single Resolution Board (SRB) collaborate closely with the National Competent Authorities (NCAs) and the National Resolution Authorities (NRAs) within the framework of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), respectively, so liability questions will often be intertwined. Yet, the applicable liability standards often differ, and different courts will have jurisdiction. In the view of the authors it would be preferable to adopt a uniform liability standard for the ECB/SRB and the NCAs/ NRAs. In line with this, the authors would be in favour of including a provision in the SSM Regulation/SRM Regulation to the effect that the Court of Justice of the European Union (CJEU) has exclusive jurisdiction in relation to the liability of both the ECB/SRB and the NCAs/NRAs.

Abstract 900 In bank resolution, swift and effective cooperation of different actors is of essence, particularly in cross-border cases. While the same can be said about cross-border insolvency management generally, the European framework for the recovery and resolution of failing banks and, in particular, the centralisation of resolution powers within the Single Resolution Mechanism stand out as particularly complex – and, at the same time, remains to some extent untested to the present date. Against this backdrop, the present article explores the statutory framework for cooperation between the Single Resolution Board, the European Central Bank in its capacity as supervisory authority within the Single Supervisory Mechanism, National Resolution Authorities and Third Country authorities. It concludes that, while the legal and institutional arrangements governing inter-agency cooperation are generally sound, operationalisation in actual cases might still be exposed to unexpected disruptions, especially in cases where political interests are at stake.

ABSTRACT The creation of the Banking Union (BU) has been a significant leap towards further integration in the euro area. BU cooperation is critical for efficient supervisory and resolution actions, even more so for cross-border banks that may face legal and institutional differentiation. Cooperation takes place within the two BU pillars – the Single Supervisory Mechanism and the Single Resolution Mechanism – and together with authorities of non-participating Member States and of third countries in a cross-border setting. The Article examines how the two mechanisms dealt with Failing or Likely to Fail (FOLTF) and resolution cases from 2017 until early 2022. FOLTF cases have tested existing cooperation frameworks and prompted new cooperation vehicles and mechanisms within the BU, in its immediate EU periphery and with third countries. Cooperation is a prerequisite of functioning mechanisms; it lays the foundations for further integration within the BU; and helps consolidating equivalence with third countries.

ABSTRACT The creation of the Banking Union, set to be an integrated financial framework for the Eurozone, should be better understood as part of a larger process of governing through financial markets, where policy-makers resort to market-based instruments and policies for governance purposes, thus forming an alignment with the interests of financial elites. This paper assesses the Single Resolution Mechanism and highlights overlooked aspects of its design and decision-making process that are actively strengthening and further integrating market-based finance in the European banking system. The resolution framework and its underlying conditionalities imposed by the limited public intervention toolkit and the European State Aid regime are promoting banking capital concentration and the marketization of more traditional banking systems. Meanwhile, the discretionary decisions imposed by the European technocratic body reinforces the integration agenda, with often detrimental effects for the member states of the Southern Periphery. While the Banking Union has the overall goal of financial stability and increased convergence between member states, the outcomes of the Single Resolution Mechanism point to an increase in market-based finance and riskier business models at the expense of smaller and more traditional banking systems, fostering too-big-to-fail institutions and further deepening the already rooted intra-euro divergences.

Abstract The Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM) form the Banking Union, which comprises EU authorities (ECB and SRB) and national authorities (NCAs and NRAs) with vast powers. Although crucial for its legitimacy, the Banking Union’s accountability is flawed, and not for the (stereo)typical reasons: accountability is a visible concept in SSM and SRM regulations, and political, administrative and judicial bodies are knowledgeable, engaged and thorough. Rather, this article posits that the SSM and SRM work very well because the legislature focused on practical details such as information flows, planning and continuity and coordination, while there has been no comparable effort to ensure the functioning of accountability tools. The result is a “system” characterised by limited access to crucial information, lack of continuity, and uncoordinated functioning. Changing this should not be hard but requires replacing blanket criticism and stereotypical views with greater attention to detail.

This paper assesses the market effects of regulatory events associated with the implementation of a bail-in regime for failing European banks. The bail-in regime was designed to make banks efficiently resolvable in order to abolish Implicit Government Guarantees (IGGs). We use a seemingly-unrelated-regressions framework to estimate the effects on Credit Default Swap (CDS) spreads and equity returns of key events associated with the two cornerstones of the European bail-in regime, the Bank Recovery & Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRM-R), and other relevant events. Contrary to the regulations’ objectives, we find that regulatory events associated with the implementation of BRRD and SRM-R led to tighter CDS spreads and higher equity returns over the 2009–2017 period. The pattern varies with bank heterogeneity and is particularly pronounced for global systemically important banks (G-SIBs), i.e. banks whose systemic risk profile is deemed to be of such importance that the bank's failure would trigger a wider financial crisis and threaten the global economy, suggesting that the regime does not effectively solve the systemic problem of bailout expectations in the European banking sector.

Bail-in in the European Banking Union: A Close Reading of Article 27 of the Single Resolution Mechanism Regulation

State aid is one of the wrong ways how to help any private entity when there is no other option, but in certain cases it is necessary from the larger point of view to do so. At least we were used to it especially in cases of big financial (or another) institutions, which are too big to fail, and it might be reasonable to “save” these entities to prevent bigger economic and social loss. For example, when bank fails, then many creditors lose their savings (although there is the deposit guarantee schemes), so they might stop using banking system, many people would lose their jobs (extra social expenses for state). This will all lead to reduce investing money for investors or consumers and that’s basically wrong for economy itself. On the other hand, state aid is highly negative for competition, because all those private entities without any need for state aid are disadvantaged. And finally, its taxpayer’s money, used for state aid and its big state expenditure for any country. The only way how to maintain good and healthy economic system without state aid is prevention. One of the preventions is Single resolution mechanism.

Nursing students form part of the healthcare team who care for patients who are living with a terminal illness and facing physical and spiritual suffering. However, there is a lack of suitable indicators to measure a nurse's spirituality when they are providing palliative care. To develop a way of measuring the spirituality of nurses who provide palliative care. The participants consisted of 312 third-and fourth-year nursing students of two nursing colleges from southern and central Thailand. The 12-item Spirituality in Palliative Care Scale had the reliability of .804. The measurement model was consistent with the empirical data and had unidimensional quality (X2=50.94, df=45, p-value=0.25, root mean square error of approximation (RMSEA)=0.044, Single Resolution Mechanism Regulation (SRMR)=0.044, Adjusted Goodness of Fit Index (AGFI)=0.95, Corporate Finance Institute (CFI)=0.97, goodness of fit (GFI)=0.97). The items' factor loadings were in between .48 and .84. The spirituality in palliative care scale can measure nursing students' spirituality in palliative care and nursing educators can use the measurement to support nursing students to develop greater awareness of spirituality in palliative care.

Abstract As part of its ongoing consultation on the European crisis management and deposit insurance framework currently available for the management of bank failures within the EU generally and the Banking Union in particular, the European Commission has called for the respondents’ views as to the need for further harmonisation of resolution arrangements for banks that currently do not qualify for resolution under the auspices of the Single Resolution Mechanism. In this respect, the consultation takes up a broader discussion on the need for harmonised bank insolvency regimes within the EU, which also ties in with an earlier international debate on the functional characteristics of optimal bank insolvency regimes initiated by international standard setters in the early 2000s. Against this backdrop, the paper analyses the case for further reform, and identifies potential impediments (both technical and political) to be expected in this regard. It argues that, while a full harmonisation of resolution powers and the centralisation of decision-making powers can be expected to address relevant concerns regarding the status quo, a comprehensive harmonisation can also be expected to meet with substantial political opposition, which in turn requires a better understanding of the functional requirements to be met by less ambitious reforms.

The EU reform project ‘Banking Union’ has dominated the discussion on EU banking law in recent years. After the establishment of the European System of Financial Supervision (ESFS) comprising inter alia the European Banking Authority (EBA) in 2011, the Banking Union was proclaimed by the Commission in September 20121 and since then has been gradually implemented. While the European Deposit Insurance Scheme (EDIS) is highly contested and has been stuck in the legislative process for years,2 the two other columns of the Banking Union have been set in place. These are the Single Supervisory Mechanism (SSM) on the supervision of banks with a strong involvement of the European Central Bank (ECB) and the Single Resolution Mechanism (SRM) on the resolution of banks. With the SRM-Regulation,3 adopted in July 2014, a new European agency,4 the Single Resolution Board (SRB), was established. What is more, a Single...

An objective of the European Union’s Banking Union is to prevent Member States from having to subsidise banks. The Single Resolution Mechanism may have limited but has not eliminated state aid to banks. This is shown by the relevant statistics, the number of positive Commission decisions and the provisions of the Single Resolution Mechanism Regulation. State aid is allowed in three situations: when a bank is resolved, when it is liquidated and when it is solvent but needs temporary liquidity or more capital. This article identifies a difference between the European Commission and the Single Resolution Board in the interpretation of the concept of “public interest”. The article further argues that this difference may not contradict the objectives of the Banking Union if state aid is still necessary to prevent damage to regional economies.