Single Resolution Mechanism Research Articles

The Strategic Importance of Public Recapitalisation in Banking Resolution, What Ireland Can Tell

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.

The Evolution and Challenges of the EU’s Fiscal Policy Framework: A Critical Analysis

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.

The reform of the crisis management and deposit insurance framework: An overview

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.

Inter-agency Cooperation Within the SRM: Legal and Operational Challenges for the Cooperation Between Banking Supervision and Resolution Authorities in the EU and With Third-country Authorities

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.

Failing or likely to fail: banking union cooperation tested since 2017

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.

Reviving financial markets – a critical assessment of the single resolution mechanism

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.

Banking Union's accountability system in practice: A health check‐up to Europe's financial heart

AbstractThe 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.

The economics of banking regulation in Europe: does the post-GFC bail-in regime effectively eliminate implicit government guarantees?

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

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

How to Reduce State Expenditures with Single Resolution Mechanism

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.

Development of the Spirituality in Palliative Care Scale for nursing students in the context of Thai culture.

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.

Towards Harmonised Frameworks for the Liquidation of Non-Systemically Relevant Credit Institutions in the EU?

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.

Public International Law as a Refuge of (Euro-)Member States During the Financial and Economic Crisis

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...

State aid after the Banking Union: serious disturbance and public interest

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.

EU 금융통합의 메커니즘과 제도

This study visualizes different positions of Germany and the counter-coalition of the EU members in the process of financial integration. The European Union, established by the Maastricht Treaty in 1993, has achieved an economic and monetary union (EMU), but has experienced the eurozone crisis due to lack of fiscal and financial integrations into its internal market. To deal with the instability of its economic system caused by the incomplete internal market, the EU members have pursued a banking union (BU) and a capital market union (CMU). The banking union has already established two of the three pillars, the single supervisory mechanism (SSM), and the single resolution mechanism (SRM). The third pillar, the European deposit insurance scheme (EDIS), is under way. Efforts to make CMU operational are also being discussed. Germany has assumed a critical role in the process of EU’s financial integration with some different views from the counter-Germany coalition. Germany has emphasized the importance of a network of the sovereign funds for banks resolution while the counter-coalition members favor the single resolution fund. Other members prefer discretion in SRM but Germany is for rules. And Germany desires to give the Council the decision-making power, however the counter-coalition members want to give the Commission the power. All these differences come from Germany’s emphasis on the Freiburg School’s economic principles of ordoliberalism, which view liability principle (Haftungsprinzip) very crucial for a competitive market economy.

Multilevel cooperation in the EU resolution of cross-border bank groups: lessons from the non-euro area Member States joining the Single Resolution Mechanism (SRM)

Cross-border banking presents a unique set of challenges in the EU from the perspective of arranging administrative oversight structures. Structuring cooperation between different EU and national authorities in a way which is conducive to trust-building and mutual engagement is an essential condition for overcoming disintegrative tendencies in the internal market. To assess how the existing EU arrangements fare in this regard in the context of EU resolution law, this article comparatively analyses the different models of multilevel administrative cooperation in the post-crisis EU framework. These are specifically the centralised model of the European Banking Union (Single Resolution Mechanism) and the relatively looser networked model of the resolution colleges. The multilevel cooperation under both models is nuanced given the distinct roles of the national resolution authorities, EU agencies and the differentiated status of non-euro area Member States in the EBU (Croatia, Bulgaria). The article’s findings allow to identify specific problems of constitutional nature pertaining to the accountability of administrative cooperation, equality of Member States and the implications of Meroni doctrine’s distortive effects.

Scrutiny or Complacency? Banking Union in the Bundestag and the Assemblée Nationale

The financial and eurozone crises highlighted the inadequacy of the original governance structures of the eurozone. In response, a range of reforms were launched, including the creation of a European banking union. In practice, some elements of the banking union were delayed by division among member states and the breakdown of the Franco-German motor, such as the question of the operationalization of the single resolution mechanism and fund or the deposit insurance scheme. In addition, eurozone governance—which would once have been regarded as a technocratic issue—became increasingly politicized. The aim of this article is to study the extent to which the banking union was scrutinized by parliament and to what degree this reflects material interests and ideas. For this purpose, it focuses on salience (i.e., how much attention the issue received) and polarization (i.e., the divergence of positions). The analysis of the resolutions and debates of the German Bundestag and French Assemblée Nationale, i.e., the parliaments of two key states in EU decision-making on banking union, finds that the German government was indeed closely scrutinized, whereas the French government was relatively unconstrained.

European Banking Union: Context, Structure, Challenges and Opportunities

The European Banking Union (EBU) has had a complex strategic, political, economic and legal formation, and throughout the current turmoil there has been a special emphasis on preserving its stability and further development. The EBU formally consists of three interconnected pillars applicable to the euro area: (1) the Single Supervisory Mechanism (SSM) that encompasses European Central Bank’s (ECB) direct and indirect prudential supervision; (2) the Single Resolution Mechanism (SRM) that provides for a harmonized resolution framework; and (3) an envisaged safety net in the form of the European Deposit Insurance Scheme (EDIS). Additionally, the EBU is based on the common EU-wide Single Rulebook. A strong incentive for the EBU’s creation originated both from the repercussions of the global financial crisis and the European sovereign debt crisis. The EBU has experienced constant challenges from its very beginning, including the opposition to any indication of a transfer union, and criticism related to its design. Although progress is recommended on all elements, the most compelling is timely completion of the EDIS. From its inception, the EBU’s main goal has been to break the “vicious circle” between sovereigns and their banks – and that is in the focus of this article. Furthermore, this article explores the structure, achievements and inadequacies of the EBU pillars, and analyses potential threats and opportunities related to this segment of European integration.

The next step: Towards harmonised frameworks for the liquidation of non-systematically relevant credit institutions in the EU? A discussion of policy choices and potential impediments

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.

Composite Procedures and Judicial Review in the Single Resolution Mechanism: Iccrea Banca

Iccrea Banca is a landmark ruling regarding judicial protection in composite decision-making procedures. Its importance extends not only to the Banking Union but also to EU administrative law more broadly. This paper argues that the Court's judgment in Iccrea Banca affirms the recent Berlusconi and Fininvest ruling regarding the Single Supervisory Mechanism, and extends its ratio decidendi to the Single Resolution Mechanism. It further argues that Iccrea Banca leaves open a number of questions, notably as regards the irregularities affecting the national preparatory act or proposal that would be reviewed by the CJEU, and the 'legal fate' of that national measure. Furthermore, we do not know which other composite procedures, whether within or beyond the Banking Union, would come to be decided under the principles established in this case. It is likely that more litigation will follow on these matters, and that future case law will provide much-needed answers to the questions left open in Iccrea Banca and earlier rulings.