Single Resolution Mechanism Research Articles

A Resource‐based View of the EU's Regional and International Leadership

AbstractHow does one explain the variation in the EU's success in enacting and enforcing policies that lead to the supply of regional or global public goods? We examine how the EU deploys its positional resources to enact laws that compel governments or firms to contribute to the provision of public goods. We suggest that leaders such as the EU are able to compel public goods contributions if they have the legal authority to do so, and are able to deploy their positional resources to build effective coalitions or reduce the leverage of potential veto players. We look at two issue areas empirically: banking and the environment. In the banking cases, the EU sought to provide regional public goods; in the environmental cases, it sought to provide regional and global public goods. We examine instances of leadership success as well as failure. In the banking cases, we examine Outright Monetary Transactions (success) and banking single resolution mechanism (less successful); the environmental cases pertain to chemical regulation (success) and airline emissions (failure). These cases reveal the EU's skill and limitations in deploying its positional authority to induce contributions for public goods provision from EU member governments, EU firms and nonEU firms.

Banking Union: Aspects of the Single Supervisory Mechanism and the Single Resolution Mechanism Compared

The Banking Union is based on different components, partly on directives applicable throughout the EU, partly on two regulations applicable only in the euro states introducing the Single Supervisory Mechanism and the Single Resolution Mechanism. These regulations are based on a comparable pattern, with centralisation of decisions at the European level, and involvement of authorities in the member states. However, also for legal reasons, the centralisation is much stronger for prudential supervision that for resolution. Issues of cooperation between the two Mechanisms, and between the European level and the national level reveal some interesting analogies but also differences. Coordination and cooperation will be necessary to avoid conflicts.

Banking Union and the Governance of Credit Institutions - A Legal Perspective

The creation of the Banking Union is likely to come with substantial implications for the governance of Eurozone banks. The European Central Bank, in its capacity as supervisory authority for systemically important banks, as well as the Single Resolution Board, under the EU Regulations establishing the Single Supervisory Mechanism and the Single Resolution Mechanism, have been provided with a broad mandate and corresponding powers that allow for far-reaching interference with the relevant institutions’ organisational and business decisions. Starting with an overview of the relevant powers, the present paper explores how these could – and should – be exercised against the backdrop of the fundamental policy objectives of the Banking Union. The relevant aspects directly relate to a fundamental question associated with the reallocation of the supervisory landscape, namely: Will the centralisation of supervisory powers, over time, also lead to the streamlining of business models, corporate and group structures of banks across the Eurozone?

Bank Resolution Financing in the Banking Union

In early 2012, the Spanish state came under strong market pressure due to its engagement in round after round of large-scale bank bailouts. The country’s joint sovereignbank crisis shed new light on the nature of the euro area’s crisis. European decision-makers were forced to openly recognize the non-fiscal – that is, the banking and monetary – causes of sovereign distress and to accept the need for drastic policy solutions. The policy shift soon took concrete form with the launch of the Banking Union project in June 2012. The principal intention was to break the bank-sovereign link and to relieve the euro area’s weaker economies from the almost impossible burden of having to finance bank bailouts out of national fiscal resources. The mutualization of bailout costs through a common ‘fiscal backstop’ was, in other words, the key objective of the Banking Union as originally conceived. Subsequent policy choices, however, have marked a relaxation, if not partial abandonment, of this objective. The policy approach eventually adopted with regard to resolution financing in the context of the Banking Union’s Single Resolution Mechanism (SRM) is based on the burden-sharing norms of the Bank Recovery and Resolution Directive (BRRD), the instrument harmonizing bank resolution regimes across the EU. This guarantees the legal consistency of resolution frameworks within and outside the euro area. It is less certain, whether the chosen approach can insulate national state finances from the costs of bank bailouts and/or ensure the full equalization of the financial conditions for bank resolution everywhere in the euro area. The sufficiency of the planned common financial instruments is a particular concern.

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

In May 2014, 26 Member States of the EU have concluded an intergovernmental agreement on the transfer and mutualization of contribution to the Single Resolution Fund (SRF). This international treaty constitutes a core component of the second pillar of the European Banking Union – the Single Resolution Mechanism, to wind down failing banks in the Euro-zone – and complements an EU regulation adopted by the European Parliament and the Council creating the SRF. The article critically analyses the choice to use international law to adopt the rules on transfer and mutualization of contributions to the SRF. As the article maintains, resort to an intergovernmental agreement in this case was not necessary from a legal point of view. In fact, the justification for the use of international law in this case rested on a flawed legal argument, namely that EU regulations cannot impose financial obligations on the states. Moreover, as the article explains, resort to international law is unsound from a policy point of view. The use of an international treaty to regulate the transfer and mutualization of contributions to the SRF opens the door for national courts’ review of the agreement – a prospect which contrasts with the constitutional logic of leaving decision of economic questions in the political process. In light of these weaknesses, the article explains that the intergovernmental agreement was tolerated by the European Parliament to secure completion of the Banking Union before the 2014 EU elections, but concludes suggesting that a pressing constitutional challenge for the European Parliament is to devise legal and political mechanisms to prohibit the Member States from acting outside the EU legal order whenever the Treaties provide for the powers and means to act within the Union.

European Banking Union B: The Single Resolution Mechanism

The options available to European governments to respond to a multinational bank in financial trouble have been severely limited since each country has its own unique laws and authority applicable to banks operating within its borders. The Bank Recovery & Resolution Directive (BRRD), which was adopted in 2013 and scheduled to go into effect January 2015, harmonizes rules across EU countries for how to restructure and resolve failing banks. However, the directive would maintain the existing system of individual national resolution authorities and resolution funds. To better secure the Eurozone banks and to compliment the Single Supervisory Mechanism, which was enacted in April 2014, the European Parliament approved the Single Resolution Mechanism (SRM). The SRM establishes a Single Resolution Board and a single Resolution Fund that will handle bank failures in all EU countries participating in the SSM. This case reviews the changes in Eurozone bank resolution resulting from the BRRD and the SRM.

Power and Accountability in the EU Financial Regulatory Architecture: Examining Inter-Agency Relations, Agency Independence and Accountability

Institutional reforms carried out at the EU level in the aftermath of the global financial crisis were purposed towards preserving the stability and well-functioning of financial markets in the EU. The European System of Financial Supervision was first created, followed by the Single Supervisory Mechanism supported by the Single Resolution Mechanism. The proliferation of European level regulatory and supervisory authorities has recalibrated the exercise of public authority over financial markets, and significant power has shifted from national to European level agencies. The creation of EU level agencies is supported by avenues of formal accountability in political, stakeholder and judicial accountability, resulting in some complex designs in power structures. The article argues that such complex designs may affect the autonomy and technocratic efficacy of institutions. However, there is potential in leveraging upon one aspect the complexity offers- inter-agency coordination, in order to promote learning for technocratic effectiveness as well as to cultivate a form of accountability that ameliorates the perception of excessive power.The paper will focus on the inter-relationships between the three European sectoral agencies, especially in the Joint Committee and Board of Appeal to illustrate the achievements of inter-agency coordination and accountability. The paper will go on to explore new challenges that arise with the introduction of the SSM and SRM into the EU financial regulatory architecture. The paper will argue that promoting inter-agency coordination in specific areas may have the potential to address some of these challenges. The broader notion of inter-agency accountability can also spawn future lines of discourse and research into improving the credibility and legitimacy of the exercise of power by EU level agencies.

Eurozone Bank Resolution and Bail-In -- Intervention, Triggers and Writedowns

The European Union has recently introduced the Single Resolution Mechanism (SRM) to provide a consistent set of rules concerning Eurozone bank resolution. In this study, we retrospectively examine the implications of the SRM for Euro- zone banks during the global nancial crisis. Empirical results indicate that large, systemically important Eurozone banks would have exclusively required equity writedowns to cover impairment losses. However, to ensure adequate capitaliza- tion post bail-in, the majority of large, listed banks would have required conversion to equity for all subordinated and some senior debt creditors. Depositors would not have experienced writedowns in any of the banks examined. Given the subjec- tive nature of resolution triggers outlined in the SRM, we also study the potential benets of market and balance sheet dependent triggers. While our ndings sug- gest some weak evidence of a capacity to dierentiate between failed and surviving banks, the results are indicative of the diculties in mandating predened quan- titative resolution triggers.

銀行同盟の建設と進展

This paper aims to examine the institutional framework on EU’s Banking Union project through political economy approach. Current Banking Union consists of three pillars, namely, SSM (Single Supervisory Mechanism), SRM (Single Resolution Mechanism) and a Common DGS (Deposit Guarantee Schemes). The SSM has already started from 4 November 2014. Then, the swift implementation and negotiation are implementing in 2014-15 for constructing the SRM. In addition, the Common DGS shall be also tackled with as another common backstops in protect for people’s deposits.

EU Banking Union: Lessons for non-eurozone transition countries

Eurozone has gone through turmoil of sovereign debt crisis just after the detrimental effect of global financial crises of 2007/2008. Sovereign debt crisis of the eurozone was caused by bank-sovereign interdependence and lack of fiscal union in the eurozone. Financial fragmentation in the eurozone financial markets was an immediate outcome. Banking union of the EU is a regulatory and institutional remedy for main financial problems of the eurozone post global financial crisis. It is clear signal that lessons have been learned from the two crises. Stricter regulation (single rule book) aims to increase the quality of banks. Single Supervisory Mechanism (SRM), and Single Resolution Mechanism (SRM) aim to unify and better the standards of supervision and resolution in the EU. With emphasis on bail-ins, and EU level backstops, bank-sovereign interdependence should be dismantled and chances of financial crisis reoccurrence with huge costs for taxpayers should be significantly lower. There are important elements of Banking Union that could be introduced in non-eurozone transition countries both members and nonmembers of the EU.

Proces wzmacniania unii gospodarczej i walutowej w konteśkcie kryzysu w stgrefie Euro

Process of strengthening of the Economic and Monetary Union in the context of the crisis in the euro area This article includes a description and an assessment of the key initiatives dedicated to strengthening the economic pillar of the Economic and Monetary Union (EMU) and puts emphasis on reform of the economic governance framework. As was pointed out, the crisis in the euro area has been the most important incentive to deep reshape construction of the EMU, especially in respect to its economic governance. This process – being, beside rescue actions, one of the dimensions of the response to the crisis in the euro area – has multistage and multidimensional character. The new solutions in this dimension, which encompass: the European semester, the “six‑pact”, the “two‑pact”, the Treaty on Stability, Coordination and Governance in the EMU (TSCG), European Stability Mechanism (ESM), Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), strengthened economic pillar of the EMU. Above‑mentioned solutions can improve resilience of the EMU on risks of crises in the future, however these instruments do not provide a guarantee that this area will be instability free zone. Creation of the fiscal capacity mechanism would be important for reinforce the abilities of the EMU to counteract potential disturbances. The treaties change will be required for the completion of the EMU.

European Banking Union: Assessing its risks and resilience

On 4 November 2014 the EU's ambitious Banking Union (BU) project reached a major milestone when the Single Supervisory Mechanism became operational. After difficult negotiations, the legal regime supporting the Single Resolution Mechanism is now in place; BU is becoming a reality. This article charts how the EU, long a regulator of the EU banking market, has grappled with the operational elements of banking system governance in constructing BU. It suggests that BU's foundational regulatory technology is relatively robust, given the difficult political, institutional, and Treaty conditions which attended its construction; initial indications relating to the Single Supervisory Mechanism augur well. But the article also highlights the many uncertainties which attend BU, notably with respect to operational effectiveness, constitutional resilience, and the euro area/internal market asymmetry, and which may have far-reaching effects on EU banking market governance generally.

On Banks, Courts and International Law

In May 2014, 26 Member States of the EU concluded an intergovernmental agreement on the transfer and mutualization of contribution to the Single Resolution Fund (SRF). This international treaty constitutes a core component of the second pillar of the European Banking Union – the Single Resolution Mechanism, to wind down failing banks in the Euro-zone – and complements an EU regulation adopted by the European Parliament and the Council creating the SRF. This article critically analyses the choice to use international law to adopt the rules on transfer and mutualization of contributions to the SRF. As the article maintains, resort to an intergovernmental agreement in this case was not necessary from a legal point of view. In fact, the justification for the use of international law in this case rested on a flawed legal argument, namely that EU regulations cannot impose financial obligations on the states. Moreover, as the article explains, resort to international law is unsound from a policy point of view. The use of an international treaty to regulate the transfer and mutualization of contributions to the SRF opens the door for national courts' review of the agreement – a prospect which contrasts with the constitutional logic of leaving decisions about economic questions in the political process. In light of these weaknesses, the article explains that the intergovernmental agreement was tolerated by the European Parliament to secure completion of the Banking Union before the 2014 EU elections, but concludes suggesting that a pressing constitutional challenge for the European Parliament is to devise legal and political mechanisms to prohibit the Member States from acting outside the EU legal order whenever the Treaties provide for the powers and means to act within the Union.

The Steep Road to European Banking Union: Constructing the Single Resolution Mechanism

The Steep Road to European Banking Union: Constructing the Single Resolution Mechanism

Банківський союз як ключовий етап поглиблення фінансової інтеграції в ЄС

У статті розглядається процес створення в ЄС Банківського союзу в контексті поглиблення фінансової інтеграції держав-членів та розбудови повноцінного Економічного і монетарного союзу. Банківський союз створено з метою недопущення в майбутньому руйнівних наслідків фінансово-економічної кризи, формування надійної основи єдиного внутрішнього ринку ЄС, забезпечення стабільності єдиної європейської валюти. Банківський союз є результатом політичного компромісу, досягнутого між ключовими інститутами ЄС та державами-членами під час інтенсивного переговорного процесу та на основі розробленої Європейською Комісією дорожньої карти. Ключовими елементами Банківського союзу є Єдиний механізм банківського нагляду, Єдиний механізм роботи з проблемними банками та Програма гарантування депозитів. Банківський союз передбачає суттєве підвищення ролі і відповідальності Європейського центрального банку та посилення координуючої функції Європейської Комісії. Попри певні недоліки Банківський союз має вирішальне значення для виживання єврозони і всієї європейської економіки.

European Banking Union: Imperfect, But It Can Work

European Banking Union (EBU) is an odd construction born of compromises and shaped to fit into legal territory bounded by EU Treaty constraints that cannot be adjusted in the current political environment. Can EBU work in spite of the limitations of its design or is there dangerous papering over the cracks? This paper addresses this question by examining the capacity of the EBU to help stabilize the euro area and to contribute to the reversal of current trends towards fragmentation and renationalization of financial markets. The paper looks closely at the design of both the Single Supervisory Mechanism and the Single Resolution Mechanism, on which the EU legislative Institutions reached agreement in April 2014. From this analysis the paper builds the case for the claim that the legal framework for the two mechanisms is sufficiently robust for the new arrangements to have the authority and credibility to rebuild confidence and, in that way, to contribute to the reversal of the trend towards EU financial market disintegration.

Will the Bail-in Break the Vicious Circle Between Banks and their Sovereign?

In December 2013 the European Commissioner Barnier, presenting the Single Resolution Mechanism for the resolution and recovery of banking crises, said it will "break the vicious circle between banks and their sovereigns". But is there any vicious circle? And if so, will resolution tools be able to break it? In literature, the circular nature of the relationship between banking and sovereign debt crises has not yet been properly addressed. Indeed, most papers exclusively focus on one channel of transmission, either quantifying the effects that banking crises have on public finances or analyzing when banking crises may cause sovereign debt crises (or vice-versa). In this paper we propose a computational approach to quantify the effects of this circular relationship and to highlight how sovereign and bank riskiness may increase because of their interconnection. We quantify the effects of bank distress on the banking system itself, passing through the higher public deficit induced by State support, and the subsequent haircut in government bonds. We then test the effectiveness of the bail-in tool proposed in the Single Resolution Mechanism context. The method is tested on four European countries. Results show that, while limited crises tend to be absorbed by the system, serious crises tend to exacerbate at each turn, so that it becomes impossible to stop them without external intervention. Moreover, results show that a bail-in of 8 % of total bank balance sheet can be really effective in breaking the vicious circle and preventing contagion between banks and public finances. This finding supports the bail-in as a valid instrument to avoid taxpayers paying the bill of banking crises.

Is my money safe at European banks? Reflections on the 'bail-in' provisions in recent EU legal texts

The ‘Banking union’, being created by the European Union (EU) comprises three linked projects: a Single Supervisory Mechanism (SSM) for banks, a single deposit insurance mechanism and a Single Resolution Mechanism (SRM) for failing banks. All three elements are introduced for the euro area and other Member States willing to participate. Under this resolution mechanism, private shareholders and creditors of a bank will be ‘bailed in’ (ie required to suffer losses) before (and as a precondition to) any ‘bail-out’ by the authorities, whether individual State governments or the €700 bn European Stability Mechanism (ESM).1 For institutional depositors and investors, this principle is uncontroversial: it is generally assumed that large and sophisticated corporates should have the capacity and motivation to monitor those they bank with. How far though does this bail-in concept extend? Are individuals and small firms also expected to take losses if their bank fails? The safety...

Recognition of Debt Restructuring and Resolution Measures under the European Union Regulatory Framework

AbstractUnder the proposed Bank Recovery and Resolution Directive (BRRD), member states will be required to provide for bail‐in powers to restructure failing financial institutions. At this moment, the Dutch, French, UK and German legislator already provide public authorities with resolution powers. In order to be effective in debt restructuring of failing (non‐)financial institutions, the measures taken by the resolution authorities need to be enforceable (before all courts) and effective in the entire European Union. Given the fact that not all the firm's debt is issued in the home jurisdiction, the question of recognition is critically important. In regard of non‐financial firms, the Dutch, UK, French and German jurisdictions provide for court proceedings to impose a collective settlement reached by the debtor and the majority of its creditors binding on the opposing minority. Out‐of‐insolvency plans approved by the court are recognised under the Brussels I Regulation. If the EU Insolvency Regulation reform proposal is adopted, these court‐approved debt restructuring plans in insolvency situations will be subject to the recognition regime of this regulation. Credit institutions, insurance undertakings, investment undertakings holding funds or securities for third parties and collective investment undertakings are excluded from the scope of the Insolvency Regulation whereas the scope of application of the Reorganisation and Winding Up Directive is limited to credit institutions. The regime under the future BRRD and the Single Resolution Mechanism is limited to credit institutions. National (private international) law determines the recognition of resolution measures taken by the authorities of another member state. Copyright © 2014 INSOL International and John Wiley & Sons, Ltd

The Single Supervisory Mechanism or 'Ssm', Part One of the Banking Union

The Regulation on the Single Supervisory Mechanism mandates the European Central Bank to exercise prudential supervision on the most significant banks located in the Euro area, whether directly by the Bank’s own services, or indirectly by the national prudential supervisors but under the general guidance of the ECB. The paper gives a detailed analysis of the new regime, its scope, the consequences for the existing supervisory systems, especially the home-host attribution of competences and the cooperation between the ECB and the national supervisors, the consequences for the non-euro Member States and for the third country jurisdictions. This regime is likely to substantially modify the existing supervisory landscape. It is the first step towards the Banking Union and is to be followed by legislative instruments on Bank Recovery and Resolution Directive, the Regulations on a Single Resolution Mechanism and on Deposit Guarantee Systems. These three measures should allow dealing with defaulting banks without calling on the taxpayers.