Insights

On the 20th of March 2014, political agreement was reached between the European Parliament and the Council on the text of the Single Resolution Mechanism (“SRM”) Regulation. The SRM Regulation has been described as the completion of the “architecture of the banking union for the Eurozone” and “represents a major step towards alignment of both banking supervision and banking resolution at a central level, whilst involving all relevant national players”. This regulation will build on the rulebook on bank resolution as set out in the Bank Recovery and Resolution Directive and will enable the establishment of a Single Resolution Board (“SRB”) with broad powers in cases of bank resolution, as well as a Single Resolution Fund (“SRF”).

The SRM mechanism complements the Single Supervisory Mechanism (the “SSM”) which, once fully operational in November 2014, will see the European Central Bank (the “ECB”) directly supervising banks in the euro area and in other Member States which decide to join the banking union. The SRM will apply to all banks supervised by the SSM and will introduce a centralised decision-making process which would be centred around the SRB, which would involve permanent members as well as the Commission, the Council, the ECB and national resolution authorities. The SRB would engage in both plenary and executive sessions. While the plenary session will take all decisions of a general nature and the individual resolution decisions which involve the SRF exceeding €5 billion, the executive session would take decisions in respect of individual entities or banking groups where the use of the SRF is below the €5 billion threshold.

The SRM Regulation will also introduce the SRF, which would be funded by all banks subject to the same regulation and which fund can borrow from the markets if decided so by the SRB. The fund, which will be managed by the SRB, has a target level of €55 billion, which will represent at least 1% of covered deposits over an 8 year period.

It is anticipated that the European Parliament will vote in favour of the SRM Regulation in plenary in April 2014 and that the Council will formally adopt it thereafter. The SRM is scheduled to enter into force on 1st January 2015.