## EXECUTIVE SUMMARY (1eurea2025004) ## Source details **Canonical URL:** [EXECUTIVE SUMMARY (1eurea2025004)](https://www.imf.org/-/media/files/publications/cr/2025/english/1eurea2025004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1eurea2025004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1eurea2025004.pdf.json) --- ### Overview and context - Summarizes findings and recommendations of the 2025 FSAP on bank resolution and crisis management arrangements in the EA, based on a mission in November 2024 and information current as of November 2024. - Banking Union (BU) components: - Single Supervisory Mechanism (SSM) — operational since 4 November 2014. - Single Resolution Mechanism (SRM) with the Single Resolution Fund (SRF). - Single Rulebook includes BRRD, Capital Requirements Regulation and Directive, Deposit Guarantee Schemes Directive (DGSD). - 2019 Risk Reduction Package introduced new moratorium powers and significant changes to leverage ratios and loss-absorbing capacity requirements. ### Key achievements and resilience - SSM and Single Resolution Board (SRB) well-established, improved cooperation with national authorities, developed detailed contingency plans; courts largely supportive of BU legal framework. - MREL phase-in mostly complete; almost all banks under SRB remit meet requirements, averaging 28 percent of risk-weighted assets. - SRF reached its target level and been fully mutualized. - EA banks navigated major shocks (Brexit, pandemic, Russian invasion of Ukraine, rising interest rates, US and Swiss bank failures in 2023) without significant instability. ### Remaining gaps, vulnerabilities, and priorities - Operational readiness improving but reforms remain critical: - Enhance SRB and banks’ operational readiness through dry run exercises, improved data capabilities, and better knowledge of national legal and institutional differences. - Address third country securities law issues in bail-in in coordination with third-country authorities — high priority. - EA financial safety net gaps and inflexibility limit unified crisis management for rapid failure of potentially systemic banks: - Rules on SRF access are less flexible than in some jurisdictions, driving reliance on national options (national insolvency, voluntary industry support, state support). - Many problem banks since BU introduction handled through national approaches rather than SRM. - Reiterates 2018 recommendation: introduce a financial stability exemption to some rules on SRF use. - EDIS remains missing; progress stalled. A common industry-funded pooled loss-sharing system would better handle medium or large failures, be a better source of resolution financing, and reduce risk authorities cannot finance a deposit payout. - Interim needs: - Many member states need stronger backstop liquidity arrangements for DGSs. - Increase minimum funding targets for national DGSs, especially if reliance on national solutions persists and EDIS absent. - Liquidity in resolution inadequate: - 2023 US and Swiss bank failures showed very large liquidity may be needed in fast-burn crises. - Resolution of a large EA bank would likely require liquidity beyond SRF resources, even if ESM “backstop” fully ratified. - Urgent steps needed so SRF guarantees can be accepted to enhance access to central bank liquidity including ELA, potentially in amounts exceeding size of SRF and ESM backstop, subject to safeguards and, if possible, an EU fiscal backstop. - Governance and decision-making arrangements are highly complex and dependent on rapid consensus among NRAs or member states; streamlining needed. ### Selected detailed findings and policy recommendations - Financing resolution - Put arrangements for SRF to provide guarantees to support central bank liquidity including ELA (including in amounts exceeding the balance of the SRF and ESM backstop) to banks in resolution, including, if possible, with an EU fiscal backstop (¶32). Priority: H. Timeframe: I. Authority: SRB/Eurosystem/ESM/EC. - Introduce a financial stability exemption from (i) the 8 percent mandatory bail-in for accessing the SRF and public funds, (ii) the 5 percent cap on SRF funding, and (iii) any proposed stricter state aid burden-sharing rules (¶30). Priority: H. Timeframe: NT. Authority: EC. - Recovery planning and supervision of weak banks - Align conditions for adopting early intervention measures with those for introducing supervisory measures and ensure the ECB can always intervene promptly (¶10-11). Priority: M. Timeframe: MT. Authority: EC/ECB. - Resolution planning and readiness - Complete work on bridge bank handbook(s) (¶45). Priority: H. Timeframe: I. Authority: SRB/ECB. - Provide more detailed disclosure on resolvability, including whether banks’ capabilities are adequate to be considered resolvable (¶18). Priority: M. Timeframe: MT. Authority: SRB/EC. - Implement stronger contingency planning for IPSs (¶19). Priority: M. Timeframe: MT. Authority: EC/SRB. - Resolution execution - SSM and SRM should increase engagement with potential acquirers of banks and bank assets (¶42). Priority: H. Timeframe: MT. Authority: SRB/ECB. - Prioritize work on third country securities law issues in bail-in, in coordination with third country authorities (¶42). Priority: H. Timeframe: I. Authority: SRB. - Remove the option to trigger a moratorium to enable SRB decision-making processes (¶22). Priority: M. Timeframe: MT. Authority: EC. - Deposit insurance and DGS role - Ensure DGSs can contribute to: (i) resolution financing upfront to the gross value of covered deposits (as long as cost net of recoveries is no higher than in liquidation, taking account of indirect costs of a hypothetical DGS payout), and (ii) transfers of assets, liabilities and deposit books in insolvency (¶24). Priority: H. Timeframe: NT. Authority: EC. - Require national DGSs to strengthen public sector liquidity backstops (¶26). Priority: H. Timeframe: NT. Authority: EC. - Include DGSs in contingency planning, as potential sources of resolution funding (¶61). Priority: M. Timeframe: I. Authority: SRB/ECB. - Establish a European deposit insurance system including loss sharing and strong funding backstops (¶25). Priority: H. Timeframe: MT. Authority: EC. - Increase DGS minimum funding requirements; these should be higher if EDIS and DGS liquidity backstops are not introduced (¶27). Priority: H. Timeframe: MT. Authority: EC. - Consistency and legal harmonization - Ensure greater consistency among failure management regimes (resolution, liquidity assistance, precautionary recapitalization) and interaction with state-aid rules (¶8, 13, 57). Priority: H. Timeframe: NT. Authority: EC/ECB/SRB. - Assess and remove undue national options and discretions and other differences in implementation, consider greater use of regulations (¶66). Priority: M. Timeframe: MT. Authority: EC/EBA. - Ensure government stabilization tools are available in all member states (¶35). Priority: M. Timeframe: I. Authority: EC. - Introduce an administrative liquidation tool in the SRMR, and increase harmonization of creditor hierarchies (¶68-69). Priority: M. Timeframe: MT. Authority: EC. - Governance and decision-making - Simplify decisions on adoption of a resolution scheme and use of the SRF (regardless of size) (¶49-51). Priority: H. Timeframe: MT. Authority: EC. - Review and streamline decision-making processes and coordination for resolution of groups and in resolution colleges (¶52). Priority: H. Timeframe: MT. Authority: EC/SRB/EBA. - Strengthen the SRB’s autonomy (¶47). Priority: M. Timeframe: LT. Authority: EC. *Source: EXECUTIVE SUMMARY (1eurea2025004).* --- ### Misalignments, legal interactions, and state aid ### Misalignments between state aid and resolution framework - Findings: - Current state aid communications were temporary from the global financial crisis and not updated after adoption of BRRD, SRMR, DGSD, and BU. - Misalignments include: - Less stringent loss imposition under state aid than BRRD, creating uneven playing field and incentivizing national handling outside resolution. - Ambiguity between "serious disturbance in the economy" for state aid and financial stability concept in resolution, with differing assessment standards and greater deference to member states under state aid. - Instances where state aid in liquidation to avoid a "serious disturbance" was permitted despite a negative SRB Public Interest Assessment (PIA). - Recommendations: - Align state aid loss sharing requirements in resolution with BRRD/SRMR, but only after sufficient flexibility introduced in the latter. - Evaluate whether other aspects of the state-aid regime for banks (e.g., treatment of liquidation aid) remain relevant outside resolution. *Source: 1eurea2025004 - 8. Some significant misalignments persist between different regimes within the broader* --- ### CCPRRR, supervision of weak banks, and SSM arrangements ### CCP Recovery and Resolution Regulation (CCPRRR) - Objective: Equip resolution authorities with tools to manage orderly CCP failure while preserving critical clearing functions and reducing taxpayer risks. - Timing: recovery planning provisions took effect February 2022; remainder applied August 2022. - Institutional arrangements: - Member states designate NRAs for CCPs; ESMA has a CCP Resolution Committee. - ECB participates in CCP Resolution Colleges as supervisor of clearing members and as central bank of issue for Euro. - Tools and interactions with EMIR: - Recovery plans specify actions when default waterfall exhausted or CCP breaches capital/regulatory requirements. - Resolution tools: sale of business, bridge CCP, bail-in-like tools, position management tools (rematch and termination), loss allocation tools (including requesting contributions from non-defaulting members). - Failure to contribute to loss allocation may result in member being placed in default and margin utilized per EMIR. - Cross-border dimensions: - CCPRRR includes contractual recognition clauses and a statutory recognition framework similar to BRRD. - NRAs must consider, “to the extent possible”, impact on financial stability of third countries where the CCP provides services and establish cooperation arrangements with third-country authorities. ### Supervision of weak banks (SSM and national arrangements) - Governance: - ECB directly supervises Significant Institutions (SIs) with NCAs in Joint Supervisory Teams (JSTs); NCAs responsible for Less Significant Institutions (LSIs) under ECB oversight. - Recovery planning and liquidity preparedness: - All EU banks must develop recovery plans; SSM shifted to risk-based assessment focusing on usability, testing, and appropriateness. - Institutional Protection Schemes (IPS) commitments may be included in overall recovery capacity if commitments sufficiently strong. - 2023 US and Swiss rapid runs revealed weaknesses in planning for fast-burn liquidity crises; many banks focused on slow-moving crises and may face delays mobilizing non-prepositioned collateral. - Escalation and early intervention: - SSM escalation triggered by material financial deterioration; tools include heightened monitoring, strengthened recovery plans, onsite inspections, liaison with SRB, and requests for capital/liquidity restoration plans. - ECB may use powers under SSMR, CRD, or BRRD early intervention; BRRD early intervention powers rarely used partly due to higher triggers. - Recommendation: - Consolidate supervisory and early intervention powers under a single directly applicable EU regulation to align conditions and ensure ECB can intervene promptly (CMDI includes changes in this direction). - CMDI and insolvency/liquidation coordination: - CMDI proposal would strengthen requirements that national procedures lead to market exit within a reasonable timeframe, enable license withdrawal solely based on FOLTF, and make license withdrawal sufficient (not exclusive) to initiate winding-up without delay. - FSAP supports CMDI proposals and recommends consistency of solvency criteria for public guarantees backing ECB/Eurosystem liquidity with relevant frameworks (e.g., ECB ELA Agreement). - LSIs: - SSM updated Joint Supervisory Standards on LSI crisis management and SSM-NCA cooperation in 2023. *Source: 1eurea2025004 - 8. Some significant misalignments persist between different regimes within the broader* --- ### Resolution planning, SRB capacity, and resolvability ### SRM structure and resourcing - SRB responsibilities: - Direct planning and managing resolution of SIs and certain LSIs operating in multiple BU member states. - Internal Resolution Teams (IRTs) lead work on each SI, led by SRB staff with NRA participation. - Resourcing and comparators: - SRB has around 450 staff as of end-2023, around 270 directly involved with resolution work; over 500 further staff in NRAs. - Comparators: FDIC ~500 FTEs on resolution-related issues; Bank of England Resolution Directorate has 87 staff. - System size: US has 4,539 FDIC-insured deposit takers, total assets of ~$24tn, eight G-SIBs; BU has 2,022 institutions, total assets of ~€31tn, seven G-SIBs. - Finding: SRM resolution authorities adequately resourced in aggregate but face pressures from complex governance and NRA responsibilities. - Recommendation: SRB consider redeploying staff flexibly to support IRTs or NRAs working on weak banks. ### Resolvability standards and disclosure - IRTs prepare resolution plans using EBA technical standards (Commission Delegated Regulation (EU) 2016/1075). - 2020 SRB “Expectations for Banks” (EfB) seven dimensions: governance, loss-absorbing capacity, liquidity and funding, operational continuity, information systems and data, communications, separability. - Progress: EfB target was high resolvability by end-2023; banks have made good progress. - Disclosure constraints: - SRB publishes an annual resolvability report with aggregate assessments but little bank-specific disclosure due to SRMR confidentiality/legal constraints. - Absent bank consent, SRB would need to show bank-specific disclosure necessary for SRMR functions and conduct case-by-case assessments. - Powers and processes: - SRB can require banks to remove resolvability impediments; process lengthy (MREL-related impediments shorter under SRMR Article 10 (9)). - Recommendations: - Remove legal constraints to allow SRB publish more granular bank-specific resolvability assessments, balancing market sensitivity. - Expand banks’ disclosures through common requirements to improve transparency on resolvability. *Source: 1eurea2025004 - 8. Some significant misalignments persist between different regimes within the broader* --- ### Cooperative bank networks, SRB readiness, and moratorium powers ### Cooperative networks and IPS challenges (¶19) - Specific resolvability challenges for 15 cooperative groups under SRB direct remit due to inverted-pyramid ownership (central institution owned by smaller members). - Bail-in of central institution could write down ownership stakes, undermining network structure. - Resolution of mutuals may require demutualization, complicating post-resolution business models. - IPS can provide liquidity/solvency support but crisis management framework lacks clear legal basis to plan for IPS-wide crises; largest German IPSs now required to develop joint recovery plans. - SRB strategy emphasizes improving operational readiness and testing capabilities through simulations and dry-runs; SRB has conducted: - simulation exercises with US and UK authorities; - a dry-run with NRAs for LSI resolution; - dry-runs with ESM for ESM backstop loan activation procedures; - exercises on loss transfer activation within groups. - Recommendation: Include simulation scenarios of resolutions with large funding needs (including governance for full SRF and ESM backstop) to test SRF and ESM governance processes. - SRB reviewing national handbooks drafted by NRAs to capture specific legal, institutional, and procedural execution issues per BU member state. ### Public Interest Assessment (PIA) and scope - SRB assesses PIA once SSM deems bank failing or likely to fail; SRB can trigger resolution only if necessary, proportionate to resolution objectives, and winding up under national insolvency would not meet objectives to same extent. - Observation: SRB has taken a relatively narrow interpretation of PIA; most bank failures since BU introduction handled under national insolvency. - Comparative note: Denmark interprets PIA more broadly, allowing resolution powers to apply to a wider range of banks. - CMDI proposal: broaden scope bringing 26 additional banks (out of 2,400 credit institutions in BU) into resolution planning. - Caution: expansion conditional on addressing framework weaknesses, notably SRM flexibility and proportional requirements for smaller banks. ### Moratorium under BRRD and recommendation - BRRD allows 48-hour moratorium on all liabilities including deposits to prepare for resolution. - Concern: suspending deposit payments, even briefly, could trigger contagion. - Current BRRD justifications for moratorium include choosing resolution actions or allowing SRB to reach PIA determination. - Recommendation: Remove moratorium justification that allows suspension to let SRB reach PIA; instead ensure PIA determinations reached quickly and liquidity in resolution arrangements strengthened. *Source: 1eurea2025004 - 19. Arrangements for contingency planning for cooperative bank networks and — https://www.imf.org/-/media/files/publications/cr/2025/english/1eurea2025004.pdf* --- ### Deposit protection, DGS harmonization, and EDIS ### DGS harmonization and roles - DGSD and BRRD harmonize minimum eligibility, common coverage level €100,000 per depositor per bank, minimum target levels for ex ante funding (0.8 percent of covered deposits), depositor preference in insolvency. - National differences (temporary high balances, coverage of depositors in non-EU branches) could complicate resolution or payout. - Eight EU member states set higher target than harmonized 0.8 percent; one member state sets lower ex ante fund size. - BRRD empowers resolution authorities to require DGS contributions up to costs they would have borne in payout; recommendations: - Ensure DGSs can contribute upfront up to gross value of covered deposits (plus other payout costs) provided net cost no higher than in liquidation. - Remove arbitrary restrictions (e.g., provision limiting contributions to 50 percent of DGS fund’s target level). - Ensure DGSs operationally ready to provide financing promptly. - Allow DGSs to finance transfers of assets, liabilities and deposit books in national insolvency proceedings (currently optional under DGSD). - IPSs recognized as DGSs should not rely on DGS funds for IPS support; segregated funds required. - FSAP view: DGSs should only intervene to prevent failure in exceptional circumstances with strong prospects for rehabilitation and long-term viability. - CMDI proposals include clarifications to caps on DGS contributions and allowing DGS financing to count towards 8 percent loss absorption for SRF access. ### Common deposit insurance (EDIS) and medium-term recommendations - EDIS remains necessary but progress stalled. - Benefits: - Spreads funding burdens/losses across BU sector. - Better source of resolution financing. - Reduces risk of being unable to finance a deposit payout. - Helps tackle bank-sovereign nexus and achieves uniform depositor protection. - Near-term recommendation: strengthen DGS backstop liquidity arrangements; all DGSs should have strong pre-arranged public sector backstops to meet large payout or resolution liquidity demands. - Minimum funding targets: - Recommendation: increase minimum funding targets for national DGSs, especially if national solutions prevail and EDIS/backstops missing. - 0.8 percent target significantly lower than FDIC’s 2.0 percent long-term target (current FDIC level 1.2 percent). - EC Joint Research Centre modelling: in a crisis less severe than 2008, probability of a national DGS being exhausted would be 75 percent; a fully pooled EDIS would reduce shortfalls by approximately 80 percent. *Source: 1eurea2025004 - 19. Arrangements for contingency planning for cooperative bank networks and — https://www.imf.org/-/media/files/publications/cr/2025/english/1eurea2025004.pdf* --- ### MREL, SRF status, SRF/ESM backstop, and liquidity in resolution ### Loss-absorbing capacity and MREL - Build-up of loss-absorbing capacity largely complete. - All banks SRB expects to put into resolution have bank-specific MREL requirements met via capital, subordinated or senior unsecured debt, and other unsecured liabilities with residual maturity >1 year under conditions. - Default MREL roughly double prudential capital requirements; SRB applies bank-specific adjustments; G-SIBs must have MREL at least equal to FSB TLAC. - Individual legal entities subject to internal MREL. - Average MREL requirement for banks under SRB direct remit: 28 percent of bank risk-weighted assets. - Phase-in almost complete — all but seven banks under SRB direct remit now comply with final MREL requirements, including the Combined Buffer Requirement. ### SRF status and constraints - SRF industry-funded target size: 1 percent of DGS-covered deposits (~€80bn); national components merged. - SRF uses: guarantees, loans, asset purchases, capitalize/fund bridge bank, pay compensation. - Any use > €5bn may require SRB Plenary Board approval, potentially delaying resolution. - SRF capital support conditional on creditors and shareholders absorbing losses of at least 8 percent of the bank’s balance sheet (total liabilities including own funds). - Constraints: - MREL may have fallen by entry into resolution. - Restrictive shareholder-loss definition (only unaudited losses since last reporting date) limits meeting 8 percent requirement. - Non-systemic banks in planning may prove systemic during stress, creating time-consistency problems. - Key recommendation from 2018 reiterated: introduce a financial stability exemption from minimum loss absorption requirement and cap on SRF use in systemic crises. ### SRF, ESM backstop, and liquidity scale mismatch (¶31) - Authorities should encourage remaining member state to ratify revised ESM Treaty creating SRF backstop; revisions allow ESM to lend to SRF; maximum size currently €68bn. - SRF and ESM undertaking operational preparations, modelling, loan documentation, dry runs; ratification incomplete and politically controversial in one member state. - Scale mismatch examples: - FDIC guaranteed loans from the Federal Reserve to three resolved US banks: combined $273bn. - Swiss National Bank liquidity facilities up to CHF250bn to Credit Suisse (CHF50bn collateralized ELA, CHF100bn Swiss government guarantee, CHF100bn preferred creditor status). - BU includes 17 banking groups larger by total assets than Credit Suisse at time of its failure. - Combined SRF and ESM backstop approx €150bn, smaller than liquidity provided in historical examples. - Recommendation: - Put arrangements so SRF can provide guarantees to enhance a bank under resolution’s access to central bank liquidity (including ELA) in amounts exceeding SRF balance (and ESM backstop once ratified), subject to safeguards for central bank balance sheets and, if possible, an EU fiscal backstop. - Rationale: NCBs can provide significant temporary liquidity via ELA if ELA Agreement conditions met (e.g., borrowing bank solvent per Pillar 1 or credible prospect of recapitalization; sufficient collateral). - Constraints: Banks may have exhausted high-quality collateral; SRF unrated but joint modelling with ESM suggests strong repayment capacity via levies and legal authority to guarantee assets/borrowing. *Source: Chapter/section content from IMF content unit 1eurea2025004 - 31. The EC’s CMDI proposal would, if agreed, allow DGS contributions to resolution costs* --- ### Bail-in execution, cross-border securities law, transfer strategies, and bridge banks ### Bail-in scope and preparedness - Bail-in preferred resolution tool for most SRB-targeted entities; ~three quarters of SRB resolution plans envision bail-in. - Majority of NRAs intend open-bank bail-in via direct conversion of liabilities to new CET1 instruments; some jurisdictions use interim instruments tradable. - SRB requires banks’ bail-in playbooks; SRB guidance and monitoring indicate all banks under remit developed bail-in playbooks. - Authorities should ensure NRAs publish bail-in mechanisms per EBA Guidelines; review existing bail-in documents to identify best practices. ### Operational and cross-border execution issues - Suspension of trading: member states use different mechanisms; complications when resolution and market authorities in different member states or third countries; EU resolution authorities have no powers to suspend trading in third-country venues. - Prospectus requirements: mandatory conversion expected not to constitute an “offer” and therefore not subject to prospectus requirements; authorities assess need for exemptions if bail-in strategies involve choice. - Disclosure requirements: ad hoc, periodic and ongoing disclosures continue while securities listed; EU Listing Act Package amendments could allow disclosure only after the final event in protracted process; authorities considering adding resolution/insolvency events to final events list. - Contractual mechanisms: - BRRD requires contractual terms in liabilities governed by third country law to facilitate write-down/conversion and temporary stays, except where adequate recognition mechanisms exist. - Authorities should monitor enforceability risks as clauses likely tested if creditors challenge bail-in effects before foreign courts. ### Cross-border securities law interactions and priorities - Credit Suisse lessons: need better understanding of interaction between bail-in execution and foreign securities laws. - FSB Principles of Bail-in Execution require RAs identify applicable securities laws and prepare for compliance. - Potential foreign jurisdiction requirements (e.g., US) could treat mandatory conversion as a “sale” requiring registration or an exemption. - Priorities for BU authorities: - Collaborate with international market authorities to assess compliance risks with foreign securities regulations during open-bank bail-in. - Most third-country MREL issued in US or UK; no major UK compliance risks identified so far. - Seek legal certainty on compliance with US securities laws via engagement with US authorities (including SEC) to access exemptions or safe harbors. - SRB, EC, and ECB participate in FSB workstream on bail-in execution; SRB should gather bank information on cross-border bail-in risks and develop alternatives if third-country risks significant. ### Transfer strategies and bridge banks (¶44) - Matching failing banks/assets with wide pool of acquirers key to successful transfer powers and limiting costs; resolution plans identify domestic/international buyers including non-banks. - Recommendation: SRB increase outreach to potential acquirers to broaden bidder pool and foster European market for failing banks/assets. - Bridge banks: - Preparations stepped up when buyer cannot be found or to allow time for restructuring during bail-in. - Transfer to temporary publicly owned bridge bank typically owned by SRB, potentially capitalized via SRF. - Bridge bank must comply with capital and prudential requirements (approval of management); SSM and SRB working to set/meet requirements promptly and identify which requirements can have temporary waivers (permitted by BRRD). - SRB working with NRAs to document governance requirements in national corporate law and identify potential bridge bank management. *Source: 1eurea2025004 - 31. The EC’s CMDI proposal would, if agreed, allow DGS contributions to resolution costs; 44. Matching failing banks or their assets with as wide as possible a pool of interested* --- ### SRB governance, decision-making complexity, and recommended streamlining ### SRB operational autonomy and legal constraints (¶44) - SRB constrained by EU agency status (Meroni doctrine); delegated powers cannot involve wide discretion executing economic policy. - Consequence: resolution scheme takes effect only after EC or Council endorsement; EC/Council can substitute their assessment for SRB’s in discretionary aspects, including whether to resolve a bank and choice of tool, even if no public funds used. - Recommendation: EC should explore avenues to enhance SRB autonomy; long-run option to establish SRB as a Treaty institution (would require Treaty changes). Shorter-run: limit EC and Council involvement within permissible delegation under EU law. ### Decision-making structures and risks - Three SRB board compositions: - Executive Session: Chair and four permanent members. - Extended Executive Session: Executive Session plus NRA representatives for bank-specific matters. - Plenary Session: Chair, permanent Board Members, and representatives from all NRAs (26 voting members). - No hierarchical relationship among sessions; Vice Chair is non-voting member in all compositions. - Tension: permanent members mandated to act in interest of Union, NRA representatives not subject to same obligation — potential national vs Union conflicts. - Resolution financing decisions: - During Extended Executive Sessions, permanent members may take bank-specific decisions by simple majority if consensus with NRA representatives not achieved. - Use of SRF > €5 billion may require Plenary Session approval with majority representing at least 30 percent of contributions — could delay or complicate decisions. - Voting risk: NRA representatives not involved in preparation or with national interests could outvote permanent members, deterring decisive SRB action. - Liquidity support weighting: liquidity support weighted at 50 percent of nominal amount. ### Coordination with other authorities and complexity - Additional decision-makers: ECB and SRB trigger assessments; EC or Council endorsement; within EC, DG FISMA, DG ECFIN, DG COMP state-aid compatibility. - ESM backstop: ESM Board decision-making may require strong consensus, emergency procedure requires members representing 85 percent of contributions; some members may need national parliamentary involvement. - Recommendation: pursue more centralized/streamlined decision-making; CMDI proposal would streamline EC resolution and state-aid assessments. - Further reforms: - Pare back state aid oversight procedures or establish presumption of clearance for SRF use given full mutualization. - Replace Plenary Session approval requirement with consultation by Extended Executive Session, supported by Plenary oversight. - Review and streamline resolution college timelines and crisis functioning; EBA reviewing delegated regulation on resolution colleges. ### Accountability, judicial review, and transparency - SRB accountability to EC, European Parliament, and Council ambiguous given EC/Council final authority on discretionary elements. - Judicial accountability: SRB Appeal Panel reviews specific decisions; parties may seek direct judicial review from EU courts (Articles 85 and 86 SRMR). - Litigation to date: litigation mainly on resolution framework, MREL calculation, and ex-ante SRF contributions; no SRB resolution-related decision overturned. - Courts: EU courts confirmed legality of SRMR, limited review to legal questions, reduced multiple litigations risk by single EU-level judicial review. - Transparency improvements: SRB published Expectations for Banks, uses heatmap resolvability methodology, Annual Work Program, progress reports, non-confidential resolution decisions and valuation reports, mechanisms for shareholders/creditors to be heard for compensation. - SRB Vision 2028 aims to bolster transparency and industry communication. *Source: 1eurea2025004 - 44. Matching failing banks or their assets with as wide as possible a pool of interested; 56. Cooperation between the ECB and SRB is underpinned by an appropriate legal framework.* --- ### Cooperation, third-country engagement, and harmonization ### SRB-ECB legal framework and cooperation (¶56) - SSMR (Article 3 (4)) and SRMR (Article 30(2), (4) and (7)) set terms for SRB-ECB cooperation; legal gateways allow confidential information exchange. - Two MoUs between SRB and ECB: one signed by ECB as prudential authority; one for sharing confidential statistical information. - Complementary procedures for consultation, information sharing, notification, and cooperation on early intervention, recovery/resolution plans, resolvability, MREL, resolution initiation, and SRF contributions. - Observership and coordination: - ECB permanent observer at SRB Executive and Plenary Sessions; SRB Chair participates in ECB Supervisory Board as observer for relevant discussions. - Coordination across SSM and SRB functions, JSTs and IRTs, supervisory and resolution colleges. - Obstacles to sharing ECB central banking-side confidential information (e.g., Securities Holding Statistics, AnaCredit) with NRAs and valuers addressed. ### Cooperation with EC, ESM, NRAs, NCAs, and DGSs - EC — SRB MoU (2019); DG FISMA permanent observer at SRB sessions; DG COMP assesses SRF use and any state aid in resolution. - CMDI proposal seeks to streamline state aid assessment timelines to coincide with EC endorsement/objection to resolution scheme (FSAP recommends). - SRB and ESM developed joint operational preparations for ESM backstop once ratified (modelling, loan documentation, dry runs). - NRAs integrated in SRB decision-making via IRTs; SRB mandated to ensure consistent approach among NRAs for LSIs; Cooperation Framework sets practical cooperation. - NRAs should proactively notify SRB of LSIs showing early distress; SRB monitored NRA progress and ran LSI dry-run in 2024. - DGS coordination: SSM/NCA required to inform DGS in case of FOLTF; DGS must consult resolution and competent authority on preventive/alternative measures prior to FOLTF; in practice SRB-DGS contact infrequent and DGSs not well integrated into contingency planning. - Recommendation: SRB should develop practical cooperation with DGSs and work with EBA and EC to identify legislative/regulatory changes needed. ### Third-country engagement and recognition of foreign proceedings - SRB established 18 bilateral MoUs with 16 countries; ECB has 35 MoUs. - SRB leads CMGs for 7 G-SIBs headquartered in BU and joined as host authority 10 CMGs of foreign G-SIBs; runs trilateral work with US and UK authorities including simulation exercises. - Recommendation: pursue new MoUs with other relevant third countries (e.g., Hong Kong SAR, Singapore); expand EBA mandate to better support SRB/NRA coordination on third country confidentiality and equivalence. - Recognition/enforcement of third-country resolution proceedings: - SRB issues recommendations to NRAs on recognition/enforcement—comply or explain basis. - Legal presumption in favor of recognition with limited grounds for refusal (mainly financial stability and whether effects “contrary to national law”). - Recommendation: SRB publish guidance for foreign authorities on recognition regime, process, documents, and timelines. ### Mitigating national differences and harmonization - BRRD and DGSD allow national options/discretions (DGSD includes 20 national options/discretions); varying transpositions create inconsistencies. - Recommendation: greater reliance on regulations to harmonize crisis management while retaining BU-level flexibility for ECB and SRB adaptation. - Suggest EU and national authorities required to consult SRB when adopting laws impacting its mandate; ECB and SRB should be voting members of EBA Board of Supervisors and EBA Resolution Committee. - National insolvency regimes vary (court-based vs administrative, creditor hierarchies, differing tools) affecting resolution planning, PIA outcomes, and compensation assessments. *Source: Content unit 1eurea2025004 - 56. Cooperation between the ECB and SRB is underpinned by an appropriate legal framework.* --- ### Administrative liquidation tool and creditor hierarchy harmonization ### Administrative liquidation tool (¶68) - Medium-term objective: introduce an administrative liquidation tool within SRMR. - Applicability: - All banks under SRB remit. - Banks deemed systemic at time of failure. - Operational modes: - Standalone instrument or in conjunction with other resolution tools (bail-in, business transfers). - Support elements required: - Harmonized creditor hierarchy. - Funding arrangements for transferring covered deposits. - Support and precedent: - Variants supported by ECB and SRB; a report to EC proposed similar framework; CMDI considered harmonized national administrative liquidation procedure but deemed challenging. - Recommended goal: supranational administrative liquidation tool under SRMR; NRAs could implement similar national mechanisms for LSIs not systemic. ### Harmonization of creditor hierarchy and related issues - Despite progress aligning ranking of covered deposits, eligible deposits of individuals and SMEs above coverage limit, and own funds, substantial differences persist. - Areas for harmonization: - New financing in resolution/insolvency: adopt consistent approach to favor availability of private funding while protecting secured creditors. - Treatment of interest on unsecured debts: large variation in whether post-default interest ceases or accrues below unsecured creditors; differing outcomes for recovery rates. - Intragroup claims: marked cross-country differences — statutory subordination in some jurisdictions, case-by-case treatment in others; intragroup claims often pari passu with unsecured claims unless secured. - Banco Popular case highlighted potential risk to “no creditor worse off” safeguard from mismatches between intragroup claim ranking and BRRD bail-in sequence. - Recommendation: establish more uniform approach to balance risks/benefits of intragroup transactions during distress. ### Governance and operational context (selected annex note) - Broader crisis-management framework includes complex governance and hypothetical cases involving SRF (> €5bn threshold), ESM backstop, and ELA for SRB banks with presence in one or more member states not participating in BU. - In case of ESM backstop, national procedures can be commenced prior to MD submitting proposal to BoD. *Source: 68. The medium-term objective should be to introduce an administrative liquidation tool — IMF (EURO AREA chapter).* *Source: 1eurea2025004.* ### EXECUTIVE SUMMARY __________________________________________________________________________ 4 ### EXECUTIVE SUMMARY ### Overview and context - The note summarizes findings and recommendations of the 2025 FSAP on bank resolution and crisis management arrangements in the EA, based on a mission in November 2024 and information current as of November 2024. - The Banking Union (BU) comprises the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM) with the Single Resolution Fund (SRF), and a Single Rulebook. The SSM has been operational since 4 November 2014. - The Single Rulebook includes the BRRD, the Capital Requirements Regulation and Directive, and the Deposit Guarantee Schemes Directive (DGSD). The 2019 Risk Reduction Package introduced new moratorium powers and significant changes to leverage ratios and loss-absorbing capacity requirements. ### Key achievements and resilience - The SSM and the Single Resolution Board (SRB) have become well-established, improving cooperation with national authorities and other stakeholders, and have developed detailed contingency plans. Courts have largely been supportive of the BU legal framework for crisis management. - The phase-in of MREL requirements is now mostly complete, with almost all banks under the SRB’s remit meeting their requirements, averaging 28 percent of risk-weighted assets. - The SRF has reached its target level and been fully mutualized. - EA banks have navigated multiple major shocks—Brexit, the pandemic, the Russian invasion of Ukraine, rising interest rates, and the US and Swiss bank failures in 2023—without significant instability. ### Remaining gaps, vulnerabilities, and priorities - Operational readiness is improving, but reforms remain critical, including: - Enhancing SRB and banks’ operational readiness through dry run exercises, improved data capabilities, and better knowledge of national legal and institutional differences. - Addressing third country securities law issues in bail-in, in coordination with third-country authorities, identified as a high priority. - The EA financial safety net retains gaps and inflexibility that limit a unified crisis management regime for rapid failure of potentially systemic banks: - Rules on access to the SRF are less flexible than in some other jurisdictions, driving reliance on national options (national insolvency, voluntary industry support, state support). Since the introduction of the BU many problem banks have been handled through national approaches rather than through the SRM. - The FSAP reiterates the 2018 recommendation that a financial stability exemption to some rules on use of the SRF should be introduced. - A BU-wide system of deposit insurance (EDIS) remains missing and progress has stalled. A common industry-funded system with pooled loss-sharing would better handle medium or large failures or correlated failures of multiple small banks, be a better source of resolution financing, and reduce the risk authorities cannot finance a deposit payout of an EA bank. - In the interim, many member states need stronger backstop liquidity arrangements for deposit guarantee schemes (DGSs). Minimum funding targets for national DGSs should be increased, especially if reliance on national solutions persists and EDIS is absent. - Arrangements for banks’ access to liquidity in resolution are inadequate: the US and Swiss bank failures of 2023 showed the very large liquidity that may be needed in a fast-burn crisis. The resolution of a large EA bank in such a crisis would likely require liquidity beyond SRF resources, even if the ESM “backstop” were fully ratified. Urgent steps are needed so SRF guarantees can be accepted to enhance access to central bank liquidity including emergency liquidity assistance (ELA), potentially in amounts exceeding the size of the SRF and ESM backstop, subject to safeguards and, if possible, an EU fiscal backstop. - Governance and decision-making arrangements are highly complex and dependent on rapid consensus among NRAs or member states; streamlining is needed. ### Selected detailed findings and policy recommendations (from Table 1) - Financing resolution - Put arrangements in place for SRF to provide guarantees to support central bank liquidity including ELA (including in amounts exceeding the balance of the SRF and ESM backstop) to banks in resolution, including, if possible, with an EU fiscal backstop (¶32). Priority: H. Timeframe: I. Authority: SRB/Eurosystem/ESM/EC. - Introduce a financial stability exemption from (i) the 8 percent mandatory bail-in for accessing the SRF and public funds, (ii) the 5 percent cap on SRF funding, and (iii) any proposed stricter state aid burden-sharing rules (¶30). Priority: H. Timeframe: NT. Authority: EC. - Recovery planning and supervision of weak banks - Align the conditions for adopting early intervention measures with those for introducing supervisory measures and ensure that the ECB can always intervene promptly (¶10-11). Priority: M. Timeframe: MT. Authority: EC/ECB. - Resolution planning and readiness - Complete work on bridge bank handbook(s) (¶45). Priority: H. Timeframe: I. Authority: SRB/ECB. - Provide more detailed disclosure on resolvability, including whether banks’ capabilities are adequate to be considered resolvable (¶18). Priority: M. Timeframe: MT. Authority: SRB/EC. - Implement stronger contingency planning for IPSs (¶19). Priority: M. Timeframe: MT. Authority: EC/SRB. - Resolution execution - SSM and SRM should increase engagement with potential acquirers of banks and bank assets (¶42). Priority: H. Timeframe: MT. Authority: SRB/ECB. - Prioritize work on third country securities law issues in bail-in, in coordination with third country authorities (¶42). Priority: H. Timeframe: I. Authority: SRB. - Remove the option to trigger a moratorium to enable SRB decision-making processes (¶22). Priority: M. Timeframe: MT. Authority: EC. - Deposit insurance and DGS role - Ensure DGSs can contribute to: (i) resolution financing upfront to the gross value of covered deposits (as long as cost net of recoveries is no higher than in liquidation, taking account of indirect costs of a hypothetical DGS payout), and (ii) transfers of assets, liabilities and deposit books in insolvency (¶24). Priority: H. Timeframe: NT. Authority: EC. - Require national DGSs to strengthen public sector liquidity backstops (¶26). Priority: H. Timeframe: NT. Authority: EC. - Include DGSs in contingency planning, as potential sources of resolution funding (¶61). Priority: M. Timeframe: I. Authority: SRB/ECB. - Establish a European deposit insurance system including loss sharing and strong funding backstops (¶25). Priority: H. Timeframe: MT. Authority: EC. - Increase DGS minimum funding requirements; these should be higher if EDIS and DGS liquidity backstops are not introduced (¶27). Priority: H. Timeframe: MT. Authority: EC. - Consistency and legal harmonization - Ensure greater consistency among different failure management regimes (resolution, liquidity assistance, precautionary recapitalization) and in their interaction with state-aid rules (¶8, 13, 57). Priority: H. Timeframe: NT. Authority: EC/ECB/SRB. - Assess and remove undue national options and discretions and other differences in implementation, and consider greater use of regulations (¶66). Priority: M. Timeframe: MT. Authority: EC/EBA. - Ensure that government stabilization tools are available in all member states (¶35). Priority: M. Timeframe: I. Authority: EC. - Introduce an administrative liquidation tool in the SRMR, and increase harmonization of creditor hierarchies (¶68-69). Priority: M. Timeframe: MT. Authority: EC. - Governance and decision-making - Simplify decisions on the adoption of a resolution scheme and use of the SRF (regardless of size) (¶49-51). Priority: H. Timeframe: MT. Authority: EC. - Review and streamline decision-making processes and coordination for the resolution of groups and in resolution colleges (¶52). Priority: H. Timeframe: MT. Authority: EC/SRB/EBA. - Strengthen the SRB’s autonomy (¶47). Priority: M. Timeframe: LT. Authority: EC. ### Additional contextual findings - The SRB has centralised resolution powers over significant institutions (SIs) and certain cross-border groups; it can issue binding “resolution schemes” instructing NRAs on use of BRRD powers. - The SRF is intended to have access to an ESM backstop lending facility, although the ratification of the change to the ESM treaty to allow this has not yet been completed. - The BU still lacks EDIS; the EC’s April 2023 proposals and subsequent negotiations may result in significant changes to the CMDI proposals. - Developments in NBFI crisis management include the CCP recovery and resolution framework implemented in August 2022 and the Insurance Recovery and Resolution Directive passed in late 2024 and applying from early 2027. *Source: EXECUTIVE SUMMARY (1eurea2025004).* ### 8. Some significant misalignments persist between different regimes within the broader ### 8. Some significant misalignments persist between different regimes within the broader ### Misalignments between state aid and the resolution framework - Finding: The current state aid communications regarding the banking sector were initially established as a temporary measure during the global financial crisis and have not been updated despite significant legal and institutional changes following the adoption of the BRRD, SRMR, DGSD, and the BU. - Finding: This has led to misalignments between the state aid framework and the resolution regime, including: - Less stringent loss imposition requirements under state aid compared to the BRRD, creating an uneven playing field for creditors and incentivizing authorities to manage banking problems outside resolution. - Ambiguity in the relationship between the notion of a "serious disturbance in the economy" for state aid control and the concept of financial stability within the resolution framework, with differing assessment standards and greater deference to member states under state aid control than under ECB and SRB oversight. - Instances where state aid in liquidation to avoid a "serious disturbance" was permitted even though the resolution authority reached a negative public interest assessment (PIA), because liquidation would be orderly without public support. - Recommendation: State aid loss sharing requirements in resolution should be aligned with those in the BRRD/SRMR, but only once sufficient flexibility has been introduced in the latter. - Recommendation: Aligning the state aid and resolution regimes should include an evaluation of whether other aspects of the state-aid regime for banks (e.g., the treatment of liquidation aid) remain relevant outside resolution. *Italic: Source: 1eurea2025004 - 8. Some significant misalignments persist between different regimes within the broader* --- ### CCP Recovery and Resolution Regulation (CCPRRR) — key features and implications - Objective: Equip resolution authorities with tools to manage the orderly failure of CCPs while preserving critical clearing functions and reducing taxpayer risks. - Timing: Key provisions for recovery planning took effect in February 2022, with the remainder of the regulation applying from August 2022. - Institutional arrangements: - Member states designate one or more NRAs for CCPs, which may include national central banks or public authorities, responsible for resolution planning and implementation. - ESMA—through a dedicated CCP Resolution Committee—plays a critical role in drafting broader regulatory standards and developing methods for addressing failing CCPs. - The ECB participates in CCP Resolution Colleges both as supervisor of clearing members under its remit and as central bank of issue for Euro; the ECB as NCA of EU clearing members is also a member of ESMA’s CCP Resolution Committee. - Tools and interactions with EMIR: - CCPRRR reflects similar approaches as the BRRD but addresses CCP-specific features and the EMIR clearing framework. - Recovery plans must outline actions when the default waterfall is exhausted or when a CCP breaches capital or regulatory requirements. - Resolution tools include sale of business, bridge CCP, bail-in-like tools, position management tools (rematch and termination of contracts), and loss allocation tools (including requesting contributions from non-defaulting members). - Failure to contribute to loss allocation may result in the member being placed in default, with their margin utilized as per EMIR. - Cross-border dimensions: - CCPRRR includes contractual recognition clauses and a statutory recognition framework similar to the BRRD. - NRA of a CCP must consider, “to the extent possible”, the impact of its decisions on the financial stability of third countries where the CCP provides services. - NCAs and NRAs must establish cooperation arrangements with relevant third-country authorities. *Italic: Source: 1eurea2025004 - 8. Some significant misalignments persist between different regimes within the broader* --- ### Supervision of weak banks (SSM and national arrangements) - Governance and responsibilities: - The ECB, as part of the SSM, has direct responsibility for supervision of Significant Institutions (SIs) working with NCAs in Joint Supervisory Teams (JSTs). - NCAs are responsible for Less Significant Institutions (LSIs) under ECB oversight. - Recovery planning and liquidity preparedness: - All EU banks must develop recovery plans. The SSM has shifted from a compliance-based to a more risk-based assessment approach focusing on usability, testing, and appropriateness for current key risks. - Some banks (e.g., those in Institutional Protection Schemes (IPS)) may include IPS support in “overall recovery capacity” if IPS commitments are sufficiently strong. - The 2023 US and Swiss rapid runs highlighted weaknesses in planning for fast-burn liquidity crises; many banks had focused on slow-moving crises and may face delays in implementing substantial liquidity-raising options (e.g., mobilization of non-prepositioned collateral for central bank borrowing). - Escalation and early intervention: - The SSM’s escalation process for banks in crisis is triggered by material financial deterioration (or likely deterioration) and can lead to heightened monitoring, strengthened recovery plans, onsite inspections, liaison with the SRB, and requests for capital or liquidity restoration plans. - The ECB may use supervisory powers under the SSMR, supervisory powers under the CRD, or the “early intervention” powers in the BRRD. - Early intervention powers under the BRRD have rarely been used, in part due to higher triggers for their use. - Recommendation: There would be merit in including all supervisory and early intervention powers currently in the SSMR and BRRD under a single directly applicable EU regulation, aligning conditions for use so the ECB can always intervene promptly. The CMDI proposal includes changes in this direction. - CMDI and insolvency/liquidation coordination: - The SSM assesses whether a bank is “failing or likely to fail (FOLTF)”; the SRB can also make this assessment in some circumstances. - The CMDI proposal would strengthen requirements that national procedures lead to market exit within a reasonable timeframe, enable license withdrawal solely based on FOLTF, and make license withdrawal sufficient (but not exclusive) to initiate winding-up procedures without delay. - The FSAP supports these CMDI proposals and recommends ensuring solvency criteria for public guarantees to back ECB/Eurosystem liquidity are consistent with relevant frameworks (e.g., the ECB ELA Agreement). - LSIs: - The SSM has updated Joint Supervisory Standards on LSI crisis management and SSM-NCA cooperation in 2023 to reflect lessons learned since SSM establishment. *Italic: Source: 1eurea2025004 - 8. Some significant misalignments persist between different regimes within the broader* --- ### Bank resolution authorities, resolution planning, and resolvability assessment (SRM and SRB) - SRM structure and responsibilities: - The SRMR created a structure for resolution authorities within the SRM. The SRB has direct responsibility for planning and managing resolution of SIs and LSIs operating in multiple BU member states. - Internal Resolution Teams (IRTs) lead SRB work on each SI, led by an SRB staff member and including NRAs from BU countries where the group operates. - NRAs are responsible for other LSIs under SRB oversight; the SRB can take over direct responsibility for a specific LSI. - Resourcing and comparators: - The SRB has around 450 staff as of end-2023, of which around 270 are directly involved with resolution work, and with over 500 further staff in NRAs. - Comparative figures: the FDIC has around 500 FTEs working on resolution-related issues in the United States; the Bank of England’s Resolution Directorate has 87 staff. - System size comparisons: The US has 4,539 FDIC-insured deposit takers, with total assets of ~$24tn, and is home to eight G-SIBs. The BU has 2,022 institutions, with total assets of ~€31tn, and is home to seven G-SIBs. - Finding: SRM resolution authorities are in aggregate adequately resourced compared to peers, but pressures exist from complex governance processes and the breadth of NRA responsibilities. - Recommendation: The SRB should consider further options to redeploy staff flexibly to support IRTs or NRAs working on weak banks (both SIs and LSIs). - Resolvability standards and progress: - IRTs prepare resolution plans and assess resolvability using common EU requirements described in EBA technical standards (Commission Delegated Regulation (EU) 2016/1075). - In 2020 the SRB published “Expectations for Banks” (EfB) on seven dimensions: governance, loss-absorbing capacity, liquidity and funding, operational continuity, information systems and data, communications, and separability. - SRB has published topic-specific guidance (e.g., operational continuity, liquidity in resolution) that improved industry understanding and prioritization. - Finding: Ensuring sufficient ownership of resolvability work by banks’ boards and senior executives can be challenging. - Transparency, powers, and constraints: - The EfB target was for a high level of resolvability by end-2023; SRB reports banks have made good progress. - Disclosure: SRB publishes an annual resolvability report with aggregate assessments and priorities, but little bank-specific disclosure exists due to confidentiality and legal constraints in the SRMR. - Finding: Absent bank consent, the SRB would need to demonstrate bank-specific disclosure is necessary for SRMR functions and must conduct case-by-case assessments to mitigate unintended consequences. - Powers: The SRB can require banks to remove substantive impediments to resolvability, but the process for using these powers is lengthy (though MREL-related impediments have a shorter timeline under SRMR Article 10 (9)). - Recommendation: Legal constraints in the SRMR should be removed to allow the SRB to publish a more granular assessment of resolvability by individual banks—balancing market sensitivity—thereby increasing accountability for use (or non-use) of powers to remove impediments. - Recommendation: Banks’ disclosures could be expanded through common requirements to improve transparency on resolvability. *Italic: Source: 1eurea2025004 - 8. Some significant misalignments persist between different regimes within the broader* ### 19. Arrangements for contingency planning for cooperative bank networks and ### 19. Arrangements for contingency planning for cooperative bank networks and ### Challenges for cooperative bank networks and Institutional Protection Schemes (IPS) - Specific resolvability challenges affect the 15 cooperative groups within the SRB’s direct remit because many are members of cooperative networks in which a central institution is owned by the other, smaller, member institutions. - Most cooperative networks include a mixture of SIs under the direct remit of the SSM and SRB, and LSIs under their indirect remits, for which NCAs and NRAs have day-to-day responsibility. - The “inverted pyramid” ownership structure implies that, in a bail-in, ownership stakes would be written down to absorb losses in the central institution, putting the network structure in doubt. - Resolution of mutuals may require demutualization from the cooperative structure, creating challenges for any post-resolution business model. - Many cooperatives are members of IPS, which can provide liquidity and solvency support from wider membership, but: - The crisis management framework lacks a clear legal basis for authorities to conduct recovery or resolution planning that fully takes account of crises severe enough to affect the IPS as a whole. - The largest IPSs in Germany are now required to develop joint recovery plans. ### SRB strategy, operational readiness, and simulation testing - The SRB’s current strategy emphasizes improving the SRM and banks’ operational readiness to implement resolution tools and testing these capabilities. - The SRB has conducted: - a regular program of simulation exercises with the US and UK authorities; - a dry-run with NRAs of the resolution of an LSI; - dry-runs with the ESM for operational procedures around activation of a loan from the future ESM backstop to the SRF; - exercises on activating loss transfer mechanisms within banking groups. - Banks also undertake dry runs on their resolution capabilities, such as data provision. - Recommendation: The SRB should include future simulation scenarios of resolutions with large funding needs (including governance for use of the full SRF and ESM backstop) to provide realistic tests of SRF and ESM governance processes, including all relevant actors. - On operational readiness, the SRB has begun a project to review national handbooks drafted by NRAs to ensure they describe the specific legal, institutional, and procedural issues affecting execution of resolution in each BU member state, reflecting significant national variation. ### Scope of resolution, Public Interest Assessment (PIA), and suggested changes - Once the SSM deems a bank failing or likely to fail, the SRB assesses whether use of its resolution powers would be in the public interest (the PIA). - Current SRB trigger: SRB can trigger resolution only if it concludes that resolution is necessary for, and proportionate to, one or more resolution objectives and that winding up under national insolvency would not meet the resolution objectives to the same extent. - The SRB regularly performs PIAs and updates them in crisis situations. - Observation: The SRB has taken a relatively narrow interpretation of when bank resolution is in the public interest; most bank failures since the introduction of the BU have been dealt with under national insolvency. - Comparative note: Some other EU member states applying the BRRD, such as Denmark, interpret the PIA test more broadly to allow resolution powers to apply to a much wider range of banks. - Policy suggestion: Adopting a broader PIA approach in the SRM would increase consistency of outcomes and provide better tools to handle bank failures, especially in member states without tailored bank insolvency regimes. - CMDI package proposal: Make more small- and medium-sized banks subject to the harmonized EU resolution framework by changing how resolution authorities assess whether resolution is in the public interest. - SRB staff estimate this would bring 26 additional banks (out of 2,400 credit institutions in the BU) into the scope of resolution planning. - Caution: Any expansion of scope should be conditional on addressing main weaknesses in the framework, notably enhancing flexibility within the SRM and applying requirements proportionally to smaller banks. ### Moratorium powers under BRRD and recommendations - The BRRD allows authorities to impose a 48-hour moratorium on all liabilities including deposits while preparing for resolution. - Concern: In a fragile system, suspending deposit payments even briefly could trigger contagion. - Current BRRD justification for moratorium includes: (i) choosing appropriate resolution actions or ensuring effective application of one or more resolution tools, or (ii) allowing the SRB to reach its PIA determination. - Recommendation: Remove the second possibility (moratorium to allow SRB to reach its PIA) and instead ensure PIA determinations are reached quickly and arrangements for liquidity in resolution are strengthened. ### Failures within the SRB’s direct responsibility since the 2018 FSAP (high-level points) - Examples discussed: - Sberbank Europe AG: failed in February 2022; subgroup resolution assessed in public interest due to subsidiaries’ activities; Austrian parent put into insolvency while subsidiaries sold; a moratorium on payment of liabilities including deposits was applied the day before resolution actions on 1 March. - PNB Banka: failed in August 2019; declared FOLTF by SSM on 15 August 2019; SRB decided not to take resolution on same day; court procedure declared insolvency on 12 September. ### Deposit protection, DGS harmonization issues, and recommendations - The DGSD and BRRD harmonize many aspects, but DGSs remain national. - Common harmonized elements: minimum eligibility criteria, common coverage level of €100,000 per depositor per bank, and minimum target levels for ex ante funding (0.8 percent of covered deposits), and depositor preference in insolvency. - Differences in national implementation (e.g., temporary high balances, coverage of depositors in non-EU branches) could complicate bank resolution or deposit insurance payout. - Some member states set higher DGS target levels; one member state uses a provision to set a lower ex ante fund size than 0.8 percent. - Role of DGSs in resolution financing: - BRRD empowers resolution authorities to require DGSs to contribute to resolution costs, up to the costs they would have borne in a payout. - Authorities should ensure national DGSs interpret this as allowing contributions up to the upfront, gross value of covered deposits (plus other costs in a hypothetical payout). - Subsequent recoveries for the DGS as a creditor should ensure net costs to the DGS are no more than their estimated costs in liquidation. - Remove arbitrary restrictions on DGS contributions that do not apply in payout cases, such as a provision limiting contributions to 50 percent of the DGS fund’s target level. - Ensure national DGSs are operationally ready to provide such financing promptly. - DGSs should be able to finance transfers of assets, liabilities and deposit books in national insolvency proceedings as an efficient alternative to payout—this is currently optional under the DGSD. - FSAP view: DGSs should only intervene to prevent failure in exceptional circumstances with strong prospects for successful rehabilitation and long-term viability. - IPSs recognized as DGSs under the DGSD should not rely on DGS funds for interventions supporting their members; they should have segregated funds for this purpose. - CMDI package proposals include clarifications to caps on DGS contributions in resolution and allowing DGS financing to count towards the 8 percent loss absorption requirement for access to the SRF. ### Common deposit insurance (EDIS) and medium-term recommendations - A common system of deposit insurance (EDIS) remains necessary but progress has largely stalled. - Benefits of a common industry-funded EDIS: - Spreads funding burdens and losses across the whole BU banking sector rather than within a single country. - Better source of resolution financing. - Better aligned with the unified SSM. - Reduces risk of being unable to finance a deposit payout. - Better achieves uniform depositor protection across the BU and helps tackle the bank-sovereign nexus. - Near-term recommendation: Address common findings from national FSAPs on DGS weaknesses, particularly the need for stronger backstop liquidity arrangements. - Multiple national FSAPs found DGSs rely solely or mainly on ex post levies or market borrowing despite IADI Core Principle 9, Essential Criterion 4, which notes deposit insurers should not rely solely on market borrowing for emergency funding. - All DGSs should have strong pre-arranged backstop liquidity arrangements with the public sector to meet large liquidity demands from payouts or resolution of medium- or large-sized banks. ### Minimum funding targets for national DGSs - Recommendation: Increase minimum funding targets for national DGSs, especially if national solutions remain prevalent and EDIS and stronger liquidity backstops are missing. - Current observations: - Eight EU member states set a higher target than the harmonized 0.8 percent of covered deposits. - The 0.8 percent target is significantly lower than the FDIC’s 2.0 percent long-term target, or its current level of 1.2 percent. - This difference is reduced if the pooled 1 percent of covered deposits available through the SRF is considered, but that comparison is appropriate only if most failures are financed through the common resolution regime. - EC Joint Research Centre modelling found that in a crisis scenario less severe than 2008, the probability of a national DGS being exhausted would be 75 percent (although a fully pooled EDIS would reduce shortfalls by approximately 80 percent). ### Financing bank resolution: MREL and the SRF - Loss-absorbing capacity: - Build-up of loss-absorbing capacity by EA banks is largely complete. - All banks which the SRB expects to put into resolution in the event of failure have bank-specific MREL requirements, which can be met through capital, subordinated or senior unsecured debt, and other unsecured liabilities with a residual maturity >1 year under certain conditions. - Default level of MREL is roughly double prudential capital requirements; SRB applies bank-specific adjustments. - Larger banks face additional minimum quantity and quality requirements; G-SIBs must have MREL at least equal to the FSB’s TLAC requirement. - Individual legal entities in a group are generally subject to “internal” MREL requirements. - Coverage and compliance: - The average MREL requirement for banks under the SRB’s direct remit is 28 percent of bank risk-weighted assets. - The phase-in of requirements is almost complete— all but seven banks under the SRB’s direct remit now comply with their final MREL requirements, including the Combined Buffer Requirement. - SRF status and constraints: - The industry-funded SRF has reached its target size of 1 percent of DGS-covered deposits (~€80bn); its national components have been merged. - The SRF can be used for guarantees, loans, asset purchases, to capitalize or fund a bridge bank, and to pay compensation. - Any use of more than €5bn may require approval of the SRB Plenary Board, potentially delaying resolution. - SRF capital support is conditional on creditors and shareholders absorbing losses of at least 8 percent of the bank’s balance sheet (defined as total liabilities including own funds). - Constraints: - A bank’s MREL may have fallen by the time of entry into resolution. - The restrictive definition of shareholder losses used (including only unaudited losses since the last financial reporting date) limits the ability to meet the 8 percent requirement. - Non-systemic banks in planning may prove systemic during heightened stress, creating time consistency problems. - Key recommendation reiterated from 2018 FSAP: Introduce a financial stability exemption from the minimum loss absorption requirement and the cap on use of the SRF in systemic crises. *Source: 1eurea2025004 - 19. Arrangements for contingency planning for cooperative bank networks and — https://www.imf.org/-/media/files/publications/cr/2025/english/1eurea2025004.pdf* ### 31. The EC’s CMDI proposal would, if agreed, allow DGS contributions to resolution costs ### 31. The EC’s CMDI proposal would, if agreed, allow DGS contributions to resolution costs ### CMDI proposal and depositor preference - The CMDI proposal would allow DGS contributions to resolution costs to count towards the 8 percent loss absorption requirement, aiming to “bridge” any gap. - This allowance would be limited to resolutions using a transfer strategy and which result in the market exit of the bank. - The proposal would allow greater DGS contributions to resolution costs by removing the current “super-preference” insolvency ranking in insolvency of DGS covered deposits. - Instead, both covered and non-covered deposits would have a common ranking (while still being preferred to other senior creditors). - The change to depositor preference is opposed by both the European Parliament and Council, which would limit the additional flexibility even under a revised “least cost test”. - Footnote references and constraints in the proposal: - The total shortfall as of Q2 2024 was €3.7bn, corresponding to 0.05 percent of RWA, fully attributable to the CBR and to banks with extended transitional period. All banks met their minimum requirement at the reporting date. - €10bn in the case of liquidity support. - At present, under BRRD Article 108, both insured deposits and DGSs subrogating to their claims are preferred over the deposits which are eligible for DGS coverage but above the insurance limit; all eligible deposits are preferred to other non-secured claims. ### Limits and risks of DGS “bridging” contributions - Such “bridging” contributions from DGSs are less likely to be useful in systemic crises, where DGS funds may be exhausted and larger, less deposit-funded banks are likely to be affected. - Additional reliance on DGS financing is not accompanied by any increase in either their ex-ante funding or stronger access to emergency public sector funding. - The CMDI package includes a proposal to ensure a consistent application of the least cost test across the BU and requires both direct and indirect costs of payout be taken into account; proposed amendments include offsets (e.g., requiring assumptions on the maximum recovery rate for DGS in insolvency) but quantitative impacts are unclear. ### SRF, ESM backstop, and liquidity capacity - Authorities should encourage the one remaining member state to ratify the revised ESM Treaty to create a “backstop” facility for the SRF. - Revisions allow the ESM to lend to the SRF; the maximum size of this facility is currently €68bn. - The SRF and ESM have undertaken detailed operational preparations, joint repayment capacity modelling, and testing to ensure readiness to access the backstop, but ratification remains incomplete and politically controversial in one member state. - Use of the backstop will require strong consensus at the ESM Board of Directors, which may be difficult to achieve in very short timeframes. ### Scale mismatch in liquidity needs vs available resources - By themselves, the SRF and ESM may not be able to meet liquidity-in-resolution needs in the failure of a major systemic banking group. - Examples of large liquidity support in recent failures: - FDIC guaranteed loans from the Federal Reserve to the three resolved US banks of a combined $273bn. - The Swiss National Bank provided liquidity facilities of up to CHF250bn to Credit Suisse in the runup to, and in support of, its merger with UBS; these facilities were ultimately fully repaid. - Breakdown: CHF50bn in collateralized ELA, CHF100bn backed by a Swiss government guarantee, and CHF100bn backed by a preferred creditor status in bankruptcy. - The BU includes many banks much larger than these cases; for example, 17 banking groups are larger in terms of total assets than Credit Suisse at the time of its failure. - The combined resources of the SRF and ESM backstop (of approximately €150bn) are smaller than the liquidity provided in these historical examples. ### Recommendation on liquidity arrangements and SRF guarantees - The FSAP recommends arrangements be put in place for the SRF to be able to provide guarantees to enhance the ability of a bank under resolution to access central bank liquidity (including ELA) in amounts exceeding the balance of the SRF (and ESM backstop once ratified and activated). - Such guarantees should be subject to adequate safeguards for central bank balance sheets and, if possible, an EU fiscal backstop. - Rationale and constraints: - NCBs within the Eurosystem can provide significant temporary liquidity through ELA, provided conditions and safeguards in the ELA Agreement are met (e.g., borrowing bank solvent per Pillar 1 or credible prospect of recapitalization; sufficient collateral). - Banks may have exhausted high quality or readily mobilized collateral leading up to and through resolution. - The SRF is currently unrated, but joint modelling with the ESM suggests strong repayment capacity based on its ability to levy the EA banking sector and legal authority to guarantee assets or borrowing of banks in resolution. - Guarantees by the SRF of central bank liquidity on top of collateral protection are critical to plug the gap in the EA crisis management framework. ### Government stabilization tools under BRRD - Member states should implement the BRRD government stabilization tools (public equity support or nationalization) as an ultimate resort in a systemic crisis. - The BRRD allows governments to use “stabilization tools” after resolution tools have been used to the maximum extent consistent with maintaining financial stability. - Many, but not all, EA member states have implemented these tools; they should be implemented in all cases. - BRRD also allows precautionary recapitalization or state guarantees provided conditions are met (i.e., bank solvent; support does not offset losses; support is limited in size and receives state aid approval from the EC). ### Implementing Resolution Tools: Bail-in — scope and preparedness - Bail-in is the preferred resolution tool for most entities targeted for resolution in the BU; around three quarters of resolution plans by the SRB envision applying this tool. - Majority of NRAs intend to utilize an open-bank bail-in via direct conversion of liabilities to new CET1 instruments. - Some member states have variations where creditors and equity holders may receive interim instruments representing future equity claims, which are tradable. - The SRB requires banks’ bail-in playbooks to detail necessary actions for each resolution group; SRB guidance and monitoring indicate all banks under its remit have developed their bail-in playbooks. - Authorities should ensure all NRAs publish their bail-in mechanisms as required by EBA Guidelines; a review of existing bail-in documents could identify best practices and quality improvements. ### Operational and cross-border execution issues for bail-in - Coordination needs between resolution authorities and market authorities for bail-in execution include: - Suspension of trading: Member states use different mechanisms to suspend trading of instruments subject to bail-in; complications arise when resolution and market authorities are in different member states or third countries. EU resolution authorities have no powers to suspend trading in third country venues. - Prospectus requirements: Mandatory conversion of bailed-in liabilities is expected not to constitute an “offer” and therefore not subject to prospectus requirements, but authorities will assess need for resolution-specific exemptions if bail-in strategies involve choice. - Disclosure requirements: Ad hoc, periodic and ongoing disclosure requirements continue to apply while securities remain listed; amendments in the EU Listing Act Package could allow banks to make disclosure only after the final event in a protracted process, and authorities are considering adding resolution and insolvency-related events to the indicative list of final events. - Contractual mechanisms: - BRRD requires banks to include contractual terms in liabilities governed by third country law to facilitate write-down and conversion and temporary stays, except where adequate recognition mechanisms exist. - Authorities should monitor enforceability risks of these clauses, as their true value will be tested if creditors challenge bail-in effects before foreign courts. ### Cross-border securities law interactions and policy priorities - Credit Suisse case lessons: - A better understanding of interaction between bail-in execution and applicable foreign securities laws is needed. - FSB Principles of Bail-in Execution require RAs to identify applicable securities laws and prepare for compliance. - The FSB’s post-mortem report on the 2023 bank failures highlighted potential requirements in foreign jurisdictions (e.g., US) that could treat mandatory conversion as a “sale” requiring registration or an exemption. - BU authorities should continue to prioritize work on potential challenges to cross-border bail-in in cooperation with international peers: - Active collaboration with market authorities internationally and bilaterally to assess compliance risks with foreign securities regulations during an open bank bail-in. - Most third country MREL is issued in either the US or UK; so far, no major risks for compliance with UK securities laws have been identified due to alignment with EU securities laws. - Authorities are seeking more legal certainty on compliance with US securities laws, engaging with US authorities (including the SEC) to ensure an EU bank in resolution can satisfy applicable US securities rules and access exemptions or safe harbors. - SRB, EC, and ECB participation in the FSB workstream on bail-in execution aims to expand jurisdictions’ understanding of third country securities law issues. - SRB should continue gathering information from banks on potential cross-border bail-in execution risks irrespective of governing law; if third country risks significantly impact planned bail-in mechanisms, critical to develop alternative approaches (e.g., adjustments in bail-in mechanisms or improvements in resolvability). ### Transfer strategies and bridge bank planning - The SRB has stepped up planning for transfer strategies—the transfer of all or part of a bank’s business to an acquirer or to a temporary publicly owned bridge bank. - Although bail-in remains the preferred resolution strategy for most SRB banks, transfer strategies have long been the most common international resolution method and all SRB resolution cases so far have involved sale of the failing bank. - The SRB has increased internal preparations and expectations for banks to plan for variant transfer strategies if the primary bail-in strategy is infeasible: - Internal guidance for IRTs and guidance for banks on separability analysis to identify parts of the bank which could be sold independently. - Analysis on national legal issues limiting transferability (e.g., German covered bonds can only be transferred to BaFin-authorized acquirers; depth of markets for impaired loans varies by country). - Operational preparations to facilitate buyer due diligence, such as rapid population of data rooms. *Source: Chapter/section content from IMF content unit 1eurea2025004 - 31. The EC’s CMDI proposal would, if agreed, allow DGS contributions to resolution costs* ### 44. Matching failing banks or their assets with as wide as possible a pool of interested ### 44. Matching failing banks or their assets with as wide as possible a pool of interested ### Transfer strategies and market outreach - Matching failing banks or their assets with as wide a pool of potential acquirers is key to successful use of transfer powers in resolution and to limiting costs. - Resolution plans seek to identify potential acquirers, both domestic and international and including non-banks, with a track record of bank investments. - In crisis cases to date, identification of buyers has relied mostly on NRAs/NCAs knowledge of their local markets. - Recommendation: Greater outreach by the SRB to potential acquirers could broaden the pool of bidders and foster a European market for failing banks or their assets, particularly as bank valuations and merger activity have picked up. - Parallel action: The SRB should continue to identify possible legal and other obstacles to transfers and try to remove or mitigate them. - Illustrative historical statistic: of 489 FDIC-led bank resolutions in the USA in 2008-13, 463 were “purchase and assumption” transactions. ### Bridge banks: preparations and constraints - Preparations to establish bridge banks have been stepped up for cases where a buyer cannot be found immediately or to allow time to complete restructuring as part of a bail-in strategy. - Typical approach: transfer all or part of a bank’s business to a temporary publicly owned bridge bank, expected in most cases to be owned by the SRB, which could provide capital through the SRF. - Regulatory constraint: Unlike in some jurisdictions such as the US, a bridge bank must comply with capital and other prudential requirements, such as the approval of management. - Coordination: The SSM and SRB are working together on processes to set and meet these requirements promptly and identify for which requirements temporary waivers (as permitted by the BRRD) can be granted. - Legal preparation: The SRB is working with NRAs to document governance requirements in national corporate law that the bridge bank would have to meet, and to identify potential bridge bank management. ### SRB operational autonomy and legal constraints - The SRB’s operational autonomy is constrained by its status as an EU agency rather than an independent Treaty institution like the ECB. - Under EU law, powers delegated to an agency cannot involve a wide degree of discretion allowing it to execute actual economic policy (Meroni doctrine). - Practical consequence: A resolution scheme takes effect only after the EC or the Council endorses the scheme; the EC and Council can substitute their own assessment with that of the SRB in all discretionary aspects of the scheme, including whether to resolve a bank or not and the selection of resolution tool, even if no public funds are used. - Recommendation: The EC should explore avenues to enhance the SRB’s autonomy, capitalizing on the next mandated review of the SRMR and advocating for a more autonomous SRB. - Long-run option: establishing the SRB as a Treaty institution, which would require Treaty changes and could reduce complexities in governance and decision-making. - Shorter-run options: examine ways to remove or limit EC and Council involvement in resolution decisions under the SRB’s current status within the bounds of permissible delegation under EU law. ### SRB decision-making structure and challenges - The SRB has three distinct board compositions: - Executive Session: the Chair and four full-time members (the ‘permanent members’). - Extended Executive Session: Executive Session expanded to incorporate board members representing the relevant NRAs for bank-specific matters. - Plenary Session: the Chair, other permanent Board Members, and representatives from all NRAs, totaling 26 voting members. - The SRB Vice Chair joins all compositions but is not a voting member. - There is no hierarchical relationship among these sessions. - Governance tension: permanent members are mandated to act in the interest of the Union as a whole, while NRA representatives are not subject to the same obligation, raising potential national vs Union interest conflicts. ### Decision-making for resolution financing and SRF use - Safeguard: during Extended Executive Sessions, permanent members may take bank-specific decisions by simple majority if consensus with NRA representatives is not achieved. - Risk: it is unclear whether permanent members would have adequate incentives to proceed without consensus at the moment of failure and propose a resolution scheme. - Stringent access conditions: e.g., the 8 percent bail-in requirement could mean loss imposition on uncovered depositors, particularly for small and medium size banks, and could incentivize referral of cases to national authorities. - Plenary involvement threshold: if a resolution scheme involves the use of more than €5 billion of funding from the SRF, it may need to be approved by the Plenary Session, with a majority representing at least 30 percent of contributions. - Voting risk: NRA representatives not directly involved in preparation for the resolution or with national interests at stake in the failing banking group could potentially outvote the permanent members, which could deter decisive SRB action. - Liquidity support weighting: liquidity support is weighted at 50 percent of the nominal amount. ### Complexity from other authorities and coordination layers - Other decision-makers required in resolution: ECB and SRB assessments of triggers; EC or Council endorsement; within the EC, DG FISMA, DG ECFIN, and DG COMP assessments (compatibility with EU State Aid rules). - In complex large-group failures, additional coordination layers likely: non-participating member states in a resolution college, ESM for the SRF backstop, and other authorities. - ESM decision-making: under the emergency decision-making procedure, strong consensus is required from members representing 85 percent of contributions; some ESM members may need to involve national parliaments prior to taking decisions. - Practical implication: timelines and feasibility can be challenged in more complex failures despite enhanced cooperation and preparedness. ### Recommendations to streamline decision-making and colleges - Pursue a more centralized and streamlined approach to decision-making; the CMDI proposal would streamline the EC’s resolution and state-aid assessments. - Further reforms recommended: pare back state aid oversight procedures (or establish a presumption of clearance) for utilizing the SRF given full mutualization of contributions. - Intermediate reform: replace requirement for Plenary Session approval with a consultation process by the Extended Executive Session, supported by the Plenary Session’s broader oversight role. - Resolution colleges: review and where possible streamline timelines and steps in the framework on the functioning of resolution colleges during a crisis; test colleges’ capability to respond to crisis scenarios during normal times. - The EBA is reviewing delegated regulation on the functioning of resolution colleges and has identified various issues. ### Accountability, judicial review, and transparency - Some aspects of the SRB’s accountability to the EC, European Parliament, and Council remain ambiguous given the EC or Council’s final authority over discretionary elements of resolution schemes. - Judicial accountability: the SRB's Appeal Panel reviews specific decisions as a quasi-judicial body; parties may seek direct judicial review from EU courts (Articles 85 and 86 SRMR). - Litigation experience to date: litigation has mainly concerned the resolution framework, MREL calculation challenges, and ex-ante SRF contributions; no resolution-related decision by the SRB has been overturned. - Courts’ stance: EU courts have confirmed the legality of the SRMR framework, limited review to legal questions, and reduced risk of multiple litigations by establishing a single judicial review process at EU level. - Remaining legal friction: complex interaction between supranational instruments and different national laws transposing them continues to be a source of litigation, absent greater harmonization. - Transparency improvements: the SRB has published essential policies and guidance (Expectations for Banks), uses a heatmap methodology for resolvability assessments, publishes an Annual Work Program, progress reports, non-confidential versions of resolution decisions and valuation reports, and has mechanisms for shareholders and creditors to exercise the right to be heard for compensation purposes. - Strategy: the SRB's Vision 2028 aims to bolster transparency, particularly towards the industry, by increasing communication efforts. *Source: 1eurea2025004 - 44. Matching failing banks or their assets with as wide as possible a pool of interested* ### 56. Cooperation between the ECB and SRB is underpinned by an appropriate legal ### 56. Cooperation between the ECB and SRB is underpinned by an appropriate legal framework. ### Legal framework and institutional arrangements - The SSMR (Article 3 (4)) and the SRMR (Article 30(2), (4) and (7)) define the general terms for SRB-ECB cooperation and legal gateways to exchange confidential information are in place. - Two MoUs exist between the SRB and ECB: - one signed by the ECB as a prudential authority; and - one for the sharing of confidential statistical information that the ECB collects. - Specific procedures complement the MoUs for consultation, information sharing, notification, and cooperation on: - early intervention measures; - recovery and resolution plans; - resolvability assessment and addressing resolvability impediments; - setting of MREL requirements; - resolution initiation; and - calculation of ex-ante and ex-post contributions to the SRF. - Obstacles to sharing confidential information collected by the ECB’s central banking side (e.g., Securities Holding Statistics, the AnaCredit credit register) with NRA members of IRTs and valuers have been addressed. - Observership and coordination arrangements: - The ECB is a permanent observer at the SRB’s Executive and Plenary Sessions. - The Chair of the SRB participates in the ECB Supervisory Board as an observer for discussions relevant for the SRB. - Coordination also takes place between SSM and SRB horizontal functions, between JSTs and IRTs, and within supervisory colleges and resolution colleges. ### European Commission, ESM backstop, and state aid processes - The EC and SRB are under a duty to cooperate under SRMR; an MoU signed in 2019 specifies practical arrangements; DG FISMA is a permanent observer at the SRB’s Executive and Plenary sessions. - DG COMP is responsible for the assessment of any use of the SRF and any state aid potentially involved in a resolution case. - The CMDI proposal seeks to streamline state aid assessment timelines by requiring the state aid assessment to be decided by the time the EC endorses or objects to the resolution scheme, which the FSAP recommends. - The SRB and ESM have developed detailed joint operational preparations for the use of the ESM backstop once activated following ratification of the amendment to the ESM treaty; preparations include: - modelling of the SRF’s repayment capacity; - agreement on loan documentation; and - dry runs of loan requests. ### Cooperation between the SRB and NRAs - NRAs are integrated into SRB decision-making, including in relation to resolution planning, MREL, and resolution initiation; NRAs implement the SRB’s decisions. - For each bank under the SRB’s direct remit, an IRT is established including staff from the SRB and the NRAs; each IRT is led by a senior resolution expert from the SRB acting as internal resolution team coordinator. - The SRB participates in resolution colleges when the institution is under the SRB’s direct remit (with NRAs participating as observers). - The SRB: - is mandated to ensure a consistent approach among all NRAs in respect of LSIs, adhering to high resolution standards; - reviews draft decisions from NRAs and offers feedback on aspects that do not align with the SRMR or the SRB’s instructions; - issues guidelines and general instructions to NRAs and seeks to promote common practices and understanding. - Practical cooperation is set out in the Cooperation Framework covering legal instrument adoption, consultation, implementation of SRB decisions, and allocation of responsibilities. - NRAs should proactively notify the SRB of any LSI showing early signs of financial distress or suspicious behavior. - The SRB monitors NRA progress in resolution preparedness and carried out a dry-run simulation of an LSI resolution in 2024. - The SRM’s “Vision 2028” foresees enhanced cooperation and inclusion of NRAs in SRB work. ### Cooperation with NCAs and DGSs - Where ECB and SRB remits do not fully overlap (e.g., an LSI banking group subject to SRB competence by cross-border operations), ambiguity can arise on who (ECB or NCA) will be involved in resolution initiation as SRMR defines initiation as a composite process between the ECB and the SRB. - The CMDI proposal would clarify this ambiguity; the SRB and relevant NCAs should establish structured coordination arrangements through an MoU to cover early intervention, recovery resolution planning and MREL. - Coordination with DGSs should be strengthened: - The SSM or NCA is required to inform the DGS in case of an FOLTF determination. - A DGS must consult the resolution authority and competent authority on preventive and alternative measures prior to the point of FOLTF. - For entities under direct SRB responsibility, NRAs are responsible for day-to-day relations with other national authorities, including DGSs, keeping the SRB informed. - In practice, contact between the SRB and DGSs is infrequent and DGSs are not well integrated into contingency planning arrangements. - Recommendation: The SRB should develop practical cooperation with DGSs for crisis-preparation and management, and work with the EBA and EC to identify any legislative or regulatory changes needed to support this cooperation. ### Cross-border cooperation and third-country engagement - MoUs and institution-specific arrangements facilitate SRB and ECB cooperation with third-country authorities and should continue to expand. - Current bilateral and multilateral engagements: - The SRB has established 18 bilateral MoUs with authorities from 16 countries. - The ECB has expanded its MoUs and currently has 35. - The SRB leads crisis management groups (CMGs) for 7 G-SIBs headquartered in the BU and has joined as a host authority 10 CMGs of foreign G-SIBs. - The SRB runs a regular program of trilateral work with US and UK authorities, including simulation exercises for G-SIB resolution. - Recommendation: Build on existing track-record and pursue new MoUs with other relevant third countries (e.g., Hong Kong SAR, Singapore). - The EBA’s mandate should be formally expanded to better support SRB and NRA coordination efforts, notably for assessment of third country confidentiality regimes and equivalence assessments for third-country resolution authorities. - The SRB should seek proactive engagement with home authorities where the SRB/ECB are not members of a CMG, and remain ready to engage with third countries not members of a CMG led by them. ### Recognition and enforcement of third-country resolution proceedings - The SRB issues recommendations to NRAs—on a comply or explain basis—when a foreign authority requests recognition and enforcement of its resolution proceedings over subsidiaries or other assets located in the BU. - There is a legal presumption in favor of recognition with limited grounds for negative recommendations, primarily focused on financial stability and equitable treatment of creditors; one ground requires refusal if effects would be “contrary to the national law”. - Authorities consider the “contrary to the national law” ground limited to possible breaches of fundamental rights enshrined in national laws but this interpretation is not formalized. - Recommendation: The SRB should publish guidance to inform foreign authorities about its recognition regime, process, expected documentation and timelines. ### Mitigating national legal differences and harmonization - The BRRD and DGSD provide member states with various national options and discretions; the DGSD includes 20 national options and discretions, many rarely utilized in practice. - The EC’s CMDI package proposes steps to streamline national options and discretions; further action is warranted (example: all DGSs should be able to finance business transfers during insolvencies). - Varying transpositions of directives into national law create inconsistencies; greater reliance on regulations to harmonize the crisis management framework is recommended while retaining flexibility at the BU level for ECB and SRB adaptation. - Level 1 instruments that are overly prescriptive in some areas (e.g., on colleges) can restrict adjustments through secondary instruments. - Recommendation: EU and national authorities should be required to consult the SRB when adopting laws that impact its mandate; the ECB and SRB should be made voting members of the EBA Board of Supervisors and the EBA Resolution Committee. - National insolvency regimes for banks within the BU exhibit significant variations (court-based vs. administrative systems, differing creditor hierarchies outside of deposits, and differing tools available during insolvency). - The fragmentation affects resolution planning and implementation, including the PIA test outcomes and assessments of creditors’ rights to compensation in resolution compared to insolvency counterfactuals. - The differing treatment of elements such as post-default interest and intragroup claims complicates liability and compensation assessments and diminishes efficiency and equality in resolution and liquidation outcomes. *Source: Content unit 1eurea2025004 - 56. Cooperation between the ECB and SRB is underpinned by an appropriate legal framework.* ### 68. The medium-term objective should be to introduce an administrative liquidation tool ### 68. The medium-term objective should be to introduce an administrative liquidation tool ### Proposal and scope - Introduce an administrative liquidation tool within the SRB’s toolkit. - Applicability: - All banks under the SRB's remit. - Banks that are deemed systemic at the time of failure. - Operational modes: - Function as a standalone instrument. - Or operate in conjunction with other resolution tools (such as bail-in or business transfers). - Support elements: - Harmo­nized creditor hierarchy. - Funding arrangements for transferring covered deposits. - Intended effect: - Facilitate effective and coherent management of SRB bank failures, irrespective of the PIA. - Support and precedent: - Variations of this proposal have garnered support from both the ECB and SRB, recognizing them as a measure that would also strengthen EDIS.82 - A report submitted to the EC regarding potential harmonization of national insolvency laws proposed a version of such a framework.83 - The recent CMDI proposal considered a "harmonized national administrative liquidation procedure" governed at the national level but deemed it challenging due to legal and political issues. - Recommended medium-term goal: - Reiterate the prior FSAP recommendation: the goal should be an administrative liquidation as a "supranational" tool under the SRMR. - National-level option: - NRAs can be allowed to implement a similar administrative liquidation mechanism at the national level for LSIs, not deemed systemic at the point of failure. ### Recommended harmonization of creditor hierarchy and related issues - Overall assessment: - Despite progress in aligning the ranking of covered deposits, eligible deposits of individuals and SMEs above the coverage limit, and own funds instruments, substantial differences persist. - Prioritization of other deposits relative to other claims is determined by national law; some member states grant priority to liabilities statutorily excluded from bail-in. - Specific areas for further harmonization: - New financing in resolution or insolvency: - Adopt a consistent approach for new financing in the immediate aftermath of resolution or during insolvency to promote availability of private funding. - Various corporate insolvency best practices support favorable treatment for new financing while protecting the interests of existing secured creditors. - Treatment of interest on unsecured debts: - Depending on national framework, interest on unsecured debts may cease upon liquidation or continue to accrue but rank below unsecured creditors. - Post-default interest rates vary significantly, resulting in large differences in recovery rates. - Although unsecured creditors generally cannot enforce interest claims during the process, accumulated interest on unliquidated loans can increase the size of claims on the liquidation estate. - Outcomes can include full repayment to subordinated creditors in some cases, while senior non-preferred creditors might only receive interest after liquidation ends. - Intragroup claims: - Treatment differs markedly across member states: - In some jurisdictions, intragroup claims are statutorily subordinated (scope of related parties can vary). - In others, subordination may occur case-by-case depending on transaction integrity. - Often intragroup claims rank pari passu with other unsecured claims unless secured. - Practical risk illustrated: - The Banco Popular case highlighted the potential risk to the ‘no creditor worse off’ safeguard arising from mismatches between the ranking of intragroup claims and the sequence in which liabilities are bailed in under the BRRD. - Recommendation: - Establish a more uniform approach to balance risks and benefits of intragroup transactions during financial distress. ### Governance and operational context (selected note from annexes) - The broader crisis-management framework referenced in the source includes complex governance arrangements and a hypothetical case involving the use of SRF (above 5bn Euro threshold), ESM backstop, and ELA for a bank under SRB remit and with presence in one or more member states not participating in the BU. - In case of ESM backstop, any applicable national procedure can also be commenced prior to the MD submitting its proposal to the BoD. *Source: 68. The medium-term objective should be to introduce an administrative liquidation tool — IMF (EURO AREA chapter).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1eurea2025004.pdf_