Single Resolution Mechanism Regulation (SRM) – overview
21 October 2014
The European Commission: the delegated act and draft proposal for a Council to: calculate the contributions of banks to national resolution funds; and to the Single Resolution Fund respectively.
Fulfils: the mandate received from the European Parliament and EU Member States to specify the methodology for the banks' contributions in order to meet the target levels for the resolution funds set by the Bank Recovery and Resolution Directive (BRRD) and by the Single Resolution Mechanism Regulation (SRM).
Aim: to ensure the availability of medium-term funding support so that a bank can continue operating while it is being restructured.
- BRRD to set up national resolution funds to which all banks have to contribute.
- The target level of these funds is of at least 1% of the amount of covered deposits of all the institutions authorised in its territory by 31.12.2024.
- In the Banking Union, the Single Resolution Fund will also have a target level of at least 1% of the amount of covered deposits of all the institutions authorised in the euro area.
1. The delegated act supplementing the Bank Recovery and Resolution Directive
This delegated act will determine how much individual credit institutions will have to pay each year to their respective resolution funds according to the bank's size and risk profile by setting out in detail:
i. the fixed part of the contribution - based on the institution's liabilities (excluding own funds and guaranteed deposits) - as the starting point for determining the contribution. The larger the bank, the higher the fixed part of the contribution; and
ii. how the basic contribution is adjusted in accordance with the risk posed by each institution. The proposal includes a number of risk indicators against which the risk level of each institution will be assessed.
The Delegated Regulation applies the principle of "proportionality" by providing for a special lump-sum regime for small banks. This reflects the fact that - in most cases - small institutions have a lower risk profile and are less likely to use resolution funds. Banks representing 1% of the total assets in the Euro area would pay 0,3% of the total contributions.
2. Draft proposal for a Council implementing act
For the financial institutions in the Banking Union, the Commission has drafted a proposal for a Council implementing act to specify the methodology for the calculation of contributions on the basis of the same risk indicators used in the delegated act adopted today.
This draft text adapts the methodology to the specificities of a unified system of contributions pooled in the Fund on the basis of a European target level. In this respect, the Single Resolution Fund will be built up by bank contributions over an eight-year transitional period during which it will be composed of national compartments.
- Under Article 103(7) and (8) of the Bank Recovery and Resolution Directive (BRRD), the Commission is empowered to adopt delegated acts to specify detailed rules for all 28 Member States so that their resolution authorities can calculate the contributions of banks to the resolution funds.
- In the banking union, the national resolution funds set up under the BRRD as of 1 January 2015 will be replaced by the Single Resolution Fund (SRF). As of 1 January 2016 and those funds will be pooled together gradually.
- Under Regulation (EU) 806/2014 (Single Resolution Mechanism (SRM) Regulation), the Board - as the single resolution authority within the banking union - is required to calculate each year the individual contributions of the institutions subject to the SRM.
- The Board will apply the Commission Delegated Regulation and the Council implementing act, setting provisions specific to a common Fund established at European level.
- Under the SRM Regulation, the Commission is empowered to adopt a proposal for a Council Implementing Act as of 1 November 2014. The Commission adopts today (21 October 2014) a draft proposal for a Council Implementing Regulation.
- The Delegated act is subject to a right of objection by Council and Parliament within three months - extendable by a further three months.
- The Commission will formally adopt the proposal for an Implementing act of the Council after 1 November. The act will have to be discussed and adopted by the Council by the end of 2014.