09-12-15

Ecofin rejection of an ESM involvement in the financing of the Single Resolution Fund was the right decision

For reasons relating to incentives, financing the Single Resolution Fund (SRF) by way of the European Stability Mechanism (ESM) - as bridging finance or as a backstop - should only take effect, if need be, once there has been reasonable financial investment by the affected Member State

Proper and swift implementation, particularly of the Bank Resolution and Recovery Directive (BRRD), in all eurozone countries by the end of the year, is urgently required to ensure the functioning of the Banking Union. From 2016, the common bank resolution fund (Single Resolution Fund, SRF) will be operational; that presupposes a bail-in for which transposition of the BRRD Directive into national law is imperative. The EU Commission should therefore be rigorous in pursuing the infringement proceedings that it has already initiated.

Despite uniform banking supervision by the European Central Bank, all eurozone countries still have a range of possibilities for influencing the size and risk-sensitivity of their domestic financial sectors. It was therefore logical when, on 10 November 2015, the Ecofin Council of Ministers rejected the involvement of the European Stability Mechanism (ESM) in the financing of the SRF and instead decided that every Member State affected will, where necessary, scale up the SRF from national funds.

The Ecofin Council agreed on 8 December 2015 to provide national credit lines of up to 55 billion euros as a backstop to the SRF. As of 2016, each participating Member State will enter into a harmonised loan facility agreement with the Single Resolution Board (SRB), providing a national individual credit line to the SRB to back its national compartment in the SRF in case of possible funding shortfalls following resolution cases of banks of the Member State concerned.

For reasons relating to incentives, financing the SRF by way of the ESM - as bridging finance or as a backstop - should only take effect, if need be, once there has been reasonable financial investment by the affected Member State. At the same time, it should not be forgotten that a range of financial aids have already been set up: direct bank recapitalisation by the ESM, ESM loans to eurozone countries for the purpose of bank recapitalisation and internal support within the SRF. All these instruments reduce the need and scope for ESM involvement when it comes to bridging finance or a backstop for the SRF.

Dr. Bert Van Roosebeke, Head of Financial Markets Division, vanroosebeke(at)cep.eu