The creation of a single resolution mechanism (SRM) – with a central decision-making board and a single resolution fund – ensures that resolution decisions across participating member states will be taken in a coordinated and effective manner, minimising negative impacts on financial stability and reducing the dependence of banks on the creditworthiness of sovereigns.
The aim is to ensure the orderly resolution of failing banks without recourse to taxpayers’ money. This will involve both a systematic recourse to the bail-in of shareholders and creditors, in line with the bank recovery and resolution directive adopted in May, and the possible recourse to a single fund fully financed by banks.
“We have established another important pillar of Europe’s banking union, which will contribute to safeguarding the single market and the prosperity of all European citizens heavily hit by the global financial crisis”, said Pier Carlo Padoan, minister for economic affairs and finance of Italy. “With the single resolution mechanism, the European Union is radically improving the regulatory framework of the banking sector, which will increasingly be at the service of Europe’s economic development, without shifting private risks onto public budgets.”
The SRM will form one of the key elements of Europe’s banking union, along with the single supervisory mechanism (SSM) that entered into force in November. It will cover all banks established in the euro area and in other member states that choose to participate.
Adoption of the regulation follows an agreement reached with the European Parliament at first reading in early April. Read more.