8.8.3 Safeguarding financial stability

With respect to the inadequacies that were revealed to safeguard the stability of the single financial market, it is the author’s view that mainly the preparatory phase under the resolution framework brings relief. In the preparatory phase, recovery and resolution plans are drafted and the MREL is set. In addition, the resolution framework introduced the possibility of ex ante restructuring, that is, before the bank experiences financial difficulties. In the author’s view, the possibility for competent authorities and resolution authorities to enforce ex ante restructuring on the basis of the recovery and resolution plans has a true added value compared to restructuring under the State aid regime, which always takes place on an ex post basis. The resolution framework could therefore be seen as being complementary to the State aid regime insofar as it enables resolution authorities to enforce ex ante restructuring, even outside the situation in which State aid is granted. Preventing financial difficulties from arising is in the author’s view the best way to safeguard financial stability.

When financial difficulties do arise, time is of the essence. Processes should be unambiguous and straightforward. The involvement of many different authorities may complicate and delay the process. As long as there is a lack of clarity on how the roles between national treasuries, the ESM, the SRB and the ECB are divided in bank resolution, the European Banking Union remains incomplete. This creates financial instability.1 Further centralisation of the public funding sources within the European Banking Union and the decision-making powers with respect to the use of these sources, while clearly defining the mandates of the authorities involved, would contribute to efficiently resolving a bank, whether it is in resolution or in normal insolvency proceedings.