5.3.2 EPFS as a trigger for resolution

As set out in section 4.5.1.1, resolution authorities have to take a resolution action if the resolution conditions are met in relation to a bank. These conditions are that, (i) the bank is failing or likely to fail (FOLTF), (ii) there is no reasonable prospect that any alternative private sector measure or supervisory action would prevent the failure of the bank within a reasonable timeframe, and (iii) the resolution action is necessary in the public interest.

A bank is considered to be FOLTF, inter alia, where EPFS is required. As a result, resolution is triggered where EPFS is granted – provided that the other resolution conditions are also met. An exemption applies for the situation in which EPFS was provided before the introduction of the resolution framework.1 In addition, the resolution framework provides that three specific EPFS measures do not qualify as trigger for resolution, as discussed in the next section.

The assessment whether or not EPFS is required is made by the competent authority after consulting the resolution authority.2 It is not clear from the resolution framework how the competent authority should determine that EPFS is ‘required’ by a bank. The Member States have discretion in their decision to award State aid or to request the ESM for the use of the ESM DRI. The same applies to the SRB in respect of the use of the SRF. The determination by a competent authority that a bank is FOLTF, because it requires EPFS, cannot restrict this discretion. As a consequence, the conclusion of the relevant competent authority that EPFS is required by a bank cannot create an enforceable right of that bank on the award of such EPFS.3