Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.3.4.2:4.3.4.2 Material scope of the SRMR

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.3.4.2

4.3.4.2 Material scope of the SRMR

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The SRMR applies to:

1.

Banks established in a participating Member State of the SSM;

2.

Parent companies established in a participating Member State of the SSM, where they are subject to consolidated supervision carried out by the ECB in accordance with Article 4(1)(g) SSMR;

3.

BRRD investment firms and financial institutions established in a participating Member State of the SSM, where they are covered by the consolidated supervision of the parent company carried out by the ECB.1

Ad 1, 2 and 3

Banks are in scope of the SRMR, if they are established in a participating Member State of the SSM.

This concerns both significant and less-significant banks. Several EP Members have, unsuccessfully, proposed to restrict the scope of the SRMR to banks that are subject to direct supervision carried out by the ECB in accordance with the SSMR (i.e. significant banks). In their view significant banks should be subject to a resolution mechanism at the European level, while less-significant banks should be resolved at national level (that is, outside the scope of the SRM).2

Standalone BRRD investment firms3 do not fall in scope of the SRMR. Only, if they are part of a banking group, they can come in scope of the SRMR. Branches of third-country institutions are also outside the scope of the SRMR. Standalone BRRD investment firms and branches of third-country institutions can therefore only be put in resolution in accordance with the BRRD.

Entities other than banks (that is parent companies, BRRD investment firms and financial institutions), can only be subject to resolution under the SRMR, if they are covered by consolidated supervision carried out by the ECB. In accordance with Article 4(1)(g) in conjunction with Article 6(4) up to (6) SSMR, the ECB carries out supervision on a consolidated basis on a holding company, if (i) the holding company is established in a participating Member State of the SSM, and (ii) it heads a significant banking group, a cross-border banking group in relation to which the ECB has decided that it carries out consolidated supervision,4 or another banking group in relation to which the ECB has decided that it carries out consolidated supervision.5

The restriction of the scope of the SRMR to banking groups in relation to which the ECB carries out consolidated supervision seems to be incorrect, taking into account that pursuant to Article 7 SRMR the SRB is responsible for adopting all decisions relating to cross-border banking groups, in addition to the banking groups which are considered to be significant, while the national resolution authorities are responsible for the resolution of banking groups that are not considered to be significant or cross-border groups. Banking groups that are not significant and in relation to which ECB has not decided to carry out consolidated supervision are subject to consolidated supervision carried out by the relevant national competent authority in accordance with the SSMR. According to the text of Article 2 SRMR, these groups cannot be resolved under the SRMR, because they are not subject to consolidated supervision by the ECB. These banking groups are however in scope of the SSM. The outcome that these groups are not in scope of the SRM seems to be incorrect and also unintended. Recital (15) SRMR states that the SRMR applies only in respect of banks whose home supervisor is the ECB or the national competent authority in Member States whose currency is the euro or in Member States whose currency is not the euro which have established a close cooperation with the ECB. It therefore seems that the scope of Article 2 SRMR should be read as including all banking groups that are in scope of the SSM, including the banking groups that are subject to consolidated supervision by the national competent authorities within the SSM.

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