8.3.2 Hurdles

Although the resolution framework restricts the access to EPFS and ELA, depending on in which phase (recovery, resolution or insolvency) and under which legal instrument (BRRD or SRMR) the public funds are used, there are still some hurdles in restricting such access.

First, the concepts of EPFS and ELA need further refinement in order to limit uncertainty and mitigate unintended consequences. An example is the (potential) qualification of alternative measures taken by deposit guarantee schemes as EPFS, as a result of which resolution is triggered, while alternative measures are only available outside of resolution (section 5.5.2.1). Secondly, public funding that addresses liquidity issues (liquidity support) is not sufficiently available for banks in resolution (section 5.5.2.2). Thirdly, both the State aid regime and the resolution framework prioritise maintaining financial stability above protecting public funds in a last resort situation. This means that sometimes taxpayers have to contribute to the losses of banks, in order to avoid any further – potentially catastrophic – losses and to ensure financial stability (section 5.5.2.3). Fourthly, there is a lack of backstops to public funding resources that are not provided by the Member States. The standing of a banking system depends on the strength and credibility of the backstop of the available resources, especially in the case of a full-blown systemic crisis. As long as this backstop is provided by the Member States, it will still be the Member States that will ultimately carry the burden of failing banks (section 5.5.2.4). Fifthly, it is still the prerogative of Member States to decide whether or not to grant State aid to a bank. The SRB and national resolution authorities cannot prevent a Member State from providing State aid to a failing bank. Only the Commission can order the repayment of unlawful aid in accordance with Article 108(2) TFEU. The resolution framework does, however, restrict this prerogative by setting access criteria with respect to certain forms of public funding, such as the GFST, precautionary guarantees and precautionary recapitalisation (section 5.5.2.5).