Public funding of failing banks in the European Union (LBF vol. 19) 2020/5.3.5.2:5.3.5.2 Access to contributions from national resolution funds or the SRF

Public funding of failing banks in the European Union (LBF vol. 19) 2020/5.3.5.2

5.3.5.2 Access to contributions from national resolution funds or the SRF

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The national resolution funds and the SRF are new means of public funding introduced under the resolution framework. Although they are a form of public funding, they are both funded by contributions from the banking sector. The resolution framework enables access to these forms of public funding for banks that are put in resolution. The SRF can only be used in relation to the resolution of banks and banking groups within the scope of the SRM. National resolution funds can only be used in relation to the resolution of banks and banking groups outside the scope of the SRM.

The resolution framework provides for certain access criteria in respect of the national resolution funds and the SRF.

Access criterion 1: Specified use

The national resolution authorities may use the national resolution funds only to the extent necessary to ensure the effective application of the resolution tools, for the following purposes: to guarantee the assets or the liabilities of the bank under resolution, its subsidiaries, a bridge bank or an asset management vehicle, to make loans to these entities, to purchase assets from the bank under resolution, to make contributions to a bridge bank or asset management vehicle, to pay compensation to shareholders or creditors, or to make a contribution to a bank under resolution where the bail-in tool is applied and the resolution authority decides to exclude certain creditors from the scope of bail-in.1 The national resolution funds may also be used with respect to the purchaser in the context of the sale of business tool.2

As set out in section 5.3.5.1, national resolution funds have already been used as a funding tool in resolution cases.

The SRB may use the SRF under the same conditions as the national resolution authorities use the national resolution funds.3

Access criterion 2: Bail-in and cap when used for loss absorption or recapitalisation

The national resolution funds and the SRF may not be used directly to absorb the losses of a bank in resolution or to recapitalise such a bank. An exemption applies in case the resolution authorities have decided to fully or partially exclude eligible liabilities from bail-in in accordance with Article 44(3) BRRD (Article 27(5) SRMR) and the losses that would have been borne by those liabilities have not been passed on fully to other creditors. In such a case, the national resolution funds or the SRF may make a contribution to cover any losses that have not been absorbed, or purchase shares or other instruments in the bank in resolution for recapitalisation purposes, but only where:

(a)

A contribution equal to an amount not less than 8% of the total liabilities and own funds of the bank in resolution has been made by the shareholders and creditors of the bank; and

(b)

The contribution of the national resolution fund or the SRF does not exceed 5% of the total liabilities and own funds of the bank in resolution.4

Ad a: In case of small banks (banks with assets below EUR 900 billion on a consolidated basis) a derogation from sub (a) can be applied, entailing that the national resolution fund may also make a contribution where (i) a contribution equal to an amount not less than 20% of the TREA of the bank in resolution has been made by the shareholders and creditors of the bank, and (ii) the national resolution fund has at its disposal, by way of ex ante contributions, an amount which is at least equal to 3% of covered deposits of all banks authorised in the territory of the relevant Member State.5 This derogation does not apply in relation to contributions by the SRF.6

Ad b: In extraordinary circumstances, the national resolution fund or the SRF may make a further contribution than 5% of the total liabilities and own funds of the bank, but only where all unsecured, non-preferred liabilities, other than eligible deposits, have been written down or converted in full.7 A contribution may be made in that case from resources of the national resolution fund or the SRF which have been raised through ex ante contributions and which have not yet been used.8

The conditions set out above under (a) and (b) also apply in the event that the use of national resolution funds or the SRF indirectly results in part of the losses being passed on to them.9

Access criterion 3: Approval by the Commission

Where the exclusion of certain liabilities requires a contribution by the national resolution fund or the SRF, the Commission may, within 24 hours of receipt of such a notification, or a longer period with the agreement of the resolution authority, prohibit or require amendments to the proposed exclusion, if the requirements under the resolution framework are not met, in order to protect the integrity of the internal market. This is without prejudice to the application by the Commission of the State aid regime for the banking sector.10

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