8.3.1 Impact of the resolution framework

Under the resolution framework, access to public funds is restricted and is determined according to which phase (recovery, resolution or insolvency) and under which legal instrument (BRRD or SRMR) the public funds are proposed to be used.

Within the resolution framework, the terms EPFS and ELA have been introduced to regulate the access to public funding for failing banks. Only, if public funding is captured by the definition of EPFS or ELA, can the resolution framework impact the access to such public funding. This means, for example, that public funding in the form of liquidation aid and interventions by Member States on market terms are not impacted by the resolution framework. The same applies to the payout function of the deposit guarantee schemes of Member States, while it is disputable for intervention by deposit guarantee schemes when taking alternative measures (section 5.2).

If public funding qualifies as EPFS or ELA, access thereto is restricted in several ways under the resolution framework: (a) through the resolvability assessment, (b) in the recovery and resolution plans, (c) by making EPFS a trigger for the exercise of the PONV conversion power, (d) by making EPFS a trigger for resolution, and (e) by making the access to EPFS subject to compliance with certain access criteria, including the application of a mandatory threshold for bail-in with respect to EPFS that is granted in resolution. With respect to ELA, a separate assessment framework applies that provides for access criteria (sections 5.3 and 5.4).

The access restrictions that are included in the resolution framework do not all restrict the access to public funding in the same way. Some of the access restrictions contribute to minimizing the total amount of public funds necessary to assist failing banks (absolute restriction), such as the mandatory bail-in of shareholders and creditors that apply with respect to certain forms of EPFS that are granted in resolution. Other access restrictions are more directed towards introducing a certain ‘public funding cascade’ in which taxpayers’ money (that is, Member State resources) is used as a last resort (relative restriction). For example, the use of national resolution funds and the SRF do not impede resolvability (section 5.5.1.1).

The access restrictions that apply under the resolution framework differ depending on whether it concerns the availability of public funding within or outside of resolution. The resolution framework therefore not only provides for access restriction, but also for access differentiation. The access differentiation that is created by the resolution framework can be explained by the different purposes that public funding may have. Public funding can be geared more towards addressing liquidity issues (liquidity support) or solvency issues (solvency (or capital) support). As a result, a distinction can be made between public funding that is available in the recovery phase, the resolution phase and the insolvency phase. This distinction furthermore differs depending on whether the public funding is available for banks and banking groups in the Eurozone (in scope of the SRMR) or banks and banking groups outside the Eurozone (in scope of the BRRD) (section 5.5.1.2).