5.1 Introduction

This chapter assesses and analyses the impact of the resolution framework on the access to public funding as a remedy for failing banks. This impact can be described as (the attempt to) restrict the access to and use of public funding by failing banks. The delicacy of this impact has already been demonstrated by the turmoil in Italy, including, inter alia, the bail-out of Banca Popolare di Vicenza and Veneto Banca with the help of Atlante, a private-sector backstop fund – and their subsequent liquidation – and the ‘precautionary recapitalisation’ of Banca Monte Dei Paschi di Siena (MPS). In these cases, Italy tried to find a way to fund banks without applying the strict resolution framework, including its bail-in requirements. In the case of Banca Popolare di Vicenza and Veneto Banca, the funds received from Atlante were not considered State aid. The subsequent liquidation of Banca Popolare di Vicenza and Veneto Banca, including the award of State aid, took place outside the scope of the resolution framework. Although the recapitalisation of MPS did involve the award of State aid, it did not trigger resolution as the recapitalisation qualified as a so-called precautionary recapitalisation. By its actions, Italy may have stretched the limits that the resolution framework sets on the access to public funding, as a result of which the resolution objective of protecting public funds may be jeopardized. But, it may also be a signal that the current resolution framework is not flexible enough, thereby jeopardizing the objective of financial stability.1

Section 5.2 explains the concepts of EPFS and ELA that have been introduced in the resolution framework to regulate the access to public funding. Sections 5.3 and 5.4 subsequently discuss the access to EPFS and ELA under the resolution framework. Section 5.5 discusses the impact of the resolution framework on the access to public funding as a remedy for failing banks and identifies the hurdles in restricting this access. Section 5.6 concludes this chapter.