5.6 Conclusion

This chapter discussed the access to public funding for failing banks after the introduction of the resolution framework. The resolution framework introduced the terms EPFS and ELA to regulate access to public funding. Only, if public funding falls within scope of one of these concepts, is the access thereto regulated by the resolution framework. 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.

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 in respect of – certain forms of – EPFS granted in resolution. In respect of ELA, a separate assessment framework applies that provides for access criteria.

The access restrictions included in the resolution framework do not all restrict access to public funding in the same way. Some contribute to minimising 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 in respect of – certain forms of – EPFS granted in resolution. Others are more directed towards introducing a certain ‘funding cascade’ in which taxpayers’ money (that is, Member State resources) is used in the last instance (relative restriction). For example, the use of national resolution funds and the SRF do not impede resolvability.

The access restrictions that apply under the resolution framework differ depending on whether it concerns the availability of public funding in or outside of resolution. The resolution framework therefore not only provides for access restriction, but also for access differentiation. The access differentiation 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 available in the recovery phase, the resolution phase and the insolvency phase. This distinction 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).

This chapter recognised that there are still some hurdles in restricting access to public funding. The concepts of EPFS and ELA need further refinement in order to limit uncertainty and mitigate unintended consequences. In addition, currently, public funding sources in resolution are more geared towards solvency support. A bank in resolution may however also be in need of liquidity support. At the time of writing this dissertation, whether the ECB could provide an additional liquidity facility in resolution – without such qualifying as State aid – is a subject of discussion. Furthermore, although the resolution framework aims to protect public funds, financial stability is the overriding goal. As a result, bail-outs are sometimes preferable to bail-in due to financial stability (or financial) considerations. Other hurdles are the lack of backstops to public funding resources that are not provided by the Member States, and that it is the prerogative of Member States to decide whether or not to grant State aid to a failing bank. Abolition of the hurdles identified in this chapter may further contribute to restricting the access to public funds. In the author’s view, it is, however, more important to find the right balance between financial stability and the protection of public funds than restricting the access to public funding against all costs.