4.2.2 Need for harmonization

As the GFC evolved into a sovereign crisis, the financial position of certain Member States deteriorated significantly. As a result, certain Member States introduced (by means of public law) bail-in requirements that went beyond the bail-in requirements set by the Commission in the State aid regime for the banking sector. Examples are the Netherlands and Denmark. In addition, other Member States had to apply for EFSF/ESM support as a result of which stricter burden-sharing requirements applied as a program conditionality.1 Although the 2013 Banking Communication strengthened the burden-sharing requirements, it did not lead to the desired harmonization of the approach by Member States of failing banks. In addition, there was a lack of a cross-border cooperation framework for the resolution of banks, as a result of which national resolution tools were applied at the level of each entity rather than at the level of the cross-border group.2 This raised the risks of reduced confidence, competitive distortions, high bail-out costs carried by taxpayers and legal uncertainty.3

The Larosière report of 25 February 2009 planted the seed for a harmonized resolution regime by concluding that “[t]he lack of consistent crisis management and resolution tools across the Single Market places Europe at a disadvantage vis-à-vis the US and these issues should be addressed by the adoption at EU level of adequate measures”.4 This report was followed by a Communication of 20 October 2009 from the Commission in which it confirmed that Europe needs a strong regulatory framework that covers prevention, early intervention, bank resolution and winding up.5 The Communication of 20 October 2009 eventually led to the publication of the proposal for the BRRD on 6 June 2012.

Less than two years after the publication of the proposal, on 15 May 2014, the adoption of the BRRD formed the first significant step towards harmonisation of the rules relating to the resolution of banks across the EU. The SRMR was adopted two months after the BRRD on 15 July 2014. The adoption of the SRMR was motivated by the fact that the BRRD had only established minimum harmonisation rules and had not led to centralization of decision-making in the field of resolution. The BRRD essentially provided for common resolution tools and resolution powers available for the national authorities of every Member State, but left discretion to na tional authorities in the application of these tools and in the use of national resolution funds in support of resolution procedures.7 According to the recitals of the SRMR, the BRRD does therefore not completely avoid the taking of separate and potentially inconsistent decisions by the Member States regarding the resolution of cross-border groups which may affect the overall cost of resolution. Moreover, as it provides for national resolution funds, it does not sufficiently reduce the dependence of banks on the support from national budgets and does not completely prevent different approaches by Member States to the use thereof.8 The purpose of the SRMR therefore is to provide a common framework on bank recovery and resolution for banks and bank groups that are established in the participating Member States of the SSM.9 The SRMR accompanies the SSMR under which the application of the prudential supervision rules is entrusted to the ECB, thereby addressing the misalignment between the central supervision by the ECB of banks in participating Member States and the national treatment of these banks in the resolution proceedings.10

The SRMR establishes a centralised power of resolution, in the form of the SRB working together with the national resolution authorities of the participating Member States of the SSM in order to enhance the uniform application of the resolution framework in these Member States. In addition, the SRMR also provides that the SRF is built up over a period of 8 years as a funding resource for banks that are established in the participating Member States.