Who decides? Resolving failed banks in a European framework. Bruegel Policy Contribution 2013/16, 29 November 2013

As the basis for a European regime for resolving failing and failed banks, the European Commission has proposed the Bank Resolution and Recovery Directive (BRRD) and a regulation establishing a European Single Resolution Mechanism (SRM) and a Single Bank Resolution Fund (SBRF). There is a debate about which parts of the proposed SRM-SBRF to add to the BRRD. The BRRD sets out a resolution toolkit that can be used by national resolution authorities. The SRM would involve European institutions more at the expense of national resolution authorities. This change could affect resolution outcomes. Domestic resolution authorities might be more generous than supranational authorities in providing assistance to banks. A supranational approach might be more effective in minimising costs for taxpayers. But regardless of the final design, more attention is needed to ensure that resolution authorities are politically independent from governments. When public support is provided to failed institutions it should come from a bankfunded resolution fund. This would reduce taxpayers’ direct costs, and would make banks less likely to take risks and advocate for bailouts.

Banking Union: are the EMU design mistakes being repeated? European Policy Brief No. 12, October 2012

This Policy Brief pleads for an unambiguous commitment by eurozone leaders to establishing a Banking Union that is based on all three of its pillars: common supervision, a single bank resolution authority and a joint deposit insurance. There is a clear risk that the EU will agree on common supervision, but subsequently fails to put in place the remaining elements of its Banking Union. By doing so, the EU would make the same mistake as when it designed EMU, namely, creating a system with built-in flaws that risks leading to huge costs and a questioning of the European project as such.

Estimating the Bridge Financing Needs of the Single Resolution Fund: How expensive is it to resolve a bank? CEPS Special Report No. 122, 25 November 2015

The Single Resolution Board (SRB) will be responsible for the resolution of banks in the euro area from 1 January 2016. However, the resources of the Single Resolution Fund (SRF) at the disposal of the SRB will only gradually be built up until 2023. This paper provides estimates of the potential financing needs of the SRF, based on the euro area bank resolutions that actually occurred between 2007 and 2014. We find that the SRF would have been asked to put a total amount of about €72 billion into these failing banks, which is more than the target for the SRF (€55 billion) but less than the amount the SRF could draw on, if the ex-post levies are also taken into account. As this sum would have been required over eight years, the broad conclusion is that bridge financing, in addition to the existing alternative funding, would only have been needed in the early years of the transition.

Will the Single Resolution Fund be a ‘baby tiger’ during the transition? CEPS Commentary, 17 December 2015

The short answer to this question is no! According to the authors’ calculations, even during its early years, the Single Resolution Fund (SRF) should be sufficient to deal with almost any crisis scenario imaginable. They caution, however, that its funding will be built up only gradually over the coming decade and there is thus a legitimate concern that the SRF will not be sufficient to deal with a major crisis.

Europe's single supervisory mechanism and the long journey towards banking union. Bruegel Policy Contribution 2012/16, 4 October 2012

Problems in the banking system are at the core of the current crisis. The establishment of a banking union is a necessary (though not sufficient) condition for eventual crisis resolution that respects the integrity of the euro. The European Commission’s proposal for the establishment of a Single Supervisory Mechanism and related reform of the European Banking Authority (EBA) do not and cannot create a fully-fledged banking union, but represent a broadly adequate step on the basis of the leaders’ declaration of 29 June 2012 and of the decision to use Article 127(6) of the treaty as legal basis. The proposal rightly endows the European Central Bank (ECB) with broad authority over banks within the supervisory mechanism’s geographical perimeter; however, the status of non-euro area member states willing to participate in this mechanism, and the governance and decision-making processes of the ECB in this respect, call for further elaboration. Further adjustments are also desirable in the proposed reform of the EBA, even though they must probably retain a stopgap character pending the more substantial review planned in 2014.