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BackLast week, the European Commission presented its proposal on the Single Resolution Fund (SRF); the Commission’s intention is to close further legal loopholes in respect of the European banking union. The fund is part of the Single Resolution Mechanism, which regulates procedures in case of a crisis to ensure that banks are initially liable with their own assets. However, without a structural banking reform, it will remain a drop in the ocean.
According to the Commission’s proposal, the Single Resolution Fund shall have a volume of 55 billion euros; thereby amount to about one percent of all insured deposits in the banking union. The until recently still vague detailed question as to how much individual banks have to contribute, was presented to the Parliament last week. In general, the calculation is based on a bank’s size and its risk appetite. At the same time, there shall be exception provisions for small banks.
Hence, banks, whose liabilities do not exceed 250 million euros and whose assets amount to less than a billion will pay staggered flat-rate amounts, which lie between 1,000 and 50,000 euros p.a. The regulation relieves above all Volksbanken (co-operative banks) and Sparkassen (savings banks) and was in particular promoted by Germany, Spain and Austria. The Commission justifies this step by reasoning that these banks do in general have a significantly lower risk profile.
The size of the other banks is initially applied as their calculation basis. It is determined by the extent of their liabilities, after equity and insured deposits have been deducted. If the institute is particularly prepared to take risks, the amount may be increased by up to 50 percent; if it is particularly cautious, the amount may fall to 80 percent of the initial value. Michel Barnier, the outgoing Commissioner for Internal Market and Services, spoke of an important step, so that “banks could pay for themselves if they had a problem, instead of the taxpayer”. According to estimates of the Financial Times, the largest banks of the Eurozone will pay 90 percent of the total contributions to the 55 billion Single Resolution Fund.
Nevertheless, there are some critical voices coming from Parliament. Many MEPs feel that the proposal does not differentiate enough between size and risk appetite of a bank. They demand that the appetite to take risks shall be considered more so that banks, whose actions might lead to crises, can be made to discharge their duties accordingly. Particular harsh criticism in this context is reserved for the below-average consideration of derivatives.
Even though current measures and laws are heading in the right direction, they remain unsatisfactory. Without a structural banking reform, which for example separates investment business from normal banking activities more strictly and furthermore limits proprietary trading, which is associated with risks, they will remain a drop in the ocean.
Further information:
All Commission documents on the Single Resolution Mechanism
Hence, banks, whose liabilities do not exceed 250 million euros and whose assets amount to less than a billion will pay staggered flat-rate amounts, which lie between 1,000 and 50,000 euros p.a. The regulation relieves above all Volksbanken (co-operative banks) and Sparkassen (savings banks) and was in particular promoted by Germany, Spain and Austria. The Commission justifies this step by reasoning that these banks do in general have a significantly lower risk profile.
The size of the other banks is initially applied as their calculation basis. It is determined by the extent of their liabilities, after equity and insured deposits have been deducted. If the institute is particularly prepared to take risks, the amount may be increased by up to 50 percent; if it is particularly cautious, the amount may fall to 80 percent of the initial value. Michel Barnier, the outgoing Commissioner for Internal Market and Services, spoke of an important step, so that “banks could pay for themselves if they had a problem, instead of the taxpayer”. According to estimates of the Financial Times, the largest banks of the Eurozone will pay 90 percent of the total contributions to the 55 billion Single Resolution Fund.
Nevertheless, there are some critical voices coming from Parliament. Many MEPs feel that the proposal does not differentiate enough between size and risk appetite of a bank. They demand that the appetite to take risks shall be considered more so that banks, whose actions might lead to crises, can be made to discharge their duties accordingly. Particular harsh criticism in this context is reserved for the below-average consideration of derivatives.
Even though current measures and laws are heading in the right direction, they remain unsatisfactory. Without a structural banking reform, which for example separates investment business from normal banking activities more strictly and furthermore limits proprietary trading, which is associated with risks, they will remain a drop in the ocean.
Further information:
All Commission documents on the Single Resolution Mechanism