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EU Agrees ‘Big Bazooka’ for Failing Banks

On 21 May 2014, the Council of the EU published an intergovernmental agreement (IGA) regarding the mutualisation of contributions to the Single Resolution Fund (SRF), part of the Single Resolution Mechanism (SRM).

The SRF will be funded by contributions from banks at a national level.  Contributions will be calculated as the proportion which a bank’s liabilities represent to the aggregate liabilities of all institutions within the SRF mechanism, adjusted to take account of the risk profile of the institution in question.  Contributions will be mutualised over an eight year period to a target level of at least 1% of covered deposits of all credit institutions in participating Member States (roughly equal to about EUR 55 billion).  The mutualisation process will be front-loaded, with 40% being mutualised in the first year, 20% in the second year, and the remainder being equalised in equal proportions over the remaining six years of the transitional period.

The IGA will enter into force on the first day of the second month following ratification by 90% of the votes of participants (calculated on a weighted basis).  Participants have indicated that they intend to complete the ratification process in time to permit the SRM to be fully operational by 1 January 2016.

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