On 20 March 2014, the EU Parliament announced that it had reached agreement with the EU Council over the Single Resolution Mechanism (SRM). In no way slapping itself on the back, the Parliament noted that it had helped “to ensure that the system cannot become a hostage to political power games” by reaching agreement on the following points:
- The ECB will determine whether a bank is failing or likely to fail. The Board of the SRM (the Board) (comprising permanent members, the EU Commission, the EU Council, the ECB and national resolution authorities) may ask the ECB to make such a decision and if the ECB declines to do so, then the Board may step in. The EU Commission is responsible for assessing the Board’s use of its discretionary powers and endorsing or objecting to a resolution scheme. In certain circumstances, the Commission’s decision is subject to approval or objection by the EU Council;
- The Commission will adopt draft resolution schemes, which will be implemented by national resolution authorities. The EU Council will be involved only at the Commission’s express request in order to “avoid pervasive political interference”;
- The decision-making process with respect to resolution schemes has been streamlined and decision time-lines reduced with the result that a resolution scheme could be approved over the course of a weekend;
- The Single Resolution Fund (SRF) will be able to borrow so as to “increase its firepower”; and
- Mutualisation of the “national compartments” of the SRF will occur more quickly than was previously the case. With a target level of EUR 55 billion or 1% of covered deposits (whichever is greater), 40% is to be mutualised in the first year, 20% in the second year with the remainder over a further 6 years.
The agreement was welcomed both by Jose Manuel Barroso, President of the EU Commission and Michael Barnier, Internal Market and Services Commissioner. The draft text must now be adopted by both the EU Parliament and the EU Council. It is expected that the Parliament will vote on the SRM in its final plenary session, scheduled for April 2014. If passed, the SRM would enter into force on 1 January 2015, with bail-in taking effect from 1 January 2016.