EU’s resolution board considers lessons from March banking turmoil, warns on emergency SR fund

In a bi-annual report to the Eurogroup , the EU’s Single Resolution Board (SRB) discussed among the topics the build-up of the Single Resolution Fund (SRF) and status quo of the common backstop to the SRF. The Single Resolution Fund (SRF) is an emergency fund that can be called upon in times of crisis.

The report referred to the market events in March that hit banks in the US and Switzerland, noting that overall, the direct and indirect effects on SRB banks were limited and the public measures taken in the US and Switzerland have specificities that make them hard to compare with the EU framework.

At the same time, the SRB highlighted some lessons:

  • These events were a reminder of how important he availability of liquidity is for resolution. The Swiss case confirmed that the needs of a GSIB could go beyond the SRF and its common backstop. Involvement of the Eurosystem in such cases would be necessary.
  • The recent events showed that times are changing with, notably, new technologies coupled with broad use of social media. Bank runs were unprecedented in volumes and speed. EU authorities including the SRB will need to take this into account. Equally, communication showed to be essential.
  • The SRB, jointly with the Single Supervisory Mechanism (SSM) and European Banking Authority (EBA), reacted swiftly to reassure markets on the creditor hierarchy that will apply in crises interventions under the EU framework. Markets reacted positively to this communication. Beyond this, the authorities will need to further reflect on cross-border cooperation and communication before and during crises.
  • These cases reaffirm the importance of transfer tools, and that “regional”, medium-sized banks can be critical. In this regard, the CMDI proposal by the European Commission, when taken in its integrity, has the potential to enhance the status quo with more realistic funding possibilities. Even though it does not complete the Banking Union, e.g. with a common deposit insurance, the Crisis Management and Deposit Insurance (CMDI) review does have the potential to significantly enhance the resolution toolkit in a way that protects critical functions and citizens.


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