The Single Resolution Mechanism in the European Banking Union: Legal Foundation, Governance Structure and Financing

This paper will be published as a separate chapter in: Matthias Haentjens & Bob Wessels (eds.), Research Handbook on Crisis Management in the Banking Sector, Edward Elgar Publishing Ltd, Cheltenham, UK, 2015 (Forthcoming)

46 Pages Posted: 5 Dec 2014 Last revised: 22 Jul 2015

See all articles by George S. Zavvos

George S. Zavvos

European Commission Legal Service

Stella Kaltsouni

European Securities and Markets Authority (ESMA); Leiden University

Date Written: September 15, 2014

Abstract

This paper analyses the most critical legal, institutional and governance issues underpinning the establishment of the Single Resolution Mechanism (SRM) which constitutes the second pillar of the European Banking Union. The architecture of the SRM combines a centralized model, where important powers are exercised at the EU level, with a decentralized execution of decisions carried out by the national authorities. The paper examines first, the legal and institutional foundations of the SRM which were of paramount importance during the negotiations for its establishment, since the EU Treaties did not explicitly provide for powers for the resolution of banks. Second, it analyses the complex governance structure, including the decision-making mechanism for the placement of a bank under resolution which is entrusted to the Single Resolution Board (SRB), an EU agency, enjoying significant powers. Finally, it assesses the role of the Single Resolution Fund (SRF) which will be endowed with EUR 55 Billion for the financing of resolution actions, and its relationship with the European Stability Mechanism (ESM).

The authors review critically the structure of the SRM decision-making process, where a number of other actors are involved (ECB, Commission, ESM), in terms of: a) efficiency, as the declared objective of the SRM is the adoption of ‘efficient, effective and speedy resolution decisions’ that need to be taken within a very tight time frame, frequently overnight and which will have far-reaching economic and legal consequences; b) legal certainty, as the new edifice should be resilient to legal challenges against its legal basis or/and the delegation of powers to the SRB; and c) political legitimacy, as EU institutions should represent the European (and not national) interest and should be accountable when carrying out and implementing fundamental EU policies, such as in the field of resolution.

The authors conclude that while the adoption of the SRM constitutes an important step towards the completion of the European Banking Union, some improvements, under the current EU institutional framework, may be necessary regarding, e.g. the reinforcement of the SRF financial capacity, the SRM decision-making process, the role of the ESM, the advancement of a certain form of a European Deposit Guarantee System. The increasing burden-sharing triggered by these financing mechanisms makes necessary the advancement towards the European Fiscal Union, which is indispensable for the credibility and sustainability of the European Banking Union.

Keywords: European Banking Union, Single Resolution Mechanism, Single Resolution Board

Suggested Citation

Zavvos, George S. and Kaltsouni, Stella, The Single Resolution Mechanism in the European Banking Union: Legal Foundation, Governance Structure and Financing (September 15, 2014). This paper will be published as a separate chapter in: Matthias Haentjens & Bob Wessels (eds.), Research Handbook on Crisis Management in the Banking Sector, Edward Elgar Publishing Ltd, Cheltenham, UK, 2015 (Forthcoming) , Available at SSRN: https://ssrn.com/abstract=2531907

George S. Zavvos (Contact Author)

European Commission Legal Service ( email )

Stella Kaltsouni

European Securities and Markets Authority (ESMA) ( email )

France

Leiden University ( email )

Postbus 9500
Leiden, Zuid Holland 2300 RA
Netherlands

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