How Single is the Single Resolution Mechanism?

Since the first of January 2016, the Single Resolution Mechanism (SRM) has become fully operational. For the Member States of the European Banking Union, the new regime entails the transfer of the decision-making on failing banks to the European level, specifically to the Single Resolution Board (SRB). The political sensitivity hereof is illustrated by the European and Italian reaction to the mounting troubles in some parts of the Italian banking sector. 

The new European regime raises the question if, and if so to what degree, Member States participating in the European Banking Union (EBU Member States) retain discretion in determining the course of action for, and future of, a troubled bank. In our paper, we explore this question along three lines of inquiry. 

First, we analyse the degree of harmonisation provided for by the BBRD and SRM. The second line of inquiry analyses EBU Member States' influence in the SRB's decision-making process. The third line of inquiry considers the possibilities (if any) for a public recapitalisation of troubled banks without applying the new general bail-in standard.

Our first line of inquiry leads us to conclude that the EBU Member States have surrendered the decision-making on bank resolution to the EBU level, specifically to the SRB. The SRM regulation, consequently, provides for maximum harmonisation, leaving no room for national resolution tools. National resolution powers which operate and compete in the same area as the SRM, such as the Dutch nationalisation law, must thus be held as inapplicable.

In the second line of inquiry, we found that the SRM has both a supranational and an intergovernmental dimension. While the SRB in its executive session has a strong supranational character, Member State influence in bank resolution decision remains present through the involvement of the Council and the SRB in plenary session in key decisions.

In the third line, we conclude that the rules imposed by the BRRD and SRM Regulation in combination with the State aid regime have rendered public recapitalisation without a bail-in virtually impossible. Outside of resolution process, national central banks may assist solvent banks through Emergency Liquidity Assistance. In addition, EBU Member States could turn to the possibility of precautionary recapitalisation to prevent control over a bank's fate from being shifted to the SRB. Such precautionary recapitalisation is however subject to strict conditions.

Danny Busch is Professor of Financial Law and, Mirik van Rijn and Marije Louisse are PhD candidates at Radboud University Nijmegen.