Out-Law News 1 min. read
11 Jun 2015, 3:00 pm
The SRF is financed by the banking sector, and was set up along with the Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM) as part of the Banking Union that was agreed in response to the eurozone financial crisis, the European Commission has said.
If a bank fails, the SRM will manage resolution of the problem, with funding from the SRF to ensure minimal cost to taxpayers and the economy, the Commission said.
The SRF must have enough funding to support any resolution measures made by the Single Resolution Mechanism (SRM), the EBA said. The advice therefore recommends safeguards to make sure that the target level of funding is achieved by the end of the initial period.
The target is 1% of the covered deposits of all credit institutions authorised in all participating member states, and the initial period will end eight years from 1 January 2016 – that is, on 1 January 2024 – or eight years "from the date on which this provision is applicable", the EBA said.
Contributions do not have to be spread out evenly over the initial period, the EBA said. Pro-cyclical effects can be taken into account, and the advice includes a number of indicators for determining the phase of the business cycle and the risk of pro-cyclical effects. Constraints are also given on how much contribution levels can vary, the EBA said.
Other criteria look at how contribution levels should be determined when the SRF needs replenished after a significant amount has been used. Considerations are similar to those in the initial build-up, the EBA said, but the process may need to be speeded up "quite significantly to ensure that the target level is achieved as soon as possible", it said.
This may mean contributions of up to twice the amount made in previous years, it said.
Last month the EBA published guidelines on 'triggers for resolution': the circumstances that will cause an institution to be seen as failing, or likely to fail.