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Single Resolution Mechanism comes into effect

The European Union's Single Resolution Mechanism (SRM) came into effect on 1 January, implementing the Bank Recovery and Resolution Directive in the EU area.06 Jan 2016

The SRM is designed to improve the resilience of the EU banking system, and to help avoid future crises, the European Commission said.

The mechanism sets out rules on how to resolve, or wind up or restructure, failing banks.

Commissioner Jonathan Hill said: "We now have a system for resolving banks and of paying for resolution so that taxpayers will be protected from having to bail out banks if they go bust. No longer will the mistakes of banks have to be borne on the shoulders of the many."

A Single Resolution Fund (SRF) will be built up over a period of eight years with contributions from the banking industry, the Commission said.

The SRM will come into force when a bank is in severe financial difficulties, signalled by the Single Supervisory Mechanism (SSM). A single resolution board (SRB) will be set up, consisting of representatives from relevant national authorities, the SSM and the European Commission to decide when and whether to place the bank in resolution, and will set up a scheme for how this will be done and how the SRF will be used, the Commission said. This scheme will then be approved or declined by the Commission.

National resolution authorities will then be responsible for executing the scheme, overseen by the SRB, the Commission said.