Regulation 2014/806 - Uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund - Main contents

Summary of Legislation
Legislative text

1. Summary of Legislation

Failing banks and investment firms: rules and procedures

SUMMARY OF:

Regulation (EU) No 806/2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund

Regulation (EU) 2019/877 amending Regulation (EU) No 806/2014 as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms

WHAT IS THE AIM OF THE REGULATION?

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Regulation (EU) No 806/2014 sets out the structure of the Single Resolution Board (SRB). It is made up of a chair, a vice-chair, 4 permanent members and the authorities from all participating EU countries. It operates in:
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  executive sessions: the chair, 4 further independent full-time members, 2 permanent observers appointed by the European Commission and by the European Central Bank (ECB) and, in specific cases, representatives of national resolution authorities of participating countries or other observers; and
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  plenary sessions: the full board, as above, and representatives of all national resolution authorities of participating countries.

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It introduces uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms through a single resolution mechanism and the use of a single resolution fund.
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While the regulation applies to euro area countries, other EU countries are also allowed to participate.
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Regulation (EU) 2019/877 amends the original regulation to incorporate in EU legislation international standards on loss-absorption and recapitalisation for banks set by the Financial Stability Board.

KEY POINTS

The Single Resolution Board

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When a bank is deemed to be in a crisis situation, the board may put together a resolution scheme that is passed on to the Commission for formal approval. If the Commission has no objections, the scheme should be adopted within 24 hours. In some specific cases, the Commission can request the Council to approve its amendments to the scheme.
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A resolution scheme of less than €5 billion from the single resolution fund is decided in executive session board meetings, which only include the national resolution authority from the EU country where the bank in crisis is located.
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When more than €5 billion is needed, decisions are taken by the plenary session.

The single resolution fund

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Funded by banks from 2016 onwards, the single resolution fund should amount to 1% of insured deposits in all participating EU countries (for a total of around €55 billion) in 2024. Along with the regulation, an intergovernmental agreement was signed between participating EU countries. This allows for:
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  the transfer of banks’ contributions to national compartments of the fund; and
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  the progressive mutualisation* of those contributions in the fund.

Single resolution mechanism

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Together, the SRB and the single resolution fund make up the single resolution mechanism. This system and the single supervisory mechanism, that gives supervisory powers to the ECB, are the foundations of the EU’s banking union, which applies to euro area countries. Other EU countries may also participate.

Banks covered

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The SRB is responsible for the resolution of all banks that are supervised by the ECB. As in the case of the single supervisory mechanism, the SRB is directly responsible for the largest banks that are directly supervised by the ECB and for other cross-border banks.
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Other banks remain under the direct responsibility of their national resolution authorities. However, they remain under the indirect responsibility of the SRB, and the SRB may step in if their resolution scheme requires the use of the single resolution fund.

Calculation of individual institutions’ contributions

Regulation (EU) 2015/81 lays down rules relating to the obligation of the SRB to calculate the contributions for individual institutions and the methodology for their calculation.

Loss-absorbing and recapitalisation capacity of credit institutions and investment firms

In incorporating international standards on loss absorption and recapitalisation into EU law for global systemically important banks and amending the existing rules for other banks, Regulation (EU) 2019/877 provides for the rules for banks to deal with losses by ensuring that they hold enough capital and other liabilities to minimise as much as possible any taxpayer bail-outs.

WHEN DOES THE REGULATION APPLY?

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Regulation (EU) No 806/2014 has applied since 1 January 2016. However, some rules, such as the start of the board’s activities, have applied since 1 January 2015.
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Regulation (EU) 2019/877 applies from 28 December 2020.

BACKGROUND

For more information, see:

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Single resolution mechanism (European Commission)
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Single supervisory mechanism (European Commission).

KEY TERMS

Mutualisation: the process by which the costs of restructuring are shared by the participating banks.

MAIN DOCUMENTS

Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 225, 30.7.2014, pp. 1-90)

Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 806/2014 as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms (OJ L 150, 7.6.2019, pp. 226-252)

Contents

1.

Summary of Legislation

2.

Legislative text