ECB published an opinion (CON/2019/16) on participation in the Single Resolution Mechanism (SRM). The opinion was issued in response to a request from the Bulgarian Minister of Finance for an opinion on a draft law amending and supplementing the Law on the recovery and resolution of credit institutions and investment firms, the Law on Bulgarian National Bank (BNB), and the Law on the bank deposit guarantee (draft law). The draft law introduces provisions that the consulting authority considers necessary in relation to the application of SRM Regulation (EU Regulation 806/2014) in Bulgaria.
ECB understands that, under the existing law, BNB is already competent to apply both the bridge institution tool and the asset separation tool. BNB is the competent resolution authority to decide on a transfer to a bridge institution or an asset management vehicle of instruments of ownership, assets, rights, and liabilities. BNB is also competent to approve the operation of a bridge bank, a bridge financial holding company, or an asset management vehicle, upon proposal of the Bulgarian Deposit Insurance Fund (BDIF), while the capital of those entities is provided by the Bank Resolution Fund (BRF). The proposed transfer, to BNB, of the existing competences of the BDIF regarding the establishment and incorporation of bridge institutions and asset management vehicles does not confer genuinely new tasks on BNB. Rather, BNB’s proposed new administrative competences in relation to the management of the BRF complement the existing resolution tasks of BNB. The draft law specifies certain new administrative competences that BNB would exercise when carrying out its tasks as a resolution authority.
ECB understands that BNB will manage, but not own, the BRF. The role of a resolution fund that is managed within a central bank must remain consistent under all circumstances with the prohibition on monetary financing under Article 123 of the Treaty, as supplemented by Council Regulation (EC) No 3603/9326, which prohibits, inter alia, any financing by a central bank of the public sector’s obligations vis-à-vis third parties. While administrative resolution tasks may be considered to be central banking tasks, the discharge of these tasks by central banks may not extend to the financing of resolution funds or other financial arrangements related to resolution proceedings, as these are governmental tasks. Where a resolution fund established within a central bank holds capital of a bridge institution or an asset management vehicle, it should be clarified, for the avoidance of doubt, that the central bank will not employ its resources, other than those collected in the resolution fund, to assume or finance any obligation of these entities.
ECB notes that the BNB, the members of the BNB Governing Council, and the BNB staff are not held liable for acts or omissions in the course of discharging their duties under the Law on the recovery and resolution of credit institutions and investment firms, unless they acted intentionally. ECB understands that this provision applies also in relation to the draft law and the BNB’s tasks of managing the BRF and acting as the depository of the Investment Firm Resolution Fund (IFRF).
Related Link: ECB Opinion (PDF)
Keywords: Europe, Bulgaria, Banking, SRMR, Recovery and Resolution, CON/2019/16, Opinion, SRB, BNB, ECB
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