Elke König of SRB on Liquidation Rules for Small and Medium-Size Banks
SRB published an article that advocates developing a common set of rules for liquidation of small and medium-size banks in EU. The article was written by the SRB Chair Elke König and was originally published in Views, the magazine of the Eurofi Forum held in Helsinki in September 2019. The article notes that building the capital buffers may be challenging for smaller fully deposit-funded banks. Therefore, a common set of rules for winding down such banks—for some SRB banks and all less significant banks—could be beneficial.
The article highlights that the decision to put a failing institution into resolution depends on the outcome of a “public interest assessment,” determining if the preservation of a bank’s critical functions is required to maintain financial stability. If outcome of the public interest assessment is negative, a failing bank will be sent into national insolvency. To increase transparency, SRB recently published a paper on public interest assessment, presenting the methodology and how SRB assesses the criteria set out by the EU law.
In due consideration of proportionality in resolution planning, the loss-absorption requirements for each institution are carefully adjusted to the choice of resolution tools. The banks, for which (in case of failure) no resolution is foreseen, do not have to build the Minimum Requirement for own funds and Eligible Liabilities (MREL) on top of their supervisory capital requirements for going concern. In contrast, for banks, whose preferred strategy is resolution, the MREL policy of SRB and its expectations for resolvability provide for certain adjustments to allow for proportionality as well. SRB can also grant transitional periods for banks to allow for a gradual build-up of MREL requirements. SRB must strike a careful balance between feasibility of the build-up of MREL and the credibility of the resolution strategy.
While there is one common European resolution scheme in the Banking Union, there are 19 national insolvency laws when winding-down a (cross-border) bank. A set of common standards, practices, and harmonized rules for the liquidation of banks would considerably facilitate resolution planning, increase predictability, and prevent diverging outcomes in different member states. Needless to say that administrative procedures might be preferable to judicial procedures. At the end of this process might stand the creation of a European bank liquidation regime—a European FDIC. Not only would this ensure centralized decision-making but also the application of a harmonized and effective toolbox supported by a European deposit insurance.
Related Link: Article
Keywords: Europe, EU, Banking Union, MREL, Resolution Planning, Proportionality, Capital Buffers, Deposit Insurance, Capital Requirements, SRB
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Related Articles
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA Publishes Risk Dashboard for Third Quarter of 2020
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Finalizes Guide on Supervisory Approach to Bank Consolidation
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
SRB Chair Outlines Work Priorities for 2021
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC Selects Companies to Compete in Final Phase of Tech Sprint
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.