What is the Single Resolution Fund?
The Single Resolution Fund (SRF) is an emergency fund that can be called upon in times of crisis. It can be used to ensure the efficient application of resolution tools for resolving failing banks, after other options, such as the bail-in tool, have been exhausted. The SRF ensures that the financial industry as a whole ensures the stabilisation of the financial system. All banks across the 21 Banking Union countries must pay by law the contributions to the SRF. The SRF ensures that taxpayers are not first in line to provide funds to the bank, should extra funding be required.
The SRF has been built up over a period of 8 years (2016-2023) and, reached its target level of at least 1% of the amount of covered deposits of credit institutions in all 21 Banking Union countries at the end of 2023.
The individual amount each bank owes is calculated pro-rata to the amount of its liabilities (excluding own funds and covered deposits) in respect of the aggregate liabilities (excluding own funds and covered deposits) of all the credit institutions and certain investment firms in Banking Union countries. Amounts banks owe to the fund are in proportion to the risk profile of each institution.
Going forward, the new backstop to the SRF is planned to be introduced. This is an additional emergency fund, operated by the European Stability Mechanism, that can be called upon and roughly doubles the size of the SRF. The backstop is provided through public money to offer immediate support and confidence to the market and has to be paid back in the years after its use by all of the banks in the Banking Union, so that taxpayers are fully reimbursed.
The Initial Period for the constitution of the Single Resolution Fund ended on 31 December 2023.
After reaching the target level for the first time at the end of the initial period, the SRB will continue to verify on an annual basis whether the available financial means have diminished below the target level in the relevant contribution period. Should the means in the SRF diminish below the target level which is set at least 1 % of covered deposits in the Banking Union (because of a sharp increase in covered deposits and/or a depletion of the available financial means), contributions to the SRF may restart.
In order to stand ready to collect contributions, the SRB has to continue collecting the necessary data from the banks for the plausible calculation of their contributions.
Using the Single Resolution Fund in Resolution
Within the resolution scheme, the SRF may be used only to the extent necessary to ensure the effective application of the resolution tools, as last resort, in particular:
- To guarantee the assets or the liabilities of the institution under resolution;
- To make loans to or to purchase assets of the institution under resolution;
- To make contributions to a bridge institution and an asset management vehicle;
- To make a contribution to the institution under resolution instead of the write-down or conversion of liabilities of certain creditors under specific conditions;
- To pay compensation to shareholders or creditors who incurred greater losses than under normal insolvency proceedings.
The SRF shall not be used to absorb the losses of an institution or to recapitalise an institution. In exceptional circumstances, where an eligible liability or class of liabilities is excluded or partially excluded from the write-down or conversion powers, a contribution from the SRF may be made to the institution under resolution under two key conditions, namely:
- Bail-in of at least 8%: losses totalling not less than 8% of the total liabilities including own funds of the institution under resolution have already been absorbed by shareholders after counting for incurred losses, the holders of relevant capital instruments and other eligible liabilities through write-down, conversion or otherwise;
- Contribution from the SRF of maximum 5%: the SRF contribution does not exceed 5% of the total liabilities including own funds of the institution under resolution.
Available financial means
The National compartments built within the Single Resolution Fund during the Initial Period, are now fully merged in accordance with the Intergovernmental Agreement (IGA). Consequently, National compartments have effectively ceased to exist at the end of the initial period.
In accordance with the IGA waterfall, the available financial means in the SRF are now fully mutualised.