Investing for stability: What does the SRB do with the €80 billion SRF when it is not needed for resolution?

Managing the Single Resolution Fund (SRF) involves balancing two critical objectives: safeguarding the fund’s value through prudent investment, while ensuring high liquidity so that funds can be accessed at short notice during a resolution. This dual imperative – capital preservation and liquidity – requires a careful, forward-looking strategy. The SRF is not intended to be needed very often – in fact, it has never been used since 2016. So, what do we do with all these billions of euros when the SRF is not being used as part of a resolution? 

The SRF is invested in line with fairly conservative risk guidelines, focusing on highly liquid and secure instruments. This strategy ensures that if a crisis strikes, the fund is able to act swiftly and decisively. Yet it also demands continuous attention to macroeconomic trends and market conditions. Inflation, for example, can erode real returns, while market volatility can affect liquidity. As such, the Single Resolution Board (SRB) must remain agile and proactive, ensuring that the fund is not only sufficient in size, but also fit for purpose.

The SRF is ready to step in should a bank fail, and its careful management ensures that it remains robust, accessible, and effective when needed. While a previous blog explored what the SRF is and why it matters, here we look at how the SRF is invested and managed to meet its strategic objectives.

We operate the SRF’s investment strategy under a clearly defined regulatory framework. Investment decisions must comply with Commission Delegated Regulation (EU) 2016/451 and 2015/63 and Council Implementing Regulation (EU) 2015/81, which set out the rules for contributions by banks and the operational principles of the Fund. These legal texts enshrine two core investment principles: security and liquidity. Maximising returns is secondary to these priorities.

Our SRF Investment Strategy reflects this: the fund is invested in a manner that prioritises preserving its value and ensuring sufficient liquidity to cover resolution needs. 

We must walk a thin line between several competing demands:

• Liquidity: Funds must be available at very short notice. If a bank resolution is decided , the SRB may need to access significant amounts of cash rapidly. This means the SRF cannot be tied up in long-term, illiquid investments.
• Security: The primary aim is capital preservation. The SRB favours safe investments, such as high-quality government bonds or deposits with central banks, minimising the risk of losses.
• Stability: The SRB must ensure that the SRF remains resilient across different market conditions. With global economic volatility, inflation, and geopolitical tensions influencing markets, the Fund’s assets must be able to withstand potential shocks.
• Market sensitivity: One critical – but often less visible – aspect of managing the SRF is avoiding market signals. Large or sudden movements by a public authority like the SRB could inadvertently indicate that a crisis is unfolding. Therefore, investment actions, particularly withdrawals, must be handled discreetly and systematically to maintain market stability.

As for any normal investor, for the SRB, diversification in our investment strategy is essential. At present, the SRF holds assets totalling approximately €80 billion, funded by contributions from over 3,000 banks across the Banking Union. These assets are allocated primarily into the following types of investments:

• Cash deposits: Highly liquid, typically placed with central banks or other secure institutions.
• Highly rated sovereign bonds: Bonds issued by EU Member States with strong credit ratings. These provide security while allowing relatively quick conversion into cash if necessary.
• Other liquid assets: In line with stringent criteria laid down in the SRB’s investment guidelines.

Importantly, we have to make sure all investment operations are carried out with the utmost prudence, and we continually monitor evolving financial conditions to adjust the portfolio composition when needed, albeit the portfolio is passively managed.

By ensuring that the SRF is invested wisely, conservatively, and with liquidity always in mind, the SRB keeps one of its most powerful tools ready at hand. When a bank fails, the SRF can be used to facilitate resolution actions, support critical functions, and ultimately protect taxpayers and financial stability.

The strength of Europe’s banking system does not rest solely on its preventative measures. It also relies on credible, ready-to-deploy instruments like the SRF that can support a resolution to protect the taxpayer and promote financial stability.