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Dear Ladies, dear Gentlemen,
Let me first thank Banco de Portugal and Governor Mário Centeno for organising this conference and inviting me, as well as many of the Single Resolution Board (SRB) former and current Board Members, to celebrate the 10 years of the Single Resolution Mechanism (SRM) together in Lisbon today.
I am very pleased to be standing here with you today, also for personal reasons. As some of you know, when I joined the SRB for my first mandate in 2015, I was in charge, among other things, of the Portuguese banking sector. It is definitely a good remembrance!
Coming together to celebrate a decade of the SRM in an event organised by the Portuguese national resolution authority (NRA) really goes to show how far we have come since the great financial crisis.
This morning, I would like to reflect on some of these transformative achievements that have paved this decade-long journey of the SRM, and also offer some short views on the challenges ahead.
1. We built a robust resolution framework from the ground up
Nowadays, the SRM stands strong as the second pillar of the Banking Union, ensuring that failing banks can be resolved effectively with minimal impact on taxpayers and the broader economy.
But let me remind you that the resolution framework and the SRM began as ideas on a piece of paper, very theoretical concepts that many doubted could be put in place. Back then, this even set us apart from the first pillar of the Banking Union, which was largely modelled after existing systems with existing regulations.
The idea was that we could move away from government interventions and bank bailouts, which had proven extremely costly to taxpayers during the great financial crisis and deal with banking crises at a European level in an orderly way, without relying on any public financial support.
The establishment of the SRM, made up of the SRB and the NRAs, achieved it. In only a few years, the SRM successfully resolved several banks without using a single euro of taxpayers’ money. The successful resolutions of Banco Popular in 2017 and Sberbank Europe in 2022 were certainly major achievements.
This first decade effectively saw the SRB and NRAs putting flesh on the bones of the EU’s resolution framework, ensuring that resolution would become a credible option in a crisis scenario.
To name a few transformative achievements over the last decade that today constitute the foundations of our resolution framework:
The Single Resolution Fund, which is financed by contributions from the banking sector and acts as an emergency fund in crises. It reached its target level after eight years and now amounts to ca. EUR 80 bn.
All banks in the Banking Union have reached their targets of Minimum requirement of eligible liabilities (MREL), I mean their loss-absorption capacity, and made significant strides to build up robust capabilities to meet the expectations set out by the SRB to prepare for an orderly resolution.
With the NRAs, the SRB developed a complete set of policies from scratch that translate the Level 1 text into operational guidance for banks. It is safe to say that our policy framework has now reached a good level of maturity, even if some pieces still need to be added, for instance on the combination of resolution tools.
Finally, the SRB grew from a start-up-like structure with a handful of staff in a small office space in the European District of Brussels into a mature agency with close to 500 staff members and modern offices in Treurenberg. In parallel, NRA staff went from zero, in general, to reach around 350 staff members all around the Banking Union today!
These achievements are concrete evidence of the SRM’s contributions to financial stability in Europe. As we now enter into the second phase of a more mature SRM with the SRM Vision 2028 strategy, it is worth recalling this first phase was no walk in the park.
All these achievements are the fruits of hard work from dedicated staff all over Europe, who invested a lot of time and effort into building something truly exceptional.
A high number of our decisions were challenged in front of courts or our Appeal Panel, and, all in all, we have been reinforced by case law. This means that the decisions we took were sound and safe. The second panel will surely tell us more about this.
This brings me to my second point – the key ingredient that has made this progress possible: the effective cooperation with NRAs.
2. The seamless collaboration and engagement with NRAs constitute the foundation of a well-functioning SRM
In the direct aftermath of the financial crisis of 2008, Mervyn King, the then Governor of the Bank of England, famously noted that banks were global in life but national in death.
The SRM was set up to address the challenges posed by this disparity – to provide for strong, centralised and independent decision-making that overcomes the pitfalls of uncoordinated action and regulatory arbitrage by banks.
There are clear benefits to this system. On the one hand, this system, with the SRB at its core, ensures that planning for resolution and decisions are carried out in a consistent way and in coordination with the relevant NRAs, which can prove particularly important for resolving institutions operating across borders. On the other hand, a decentralised structure also means that one can draw on the valuable knowledge of the local banking sector and in-depth expertise only the NRAs possess.
Within the Mechanism, Portugal has always had a special relationship with resolution. Not only was Portugal one of the first Member States in the EU to adopt a resolution framework, but it was also one of the first to be faced with two resolution cases (Banco Espírito Santos in 2014 and Banco Internacional do Funchal in 2015), before the BRRD and SRM even entered into force.
This experience of course set Banco de Portugal apart from other NRAs.
Banco de Portugal entered the SRM with a deep understanding of bank resolution and its implications for the broader economy. This was also felt by our staff in Brussels from the very start during exchanges with Portuguese banks. Resolution has always been a very tangible and credible option in a crisis that did not only affect others, but could also concern them. This mindset definitely shaped the Portuguese approach to resolution.
Over the years, the SRM has greatly benefited from Banco de Portugal’s wealth of expertise, especially on transfer strategies and bridge banks. It is an excellent example of how experience from NRAs can reinforce the Mechanism as a whole and help foster a European approach to resolution planning and decision-making, drawing on best practices.
It is also based on experiences like this one that we designed the Vision 2028 for the SRM. The Vision 2028 puts the cooperation between the SRB and NRAs at the heart and we are continuously finding ways to increase collaboration. We have for example integrated colleagues from NRAs into working groups at staff level where they participate in shaping policies. We are also working on finding new ICT solutions to increase information sharing to the next level within the SRM.
Before moving to my next point, let me stress that the success of the SRM of course does not rest on a close cooperation with the NRAs alone. The staff from the SRB and NRAs collaborate very closely with the teams from the Single Supervisory Mechanism (SSM) to improve resolution planning for banks and crisis procedures. In a similar vein, we are also in close contact with authorities from non-Banking Union European Union Member States and third countries. Financial stability is a common good, which does not stop at any borders.
3. A more resilient banking sector thanks to resolution planning and crisis preparedness efforts during peace times
Another achievement I wish to draw your attention to is one that too often goes unnoticed. That is the work that goes into resolution planning and crisis preparedness during peace times.
Our work usually becomes visible when a bank fails… Fortunately, this is rare! But when this happens, we need to be prepared.
The colleagues who are members of Internal Resolution Teams (IRT) will know how much work goes into resolution planning. Over the last decade, staff from the SRB and the NRAs have developed resolution plans for all the banks in the Banking Union – this means more than 120 resolution plans! These plans cover many dimensions, from banks’ resolution strategies, to their MREL resources and their capacities to ensure the continuity of their operations or face liquidity stress in resolution. I can of course not forget all the plans developed by NRAs for their Less Significant Institutions.
Resolution planning is now taking a different form as we shift our focus to the operationalisation of banks’ resolvability capabilities. I can tell you that IRTs are very busy these days with the finalisation of their banks’ priority letters and multi-annual testing programmes, which will provide banks with an overview of the tests they will need to perform over a three-year period. Developing and assessing these tests for the banks has been a very time-intensive exercise, but I am confident that they will contribute to improving banks’ resolvability across all dimensions of the Expectations for Banks.
Let me also add here that these bank-led tests will be complemented by deep dives and on-site inspections, which will be carried out by the SRB and the NRAs.
The second important strand of our work to ensure operational readiness are the simulation exercises and dry runs we perform on ourselves to test our protocols and processes within the SRM and with third parties.
For a resolution to be successful in a structure like the SRM, cooperation needs to work seamlessly. This is why, over the last years, the NRAs, supported by our Crisis Preparedness and Management Unit, have been developing National Handbooks, which lay out the procedures to follow in a crisis. In parallel, the SRB has been organising so-called ‘crisis days’ to which NRAs also participate. These simulate the runway to resolution and are meant to enhance crisis preparedness across the SRM.
Let me also briefly mention that the SRB participates in a series of further simulation exercises. These aim at testing crisis escalation procedures in the Banking Union, with the SSM as part of the Cyber dry run for example, but also in an international setting, as with the Trilateral Principal Exercise – TPLE in our jargon – which simulates the failure of a globally systemically important bank (G-SIB) and focuses on the cross-border aspects of resolution actions.
At the end of the day, these achievements – although less visible to the public than resolution decisions – contribute to gradually building up the credibility of the crisis management framework in the European Union (EU) and earning the citizens and markets’ trust.
It is not a coincidence that European banks withstood the banking turmoil in 2023. By building resilience, the SRM builds credibility – and we know how crucial this confidence element can be in a crisis.
4. The challenges ahead
This brings me to my last point before I conclude. I will be extremely short, as I know there will be a third panel on the future challenges and I do not wish to spoil that debate.
Let me nevertheless insist on three key elements:
Despite all our efforts, our framework is not yet complete. While the Crisis management and deposit insurance proposal (CMDI) is in progress, there is still much room for improvement on liquidity in resolution and the European deposit insurance scheme (EDIS) is still missing.
We should not be complacent and our achievements do not preclude the possibility that we cannot face the next crises, which unfold faster, accelerated by social media or triggered by emerging risks like cyber-attacks. The Silicon Valley Bank (SVB) case in 2023 is a perfect example for this.
In the current debate on the hot topic called “simplification”, I am from time to time puzzled by the lack of ambition for less fragmentation and more Banking Union. We need to be careful not to deregulate. But we also need to careful not to miss the real ambition: if we want to really simplify our framework, let’s work towards more Europe, that is via a more unified Banking Union!
Conclusion
The fact that we managed to successfully build a functioning framework for resolution from scratch does not mean that the journey is over.
Crisis management, by nature, will always be messy. As the distinguished panellists will eloquently explain, there is still a lot more to do.
By essence, the next crisis will be different from the previous one – this is why we need to continue working with confidence in our capacity to face the crises to come. The good news is that we are hopeful and committed to improving the EU crisis management framework step-by-step.
Before closing my keynote, I would like to say a few words about Luís Silva Morais, who served as the Vice-Chair of the SRB Appeal Panel until his passing in September 2024.
I know that a special tribute for him will be made later but I already want to recall that Luís served on the Appeal Panel since its inception in 2015, becoming its Vice-Chair in 2018. He played an instrumental role in shaping the Appeal Panel’s decisions in new and complex areas of the SRM legal framework, making a deep and lasting contribution to financial stability in Europe.
Above all, he was a true gentleman and a pleasure to work with. One year after, he is deeply missed by all of us.
I hope that today’s conference will lead to interesting discussions on what we have done well but more importantly on what we can improve in the next 10 years of the SRM. I am sure the panels will bring us a lot of good ideas.
Thank you for your attention.
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