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SRB Chair, Elke König at the ECON Committee


Check against delivery

Good morning Madam Chair and good morning honourable members,

It is a pleasure to be with you once again at the ECON Committee. It’s only been 3 months since we last met, but, nevertheless, it is a good opportunity to report on the SRB’s activities as we have just published our Annual Report.


Hopefully, we are seeing the beginning of the end of the pandemic in Europe, and with that a return to a more ‘normal’ way of living, and a return to a more ‘normal’ type of economy.

Recent economic and earnings forecasts, thanks to progress in vaccinations, give rise to cautious optimism. However, we know that Covid implications might not yet be fully depicted in bank’s balance sheets.

Going forward, one of the key challenges for authorities will be to manage the orderly phasing-out of temporary support measures. Although the SRB sits towards the end of the crisis management process, we will act according to our mandate, should a bank get into difficulty. With prudent management, we – meaning the real economy, banks as well as regulators - can weather the transition and, hopefully, we can turn the recovery into an expansion.

[Annual Report]

Overall, banks and regulators have worked well together to overcome the crisis in the past year. At the SRB, we showed flexibility, but also stayed firm on our core tasks, that is to say, updating all resolution plans and ensuring that banks received the 2022 and 2024 MREL targets and clear operational targets for 2021 and beyond. If you’d like more information, I would invite you to read our Annual Report for 2020, which is the official reason I am addressing this committee today. It is now available on the SRB’s website, which, incidentally, was relaunched yesterday, along with our fresh new visual identity. Should you have any questions on the report, I would be happy to answer them during today’s session, but I assume that you are more interested in our next steps. Madam Chair, let me now outline some of our recent achievements.

[Short wrap up of SRB’s work]

The SRB has continued to work on its core mission – to make every bank under our remit resolvable. We have concluded the annual resolution planning cycle 2020 with the result of better and enhanced plans across the SRB remit. For the vast majority of our banks, we anticipate resolution scenarios should they fail, in accordance with the Public Interest Assessment, which I will come onto later. Normal insolvency remains an option for some SRB banks, like promotional banks.

We are making tangible progress with respect to the build-up of MREL capacity in line with the still new BRRD-II requirements. Here I am pleased to report that MREL shortfalls overall decreased in 2020. We started to publish regularly detailed MREL statistics on our website – something you in this house had asked for. In absolute terms, the overall shortfall dropped to 19.5 billion euro in December 2020, from 29.7 billion euro in June 2020, and 34.2 billion in December 2019. Banks are also gradually advancing with meeting subordination requirements. Our message to the banks is clear: the market is wide open and they need to continue issuing. They know their requirements and it is up to them to decide upon buffers to keep them safe. So, there is no reason to wait for “tomorrow”.

When it comes to the Single Resolution Fund, the emergency fund that can be called on in times of crisis, we are on track to meet the target of 1% of total covered deposits by the end of 2023. The annual contributions of just over 10 billion euro for this year were collected yesterday, so the fund now contains 52 billion euro. As deposits have been rising sharply since 2019, we currently assume that the fund will reach over 70 billion euro in 2024.

Staying with the SRF, we are working closely with the ESM to ensure the successful operation of the Common Backstop by early next year. This concerns our work to assess the banking sector’s repayment capacity to ensure the backstop is fiscally neutral - thus ensuring the taxpayer is protected - as well as our approach to secured lending for liquidity support. On secured lending, it is our intention, when available and practical, to also accept collateral of lesser quality. The idea is to complement central bank funding options. I’m happy to expand in case of interest during the Q&A.

Our policy work has continued and we recently published additional guidance for the industry on various aspects like liquidity in resolution or business continuity when it comes to Financial Market Intermediaries (FMI). In this respect, banks will be held accountable for timely implementation as part of the next planning cycle which started in April.

There has been a lot of discussion about the SRB’s approach to the so called Public Interest Assessment. As announced, the Public Interest Assessment now covers the consideration of system-wide events and obviously in the current context, this is even more relevant. I’d expect that this will broaden the remit of banks for which resolution and not national insolvency procedures will be the solution in case they fail.


Let me now touch on a sensitive point, home-host frictions. In the Banking Union this should be a topic of the past, but unfortunately it is not. There are several reasons for this, one of them the missing 3rd pillar of the Banking Union. But another one the “trust” placed in resolution strategies, that is, the trust in the SRB in really enacting a so-called Single Point of Entry or SPE resolution strategy.

Under an SPE approach, the group resolution authority focusses on all subsidiaries remaining well-capitalised going-concern entities that stay “out of resolution”. Only the resolution entity, in other words, the parent company, should be the direct target of resolution powers, and operational subsidiaries are preserved and would not themselves be subject to resolution. The SPE approach avoids the disruption caused by the application of resolution action in multiple entities, potentially by multiple authorities within a group that is dependent on intragroup services. At the same time, one needs to acknowledge that most company, tax and insolvency laws focus on individual legal entities which poses a challenge on the effective implementation of SPE.

In principle, the SPE approach relies on the upstreaming of losses to the parent and the down streaming of capital to an ailing subsidiary.

By enshrining the SPE approach into the bank’s financial structure in ‘going concern’, the economic commitment of a parent to its subsidiary will be enhanced over and above the prepositioning of internal MREL. This should also reduce any concern that the SRB might opt for a variant strategy that is misaligned to the interests of a subsidiary. In effect, the resolution authority’s discretion would be materially limited.

The key issue is to ensure the subsidiary is not ‘abandoned’ in resolution, even in cases where the parent itself is ailing.

Ensuring that this SPE strategy is operationalised fully is a key priority and will hopefully help overcoming the home-host friction that otherwise fragments the market and might have a negative impact on financial stability.


At the SRB, we are following very closely the review of the Crisis Management & Deposit Insurance Framework, being carried out by the European Commission at present. We have a good crisis management framework, but let me be clear – there is room for improvement. For example, at the moment, we are operating in a way where many national solutions have to be found, and are found in cases where resolution is deemed not possible. This leads to different outcomes depending on the country. This is hardly conducive to the development of a European internal market.

We have talked about harmonising or rather enabling bank liquidation for long – next to nothing has happened; and the fragility of national systems might be taken as an excuse for ongoing bail-outs in disguise.

And, honourable members, I am sure that bail-outs in disguise was not what this house had in mind when it voted to create the Banking Union.

In this house, the idea of the ‘level-playing field’ is often mentioned, be it in ECON or in one of the other committees. Well, if we are serious about having a European framework that treats all banks and all depositors equally, then we do need to get reforms on the way, not least to the deposit insurance scheme in place. Equal treatment throughout the Banking Union with EDIS as a strong EU safety net, and sound governance at EU level, will bolster the financial integration that is needed to have a solid return on the investments made to establish the Banking Union

The time for beating about the bush is over – we lack EDIS, and we must get that show on the road. I know that this is something the Eurogroup President, Paschal Donohue, is keen to see progressed and I very much support his position. Another idea recently floated is that of UBS Chairman Axel Weber, when he talks about a European Charter for significant institutions to overcome the problem of fragmentation. I think these ideas certainly provide food for thought.

So with all that in mind, I very much welcome the Commission’s initiative on the CMDI review and I hope some much needed improvements can be made on the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation, as well as on the Deposit Guarantee Schemes Directive.

[Resolvability Assessment]

Just as the framework overall could be improved, the SRB is always striving for better too. In terms of resolution, our visibility of banks’ progress on resolvability will be further enhanced by the resolvability assessment that is part of the resolution plan. Becoming resolvable is a multi-annual project. This gives banks the opportunity to carry out the required work in a structured manner.

Our annual assessment is to identify and address any impediments to the resolution of the bank and to set its MREL. As part of this assessment, the SRB will benchmark banks’ resolvability progress based on a dedicated tool, designed as a “heatmap” to measure progress and ensure a consistent assessment. Once we have gained some experience this can also be the tool to provide transparency to the public.


We are perhaps in the calm before the storm. No one can really tell. But regardless, we must use our time now wisely. We have to continue with our work to ensure that each and every bank is resolvable. It is only in this way that we can ensure financial stability, while protecting taxpayers’ money. And I dearly hope that CMDI and finalising the Banking Union will also see the finishing line soon.

Madam Chair, honourable members, I am drawing to a close. I want to thank you for the time you have afforded me today and I look forward to your questions.

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