A backbone of trust: how the Single Resolution Fund safeguards Europe’s banking system

In times of uncertainty - whether triggered by geopolitical instability, or economic downturns - confidence in the financial system becomes more than a desirable feature; it becomes essential. In this blog post, I’m going to look at the role of one of the most important tools at the disposal of the European Banking Union to uphold that confidence - the Single Resolution Fund (SRF). Designed to shield taxpayers, safeguard financial stability, and ensure a smooth resolution of failing banks, the SRF is more than a pool of money: it is one of the pillars of trust in the European financial architecture. In my next blog, I’ll look at what the Single Resolution Board (SRB) does with the €80 billion that makes up the SRF, when it’s not being used for a crisis case. 

A financial safety net with European DNA

To understand the SRF today, we first need to look at its origins. The Fund was born out of the post-financial crisis recognition that Europe needed a coordinated and robust framework to manage banking crises. The 2008 global financial crisis - and subsequent sovereign debt crises - highlighted the dangers of fragmented national responses to failing banks. These episodes often resulted in taxpayer-funded bailouts and cross-border spill overs that further undermined trust in the financial system.

To avoid repeating those mistakes, the EU established the Single Resolution Mechanism (SRM) in 2015, one of the key pillars of the Banking Union, alongside the Single Supervisory Mechanism (SSM). The SRM provides a centralised approach to the resolution of failing or likely to fail banks within the Banking Union. One of the key tools in the SRM’s approach to resolution is the SRF - an industry-financed fund managed by theSRB.

Rather than relying on public funds, the SRF is funded by contributions from banks across the 21 Banking Union countries - that is all 20 eurozone countries plus Bulgaria. The SRF design helps to ensure that banks, not taxpayers, bear the costs of bank failures, aligning incentives and strengthening the credibility of the resolution framework.

How the SRF Works

The Fund can be deployed to support a resolution where a bank is deemed failing or likely to fail, and where resolution is in the public interest. It can be used to support the effective application of the resolution tools, using the following instruments:

• Guarantees for assets or liabilities,
• Loans to the resolved institution, bridge institution or asset management vehicle;
• Capital injections or asset purchases,
• Contributions to a bridge institution or asset management vehicle.

The SRF alone is not a silver bullet, but it does provide options to the SRB when dealing with a failing bank. The aim is to ensure continuity of critical functions, preserve financial stability, and minimise costs to taxpayers. Importantly, the use of the SRF is subject to strict conditions, including compliance with EU State aid and resolution rules, and a prior contribution to loss absorption by the bank’s shareholders and creditors. This in itself is an important point: a bank’s management is incentivised by shareholders not to be careless, since they are first in line to lose money. Then, and only then, could the SRF intervene. 

The SRF was built up over an eight-year period (2016-2023) to reach a target level of at least 1% of the amount of total covered deposits. Today it amounts to approximately €80 billion. This pooled resource represents a powerful signal of collective responsibility and solidarity across the euro area. That figure of €80 billion is a dynamic one – as the value of covered deposits goes up, so too must the value of the fund. To ensure costs to industry are kept to a minimum, the SRF team tries to do two things: invest the money sensibly while ensuring access to the fund at short notice should it be required. 

Today, the role of the SRF is more relevant than ever. The global economic landscape is marked by high uncertainty, slowing growth, and rising geopolitical tensions – all of which add stress to financial markets and could pose risks to bank resilience. In such an environment, the presence of a well-capitalised, operationally ready resolution fund serves as a deterrent to panic and an anchor of confidence.

But the challenges go beyond readiness alone. Managing the SRF involves balancing two critical objectives: safeguarding the fund’s value through prudent investment, while ensuring high liquidity so that funds can be accessed in timely manner. This dual imperative – capital preservation versus liquidity – requires a careful, forward-looking strategy. The SRF is not needed very often – in fact it has never been used since 2016. It’s a bit like an insurance policy – good to be there, but not for regular use. So, what do we do with all these billions of euro when the SRF is not needed? You can find out in shortly, in our next blog post. 

Building confidence, not complacency

The presence of the SRF does not mean that bank failures are welcomed or risk should be encouraged. On the contrary, the EU’s resolution framework is designed to make banks more resolvable - able to be wound down in an orderly way if necessary. Banks must draw up resolution plans and meet minimum requirements for own funds and eligible liabilities (MREL), while resolution authorities ensure that plans can be executed in practice.

The SRF is a tool of last resort - deployed only when other private-sector solutions are not sufficient. Its very existence, however, strengthens the entire resolution framework. It reassures markets that the EU has the means to manage bank failures in a credible and coordinated way, without turning to taxpayers to foot the bill. 

A European response for European challenges

The SRF embodies a shared commitment to financial stability across the Banking Union. By pooling risk and responsibility, it reduces the link between banks and national governments, helping to break the so-called “doom loop” that has plagued previous crises. It enhances cross-border trust and complements the other elements of the Banking Union.

Looking ahead, the SRF will continue to play a vital role as Europe deepens its financial integration and faces new challenges - from digital transformation to climate-related financial risks. The resilience of our banking system depends not just on regulation or supervision, but on the credibility of the entire crisis management framework.

Indeed the recent political agreement on the Crisis management and deposit insurance framework (CMDI) will partially facilitate access for failing banks to industry-funded safety nets - namely national resolution funds and, in the Banking Union, SRF - to finance their resolution and eventual exit from the market.

With the SRF, Europe has equipped itself with a powerful instrument - not just to manage bank failures, but to underpin confidence in the system as a whole. In a complex and uncertain world, that confidence is one of the most valuable assets we can have.

Next time, we’ll explain what we do to protect the value of all the money that is in the SRF, so that it is kept safe, yet is ready to be used if and when it is needed.