SRB Press breakfast - Speech of Elke König, Chair of the Single Resolution Board

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Ladies and Gentlemen,           

Thank you for joining us today and a very warm welcome to the Single Resolution Board.

Although we normally try to host this event in January, it was difficult to find a slot for us all to be present together. This means I have a little more ground to cover since we last held this event 15 months ago! But don’t worry; I will be as brief as possible in order to allow you time to ask questions.

2017 was another significant year for the SRB. We developed resolution plans, and started setting binding MREL targets. In the beginning of June last year, we had our very first resolution case, Banco Popular.

I don’t want to go over the details again but I think its fair to say that we have shown that the SRB is ready to successfully handle resolution cases should the need arise. That said, our first resolution case was one from which we can draw valuable lessons in order to improve the process of resolution going forward.

One of the lessons we learnt is that close cooperation between supervisory and resolution authorities is essential for the successful handling of crisis cases.

The ad-hoc availability of good quality data is crucial to obtain a full picture of the situation and to allow the resolution authority take appropriate action. This is a collective undertaking: While the SRB needs to determine data requirements, banks need to invest significantly and build the relevant IT infrastructure to provide this kind of data at the push of a button in times of crisis. The industry is beginning to work on this, but much more needs to be done in this area.

We have always stated that resolution must remain the exception, not the rule. This was proven in three other instances, Banca Popolare di Vicenza, Veneto Banca and ABLV. In these cases, the SRB took a decision that there was no need to enter into the resolution process, because there would be no significant adverse impact on the financial stability of the Member States concerned as well as for the EU as a whole, and none of these banks provided critical functions for the Member States. Therefore, these cases were subject to normal – national - insolvency procedures.

I want to speak briefly about the most recent of these three cases – ABLV. The case is still fresh and rather unique, thus we shall be careful in drawing lessons at this stage, and even more so in generalising them. However, let me share some observations with you. 

First, this case is a vivid reminder of the fact that insolvency or winding down remains the primary route for many banks, even if they are under SSM and SRB remit. For ABLV, the SRB’s resolution plan of 2017 already indicated the lack of critical functions for the Member States or the EU as well as the absence of public interest and, therefore, insolvency was the preferred strategy in case the bank were to fail.

More notably, this case highlighted once again the importance of harmonising banks’ insolvency laws. The common Single Resolution Mechanism Framework is faced with 19 or more different insolvency procedures. The failing or likely to fail (FOLTF) assessment does not automatically link to the criteria for insolvency/liquidation. It is only by raising national bank insolvency procedures to a common standard, that we can clarify the line between resolution and insolvency and eliminate incorrect incentives.

As long as insolvency laws, corporate laws and administrative laws are not harmonised in Europe, we will be faced with multiple national differences. Therefore, there is a need for tailor-made national approaches to be able to implement a resolution decision or a decision not to implement a resolution. The national resolution authorities have to finalise their handbooks for this as a priority in 2018.

That was the recent past – however, as you know, our work is forward-looking.  When we were set up, many expected that our main work would be in resolution, but that is not the reality. We don’t just simply sit and wait for a bank to fail and then resolve it - most of our work is preventive. In English, there is an expression – ‘a stitch in time saves nine’, and I think that captures the very essence of our work.

While we have built good foundations in resolution planning to date, resolution planning is a process not a product. There is still much more to do, and there will always be need to ‘fine-tune’ the plans going forward. A word of caution however, while our resolution plans are solid and provide an excellent framework, we must also allow enough flexibility to quickly adapt a resolution plan’s theory to the reality of the situation we find ourselves in. While the sale of business may for example lead to a good outcome in resolution, it is something that is difficult to plan for.

Making banks resolvable is a multi-year project, and it cannot happen overnight. The SRB Work Programme for 2018 has five key priority areas. These are:

1. Strengthening resolvability for SRB entities and less significant institutions, in other words, the smaller banks;

2. Fostering a robust resolution framework;

3. Preparing and carrying out effective crisis management;

4. Operationalising the Single Resolution Fund, and

5. Ensuring the SRB is an efficient organisation.

A key objective for the SRB in 2018 is to adopt resolution plans for the majority of the banking groups under SRB remit. Sufficient MREL in quantity and quality is a key feature to make banks resolvable. This year we aim to determine binding MREL targets at consolidated level for all relevant banking groups, but we will also kick off work on MREL targets at material entity level. 

To underpin resolution planning we will develop guidance for the Internal Resolution Teams on a number of areas in addition to MREL.

The SRB 2017 policy on MREL was released at the end of last year and presented at the SRB industry dialogue in November. This was our second MREL policy statement – and it will be revised and updated again at the end of 2018. However, whereas the 2016 approach was the basis for informative targets, the 2017 policy also served to set binding targets in 2018 – a new departure – and there is more to come in 2018 and 2019.

Another priority, central to the SRB’s work in 2018, is a first identification of substantive impediments to resolution. Obstacles to resolution could include, the lack of adequate availability of data, in particular but not just detailed liability information, and adequate IT systems, overly complex legal structures, lack of sufficient safeguards to guarantee continuity of access to financial market infrastructures, lack of funding in resolution, etc. None of these topics come as a surprise to banks. The SRB teams have addressed them already in 2016 and 2017.  Prior to defining these as substantive impediments, we will analyse in detail whether the actions planned or already taken by a bank are sufficient to avoid initiating formal procedures.

Though not all these obstacles are for the banks to address, banks do not have to wait for the SRB’s decisions on impediments. They can and should work on making improvements immediately. Like on MREL, though the final goal might not be 100% clear yet, the direction of travel is very clear and there is no reason to wait until the SRB issues formal decisions.

To safeguard the resolution framework, the SRB will closely cooperate with its partners on a national and EU level. Looking at the largest banks under our remit international cooperation – not least with the US – is important and progressing well. We have also revised the MoU between the SRB and the ECB in light of the experience gained since 2016.

Just a word regarding Brexit: Clearly, banks must plan for any possible outcome in the ongoing negotiations and we are closely monitoring their plans. One topic will be the question of how to deal with bonds issues by Euro area banks under UK law. These will become third country issues and might no longer be eligible for MREL going forward.

Now just a word on the Fund. This is the third year that the SRB is calculating ex-ante contributions. On 1 May 2018, 3315 institutions will be notified by respective NRAs of the ex-ante amounts due. By 30 June 2018, the NRAs are expected to transfer contributions to the SRF. Covered deposits in the Euro area grew by more than 3% in 2017 when compared with 2016. Therefore the SRB, in order to be able to fulfil its mandate - that is collect, at least, 1% of the total amount of covered deposits at the end of the transitional period, meaning the end of 2023 -  has decided to increase the annual target level, vis-à-vis last year. We expect to collect about €7.5 billion in contributions to the fund in June this year.

In terms of policy, time did not allow me to touch on other key issues, such as the BRRD II Package, or the need for EDIS and the common backstop, the very important topic of liquidity in resolution, etcetera. However, I am sure there will be the chance to come back on these issues in the Q&A session in a moment.

So, to conclude: The SRB has gone from start-up to grown-up in a little over 3 years – but of course, there is always more to be done. There are challenges that remain. I have said it before, but it’s worth repeating - Resolution planning is a process not a product. It is a dynamic process that is constantly evolving and adapting to changes in the industry - which is one of the things that keeps resolution so interesting, and of course, its dynamic nature will probably help to provide many - hopefully positive - stories for you to cover in the months ahead!

Thank you. 

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