The second pillar of the Banking Union, Single Resolution, became an operational reality on 1 January 2016, when the Single Resolution Board (SRB) took on full powers to resolve failing banks.

In the words of Elke König, SRB Chair (and KPMG alumni): “By avoiding bail-outs and worst-case scenarios, the SRB will put the banking sector on a sounder footing”.

The SRB’s mission is to restructure failing banks, using a clear set of tools and legal powers:

• Require the sale of assets (partial or full entity)
• Transfer assets to a temporary bridge bank
• Require asset separation to a ‘bad bank’IV
• Effect a bail-in whereby debt instruments are converted to equity.

The key objectives of the SRB are to maintain financial stability and to ensure that the costs of future bank failures are borne by shareholders and institutional creditors, rather than the general public (depositors and taxpayers). 

The SRB’s powers are significant – their use will be high-profile and potentially controversial. An issue of current concern is that in some jurisdictions, debt-securities subject to potential bail-in are (in practice) held by retail investors. This complicates the SRB’s role of protecting the wider public during bank resolutions and policy actions are being considered. 

The demands of the SRB on banks are still not clear. In addition, the extent of cooperation with the ECB supervisors has yet to emerge. The first year of operation of the SRB will give observers a much clearer view of how the SRB plans to fulfil its mandate. 

The SRB’s coverage is analogous to that of the SSM. It is responsible for resolution of banks under ECB direct supervision, as well as 15 other cross-border banking groups, and will collaborate closely with the ECB in any resolution decision.