The euro area finance ministers, meeting on 7 September, exchanged views with Roberto Gualtieri, Chair of the European Parliament’s Committee on Economic and Monetary Affairs, on the euro area’s economic outlook and challenges. They also discussed euro area Member States’ ability to allocate resources efficiently in labour and product markets, and heard a presentation by Christopher Antoniou Pissarides, Professor of Economics at the London School of Economics and Nobel Prize laureate, about the impact of artificial intelligence and automation on labour markets.
EU finance ministers discussed issues related to the common backstop to the Single Resolution Fund (SRF), as well as the implications on financial stability of increasing interest rates. They exchanged views on crypto-assets, particularly initial coin offerings, which they believe have the potential to emerge as a viable form of alternative financing, provided they can be properly regulated.
The Single Resolution Fund (SRF) has been established by Regulation (EU) No 806/2014 (SRM Regulation). Where necessary, the SRF may be used to ensure the efficient application of resolution tools and the exercise of the resolution powers conferred to the SRB by the SRM Regulation. It is composed of contributions from credit institutions and certain investment firms in the 19 participating Member States within the Banking Union.
The SRF ensures that the financial industry, as a whole, finances the stabilisation of the financial system. It will be gradually built up during the first eight years (2016-2023) and shall reach the target level of at least 1% of the amount of covered deposits of all credit institutions within the Banking Union by 31 December 2023.
Within the resolution scheme, the SRF may be used only to the extent necessary to ensure the effective application of the resolution tools, as last resort, in particular:
- To guarantee the assets or the liabilities of the institution under resolution;
- To make loans to or to purchase assets of the institution under resolution;
- To make contributions to a bridge institution and an asset management vehicle;
- To make a contribution to the institution under resolution in lieu of the write-down or conversion of liabilities of certain creditors under specific conditions;
- To pay compensation to shareholders or creditors who incurred greater losses than under normal insolvency proceedings.
The SRF shall not be used to absorb the losses of an institution or to recapitalise an institution. In exceptional circumstances, where an eligible liability or class of liabilities is excluded or partially excluded from the write-down or conversion powers, a contribution from the SRF may be made to the institution under resolution under two key conditions, namely:
- Bail-in of at least 8%: losses totalling not less than 8% of the total liabilities including own funds of the institution under resolution have already been absorbed by shareholders after counting for incurred losses, the holders of relevant capital instruments and other eligible liabilities through write-down, conversion or otherwise;
- Contribution from the SRF of maximum 5%: the SRF contribution does not exceed 5% of the total liabilities including own funds of the institution under resolution.
Furthermore, the Intergovernmental Agreement (IGA) acknowledges that situations may exist where the means available in the Single Resolution Fund (Fund) are not sufficient to undertake a particular resolution action, and where the ex-post contributions that should be raised in order to cover the necessary additional amounts are not immediately accessible.
In December 2013, ECOFIN Ministers agreed to put in place a system by which bridge financing would be available as a last resort. The arrangements for the transitional period should be operational by the time the Fund was established.
On 8 December 2015, ECOFIN Ministers endorsed a harmonised Loan Facility Agreement (LFA). ECOFIN ministers emphasised that as of 2016, each Member State participating in the SRM (MS) will enter into the harmonised LFA with the Single Resolution Board (SRB) in order to provide a national individual credit line to the SRB to back its national compartment following resolution cases. In the meantime, 19 out of 19 MS have signed an LFA.