Explained: The Single Resolution Board

The Single Resolution Board (SRB) was created in 2014 in response to the financial crisis. Its seat is in Brussels. The SRB is an agency rather than an institution of the European Union. This has a limiting effect on its powers pursuant to the so-called Meroni doctrine. The SRB’s task is to deal with significant institutions which are failing or likely to fail based on determinations to this effect by the European Central Bank or the Single Resolution Board itself.

The SRB prepares a resolution scheme if it finds that the three conditions for resolution are met. These conditions are that (i) the entity is failing or likely to fail, (ii) there is no reasonable prospect that any alternative private sector measures would prevent its failure within a reasonable timeframe, and (iii) resolution action is necessary in the public interest. The resolution scheme is submitted by the SRB to the European Commission and is ultimately adopted by the European Commission.

Following the implementation of a resolution scheme, the SRB is required to conduct a valuation to assess whether shareholders and creditors of the institution subject to the resolution scheme would have received better treatment if the institution had instead entered into normal insolvency proceedings. If the independent valuer finds that shareholders or creditors have incurred greater losses than they would have incurred in a winding up under normal insolvency proceedings, the SRB may use the Single Resolution Fund, a pooled fund financed by the banking sector which is owned by the SRB, to pay compensation to those shareholders or creditors.

The Single Resolution Fund is used by the SRB for the purpose of ensuring the efficient application of the resolution tools and exercise of the resolution powers. The SRB is responsible for ensuring that credit institutions contribute to the Single Resolution Fund. This is done by means of ex-ante contributions which are calculated pro-rata to the amount of an institution’s liabilities (excluding own funds) less covered deposits, with respect to the aggregate liabilities (excluding own funds) less covered deposits, and extraordinary ex-post contributions which can be made where the available financial means are not sufficient to cover the losses, costs or other expenses incurred by the use of the Single Resolution Fund in resolution actions.

The SRB is moreover empowered to draw up resolution plans for credit institutions and groups, after consulting the national competent and resolution authorities. It is the general rule that group resolution plans are prepared for a group as a whole. These resolution plans for groups identify measures in relation to a parent undertaking as well as all individual subsidiaries that are part of a group.