Impediments to resolvability: critical issues and challenges ahead

by Marco Bodellini

Abstract: This paper analyses the impediments to resolvability, distinguishing between exogenous (or architectural) impediments and endogenous (or stricto sensu) impediments. They are both obstacles that can hinder the effective resolution of a failing or likely to fail institution, but, whilst the removal of the former needs legislative action to amend the rules which cause them, the latter should be removed through an effective collaboration between the resolution authorities, the competent authorities and the institutions concerned.

Whether it is clear which are the main exogenous impediments to resolvability and this, in turn, allows to advance proposals to remove them, by contrast, it is more complicated to find out the endogenous impediments due to the confidential nature of resolution plans. Their confidentiality does not allow to ascertain whether such impediments have been identified by resolution authorities and, more importantly, whether they have been removed. As a consequence, it is not currently possible to know with certainty whether all the EU institutions are considered to be resolvable. And this creates challenges in the resolution process.

Summary:  1. Introduction. – 2. Exogenous impediments to resolvability. – 2.1. The definition of ‘resolvability’. – 2.2. The involvement of different authorities in the resolution process. – 2.3. The concept of ‘public interest’. – 2.4. Misalignments between the State aid framework and the resolution regime. – 2.5. The legal constraints in the provision of public financing. – 3. Endogenous impediments to resolvability. 3.1. The removal of endogenous impediments to resolvability. – 3.2. Status quo and challenges ahead. – 4. Concluding remarks.

 

1. Impediments to resolvability can be understood as various types of obstacles that are potentially able to hinder the effective resolution of a failing or likely to fail institution.

Impediments to resolvability can be grouped into two broad categories: a) impediments resulting from the legal framework, i.e. exogenous impediments or architectural impediments, and, b) impediments directly resulting from the institution and/or its group, i.e. endogenous impediments or impediments stricto sensu.

This paper discusses both types of impediments, analyses the status quo and advances some proposals. It is divided as follows.

After this introduction, the second chapter deals with the exogenous impediments to resolvability, focusing on 1) the definition of ‘resolvability’, 2) the involvement of different authorities in the resolution process, 3) the concept of ‘public interest’, 4) the misalignments between the State aid framework and the resolution regime, and 5) the legal constraints in the provision of public financing.

The third chapter analyses the endogenous impediments to resolvability, focusing on 1) their removal, and 2) the status quo and the challenges ahead.

The fourth chapter provides some concluding remarks.

2. Exogenous (or architectural) impediments to resolvability are the ones resulting from the legal framework in place. They include: 1) the definition of ‘resolvability’, 2) the involvement of different authorities in the resolution process, 3) the concept of ‘public interest’, 4) misalignments between the State aid framework and the resolution regime, and 5) the legal constraints in the provision of public financing.

2.1. The definition of ‘resolvability’ might result unclear. This derives from the language used in article 15 of the Bank Recovery and Resolution Directive (BRRD) and article 10 of the Single Resolution Mechanism Regulation (SRMR), that provide a tautological definition.[1] According to such articles, ‘An institution shall be deemed to be resolvable if it is feasible and credible for the resolution authority to either liquidate it under normal insolvency proceedings or to resolve it by applying the different resolution tools and powers to the institution while avoiding to the maximum extent possible any significant adverse effect on the financial system, including in circumstances of broader financial instability or system-wide events, of the Member State in which the institution is established, or other Member States or the Union and with a view to ensuring the continuity of critical functions carried out by the institution’.[2]

On the basis of these articles, an institution is to be considered as resolvable when it can be either liquidated or resolved.

The reference to the feasibility and credibility of resolution does not provide any further explanation as to when an institution is actually resolvable. By contrast, the reference to the avoidance of any adverse effect on the financial system and to the continuity of critical functions determines that the achievement of only some of the resolution objectives, and not of all of them[3], should be taken into account by the resolution authorities in the resolvability assessment of each institution. This seems to contrast with article 31(1) of BRRD stating that ‘When applying the resolution tools and exercising the resolution powers, resolution authorities shall have regard to the resolution objectives, and choose the tools and powers that best achieve the objectives that are relevant in the circumstances of the case’.[4] In other words, this article refers to the resolution objectives in their entirety without ranking some of them over the others.

The wording of article 15(1) of BRRD, coupled with the fact that the continuity of critical functions and the avoidance of significant adverse effect on the financial system are mentioned at the top of the list of the resolution objectives under article 31(2) of BRRD and the fact that article 31(5) of BRRD refers to the achievement of (only) one or more resolution objectives, might be seen as hints that these two resolution objectives should be considered as the main goals to reach when the resolution assessment is performed and also when the resolution tools are applied in the context of a resolution procedure.[5] Such a reading of the rules could be based on the assumption that it might be practically very difficult to achieve simultaneously all the resolution objectives in every case, particularly keeping financial stability while avoiding the use of public resources.[6]

The reference to liquidation in article 15, in turn, might also end up being misleading in that the two procedures (i.e. resolution and liquidation) are meant to be alternative options for the resolution authorities to apply in different circumstances, i.e. depending on what is in the public interest. Accordingly, it seems to be terminologically contradictory, or at least not precise, to assess an institution as resolvable when it can be liquidated.[7]

A further layer of complexity arises from the differences featuring the national insolvency proceedings of the EU Member States. In this regard, the most critical issue is that an institution might be deemed as resolvable in that it can be effectively liquidated thanks to the rules of its Member State, whilst another one in similar conditions might not be considered resolvable due to the insolvency proceeding rules of its Member State. It follows that different rules across Member States might end up impacting upon the resolvability assessment, thereby influencing the authorities’ action as well as threatening the level playing field between institutions established in different Member States.

The wording of article 15(1) of BRRD seems to allude also to the situation where the institution can neither be resolved nor liquidated. This results from the use of the conjunction ‘if’ to state that the institution is resolvable ‘if’ it can be either liquidated or resolved. Nevertheless, in the opposite scenario where the institution is not deemed to be resolvable on the grounds that it is not credible and feasible for the authorities to resolve it nor to liquidate it, it is not specified what the resolution authorities are expected to do, other than to notify the European Banking Authority (EBA), which in itself is not a solution of the issue when the bank is already failing or likely to fail and an action needs to be taken immediately.[8]

On the contrary, some useful elements to interpret the meaning of the concept of resolvability and, in general, to ascertain the resolvability of an institution, as a status, are provided by Section C of Annex 1 of BRRD, which lists the matters that resolution authorities are required to consider when assessing resolvability.

Even though the list does not provide an explanation of what the words ‘resolvable’ and ‘resolvability’ mean, all the listed elements are certainly helpful in guiding the authorities in determining if and when an institution should be considered as resolvable.

Further clarity is provided by the Commission Delegated Regulation 2016/1075, which has implemented the EBA Regulatory Technical Standards on the Content of Resolution Plans and the Assessment of Resolvability of 19 December 2014. The Commission Delegated Regulation spells out the several stages of the process that resolution authorities should go through in determining whether an institution is resolvable when they draw up the resolution plans.[9]

The first stage relates to the assessment of whether the institution’s liquidation would be, firstly, feasible[10] and, if so, credible[11] as well, confirming that liquidation should always be the default option in the face of a crisis. However, this is a complex task and the European Court of Auditors (ECA) has pointed out that in many resolution plans drafted by the Single Resolution Board (SRB) there is neither substantial discussion on the reasons why liquidation is not considered to be a credible solution, nor on the reasons why the SRB thinks that liquidation cannot achieve the resolution objectives to the same extent as resolution.[12]

The second stage takes place when liquidation is not deemed to be feasible or credible and relates to the selection of a preferred resolution strategy to assess.[13] The selection of the preferred resolution strategy will be based on the information provided by the institution for the purposes of drawing up resolution plans.[14]

The third stage then concerns the assessment of the feasibility of such preferred resolution strategy, which primarily consists of the identification of impediments to resolvability.[15]

Eventually, the fourth stage relates to the assessment of the credibility of the resolution strategy.[16]

Yet, the tautological definition of ‘resolvability’ could be an impediment to resolvability in itself since it does not clearly specify when an institution should be considered as resolvable, thereby leaving a potentially excessive degree of discretion to the resolution authorities which is only partly addressed by Section C of Annex 1 of BRRD and by the Commission Delegated Regulation 2016/1075. Such an amount of discretion could possibly pave the way to inconsistent and/or contradictory determinations, which in turn could lead to litigation. This issue could be further exacerbated by the fact that the resolvability assessment will be also based on the specific rules applying at domestic level. This might determine that similar crisis situations will be handled in different ways due to differences in the domestic rules of the Member States. The same issues might arise when the banks in crisis are under the remit of National Resolution Authorities (NRAs), which will then apply the national rules. This can end up causing the adoption of different and/or contradictory solutions across EU Member States. Such an outcome is obviously not desirable and can actually undermine the policy and ideological foundations underpinning the Banking Union as well as the Single Market.

Authorities should certainly be given discretion that, in turn, needs to be counterbalanced by a proportional amount of accountability. Discretion is indeed necessary to face different situations, but some clear criteria for properly applying legislative/regulatory definitions to real cases should be provided too, in order for the authorities to make consistent decisions and for the system to be fair, equitable and predictable.

All this finds further evidence in that the resolution regime is based upon the concept of resolvability and authorities are expected to know at any point in time whether an institution is resolvable and whether resolution should be the procedure to submit that institution to, should it become failing or likely to fail. Therefore, there should not be any uncertainty as to whether an institution can be resolved, starting with the legal definition of resolvability.

By contrast, the fact that the resolvability of an institution also depends on the domestic rules of the Member State in which it is established remains an issue that can be effectively tackled only with a Union-wide harmonization of the national insolvency proceedings rules.

2.2. The fact that the new resolution framework provides for the involvement of different authorities in the resolution process might end up being an impediment to resolvability.

The institutional design of the Banking Union is complex in that several authorities and institutions (both national and European) with different backgrounds and core functions are involved in the decision–making process.[17]

Accordingly, the Single Resolution Mechanism (SRM) requires the collaboration between the SRB and the NRAs.[18] In turn, both the institutions and authorities within the Single Supervisory Mechanism (SSM), and the ones within the SRM, are meant to closely cooperate with each other in order to guarantee the soundness of the banking system,[19] since ‘supervision and crisis management are part of a seamless process’.[20]

The EBA is also involved in both the assessment of resolvability and the removal of impediments to resolvability primarily when groups are concerned.[21]

Article 114 of the Treaty on the Functioning of the European Union (TFEU) was the only available legal basis to establish the SRB; yet this has contributed to further increase the institutional complexity.[22] This legal basis is certainly controversial and has been considered as inadequate for this purpose.[23] The main issue, in practical terms, is that, due to the Meroni doctrine,[24] the decision-making process within the SRM requires the participation of both the Council and the Commission, making it potentially unsuitable for situations that typically need to be addressed very quickly, i.e. theoretically over a weekend.

A further layer of complexity results from the fact that both the European Central Bank (ECB) and the SRB can determine that an institution is ‘failing or likely to fail’. The reason why the legislation assigns this task to both the ECB and the SRB is grounded on the need to have in place a reactive system whereby resolution (or liquidation) can start when either the supervisory authority or the resolution authority (and not necessarily both) find that an institution is ‘failing or likely to fail’.[25]

The interaction with European Commission – Directorate General for Competition (DG Comp), where State aid measures are contemplated, further complicates the institutional design.[26]

The level of complexity affecting the system is rather clear and even more evident if compared to the US system where most of the activity is performed by one agency, the Federal Deposit Insurance Corporation, (FDIC), with competences in the areas of resolution and deposit insurance and to the UK system where now the Bank of England is the bank supervisor, the resolution authority and the central bank.[27]

This architectural complexity and the practical consequences arising from such complexity obviously can negatively affect also the resolvability of failing or likely to fail institutions, thereby representing an impediment.

2.3 ‘Public interest’ is the element driving the resolution authorities in deciding whether to resolve or to liquidate a ‘failing or likely to fail’ institution.[28] The rules are clear in stating that the default option is the submission of ‘failing or likely to fail’ institutions to winding-up according to the law of the Member States where such institutions are established. However, if and when liquidation is not considered able to achieve the resolution objectives to the same extent as resolution, then the authorities are meant resolve the troubled institutions.[29]

A clear understanding of the concept of ‘public interest’ and its consistent interpretation are therefore of paramount importance.

We have argued elsewhere that ‘public interest in this context seems to be principally connected with the need to maintain financial stability, or in negative terms, to avoid instability’.[30] Resolution authorities, therefore, have been given the difficult task of ascertaining ex ante whether the crisis of a bank and its ensuing liquidation can create financial instability.[31] In this context, we have advocated the introduction of some thresholds above which the public interest is presumed (and therefore resolution should be adopted), on the grounds that they could provide the system with greater legal certainty.[32] In other words, their determination could provide some clearer indication of what ‘public interest’ concretely means and when such a criterion is actually met. These thresholds could also be designed to be only indicative. Obviously, they would reduce the discretion of the resolution authorities, since they would be in this way guided in their choice.[33] The advantage, nevertheless, would be to know well in advance what should be the crisis management procedure to apply in case of a failing or likely to fail situation.[34] This in turn could reduce the risk of litigation. For all these reasons, such thresholds could help remove potential impediments to resolvability.

The pivotal importance of a clear understanding and coherent interpretation of the concept of public interest is the reason why on 3 July 2019 the SRB has published a paper outlining its approach to the Public Interest Assessment (PIA).[35]

Intuitively, the PIA aims at ascertaining whether the resolution of a failing or likely to fail institution is considered to be needed in the public interest. Accordingly, the paper provides detailed procedural guidelines aimed at driving the resolution authorities in determining whether resolution is in the public interest. Against this background, resolution authorities are meant to perform the PIA twice. They will perform a preliminary PIA when they draw up resolution plans and, subsequently, they will perform a final PIA in deciding whether resolution is needed in the face of a bank’s crisis. Understandably, the final PIA will build upon the preliminary PIA, even though the resolution authorities will have to inform their decisions on the basis of ‘more up-to-date information on market conditions and the particular circumstances at the moment of failure’.[36]

The paper emphasises that in performing the PIA the SRB starts by assessing ‘whether liquidation under insolvency proceedings would be likely to put the resolution objectives at risk … If the resolution objectives are deemed at risk, the SRB then assesses the expected effects of the chosen resolution strategy and compares such effects with those of winding up the bank under insolvency proceedings’.[37] It also outlines the elements to take into account in assessing whether the failure of a bank could have significant adverse effects on financial stability, these being the risk of contagion and the effects of the potential action on market discipline.[38] The meaning of key terms, such as financial stability, significant adverse effects, direct contagion, indirect contagion and market discipline is explained as well.[39]

The SRB’s paper is very helpful in that it discloses the steps of the process that the SRB goes through in determining whether the resolution of a given institution is in the public interest and, as such necessary, should the latter become failing or likely to fail. The publication of these guidelines are particularly welcome in that they will be able to reduce inconsistencies between the solutions adopted to handle bank crises in the Euro-Area, and possibly beyond.

Nonetheless, the concept of public interest remains abstract and vague, and, as a consequence, potentially subject to different interpretation by different authorities as well as by the same authority at different points in time. Therefore, it might continue to be an impediment to resolvability.

2.4 Misalignments between the State aid regime rules and the BRRD/SRMR regime rules on public intervention can give Member States incentives to avoid resolution.[40] This inconsistency arises from the fact that the provision of public resources can take place more easily in the context of liquidation than in resolution.[41]

Such misalignments are probably due to the different rationale lying behind the two regimes as well as to the Commission’s and SRB’s different priorities.[42]

The primary goal of the Commission is to guarantee the fair competition between firms established in different Member States, thereby protecting the integrity of the EU internal market.[43] In doing so, the Commission is meant to assess if the provision of State aid measures unfairly advantages a firm to the detriment of others.[44] Still, due to the peculiarities of the banking sector, in assessing the compatibility of public intervention with the State aid regime, the Commission is also requested to consider the risk to financial stability arising from a bank’s failure.[45] Thus, the Commission has to strike a balance between these two legitimate but potentially conflicting objectives (i.e. ensuring fair competition within the single market while keeping financial stability) when it decides whether to authorise public intervention.[46]

The main difference between the two regimes is that while the 2013 Banking Communication only requires the application of burden sharing as a condition to receive State aid, the BRRD/SRMR regime states that public money can be used only after a strict application of the bail-in tool.[47]

Hence, whereas DG Comp applies the concepts of ‘financial stability’ and ‘public interest’ as the basis to authorise or deny State aid measures, the SRB considers financial stability to be the main component of the ‘public interest’ that, in turn, is the discrimen between resolution and liquidation.[48]

As the International Monetary Fund (IMF) has indicated in the Euro-Area Financial Sector Assessment Program (FSAP) 2018,[49] these misalignments might in some circumstances create incentives to prefer liquidation – with the provision of taxpayers’ money – over resolution.[50] The risk of a more relaxed approach to the provision of public funds in liquidation reinforces the need to align the two regimes in relation to the conditions for public intervention.[51]

Also, since national insolvency laws vary across Member States, this can cause a differential treatment of creditors depending on where the procedure takes place.[52] The unacceptable outcome is that some creditors might be better off in liquidation compared to what they would receive in the case of resolution, even if the aggregate cost (for the State) is higher.[53] This also creates an uneven playing field for banks’ funding costs.[54]

Making the provision of public funds easier in liquidation than in resolution is an impediment to resolvability, that might encourage Governments and NRAs to opt for publicly funded liquidations.

 

2.5 A further exogenous impediment to resolvability arises from the legal constraints in the provision of public financing in the context of resolution.

The reason why access to public financing might be particularly important during a crisis is connected to the difficulty that a troubled bank can face in raising funds from the market when it is experiencing such problems.

There are two main sources of public financing in a crisis: 1) emergency liquidity assistance (ELA), and 2) Single Resolution Fund (SRF) support.[55] However, access to both sources is subject to strict criteria, that become even stricter if such measures qualify as State aid provision.[56]

The provision of ELA is considered to be a National Central Banks (NCBs) function, which can be performed only with the fiat of ECB’s Governing Council.

Although the provision of liquidity assistance to ‘financially sound’ banks is a ECB’s competence that is part of its regular discount policies, by contrast ELA, provided to illiquid but solvent banks in an emergency situation, is a competence of the NCBs.[57] As a consequence this function is decentralized at national level and it is performed on the NCBs own responsibility and liability, in accordance with Article 14.4 European System of Central Banks (ESCB) Statute.[58]

ELA can only be granted to solvent financial institutions or to those institutions that do not meet the solvency requirements,[59] but have a ‘credible prospect of recapitalisation’ within 24 weeks.[60] For ELA purposes, a credit institution is considered solvent if: (a) its Common Equity Tier 1, Tier 1 and Total Capital Ratio as reported under the Capital Requirements Regulation (CRR) on an individual (if applicable) and consolidated (if applicable) basis comply with the harmonised minimum regulatory capital levels (namely 4.5%, 6% or 8%, respectively); or (b) there is a credible prospect of recapitalisation in case (a) is not met.[61]

Recent cases have clearly shown how important ELA is for banks facing liquidity issues.

On the other hand, the main function of the SRF is to support the effective application of resolution tools. Accordingly in the context of a resolution procedure the SRB can use the SRF: 1) to guarantee the assets or liabilities of the bank under resolution; 2) to make loans to or to purchase assets of the bank; 3) to make contribution to a bridge institution or an asset management vehicle; 4) to make contribution to shareholders of creditors who have suffered greater losses than in liquidation; and 5) to make a contribution to the bank in lieu of the write-down or conversion of liabilities of certain creditors, when the bail-in tool is applied and the decision is made to exclude certain creditors from the scope of bail-in.[62]

Even though at the Ecofin meetings of June and September 2018 it was agreed that that the European Stability Mechanism (ESM) should provide a common backstop to the SRF,[63] the main weakness is that the total amount of resources is capped and the use of the SRF is subject to the State aid rules.[64]

The overall lending capacity of the SRF will amount to approximately EUR 60 billion by its target date of 31 December 2023. [65] Clearly, this amount may be insufficient in case of a systemic crisis and the Fund will need to rely on implicit support from monetary authorities.[66] This is further confirmed by the finding that ‘the large majority of the more than EUR 2.5 trillion of public and monetary support that euro area banks received between 2008 and 2016 was liquidity support’.[67]

For all these reasons, the current financing framework seems to be inadequate to withstand a crisis.[68] Therefore, a liquidity backstop facility complementing existing liquidity arrangements to make them more effective seems particularly needed. In other words, its absence and, in general, the legal framework on resolution financing currently in place represent impediments to resolvability.

3. Endogenous impediments to resolvability (or impediments stricto sensu) are the ones resulting from the institution concerned or its group.

Although both the BRRD and SRMR use the term ‘impediments to resolvability’ many times, there is no clear definition of what an impediment to resolvability is. The only insight in the text of the BRRD can be found in article 54(3), concerning the removal of procedural impediments to bail-in, stating that ‘Member States shall ensure that there are no procedural impediments to the conversion of liabilities to shares or other instruments of ownership existing by virtue of their instruments of incorporation or statutes, including pre-emption rights for shareholders or requirements for the consent of shareholders to an increase in capital’.

In the remaining part of the Directive, the term is used to emphasise that such impediments need to be removed. And to this end, the Directive provides the resolution authorities with the powers to do so.[69]

The Commission Delegated Regulation 2016/1075[70] sheds some light on the meaning of impediments to resolvability by dividing them into five categories, i.e. impediments concerning: 1) structure and operations; 2) financial resources; 3) information; 4) cross-border issues; 5) legal issues.[71] For each category of impediment, the Regulation points out the main issues that resolution authorities are meant to look at in assessing the feasibility of a resolution strategy on the grounds that the feasibility of a resolution strategy depends on whether there are impediments to resolvability and, if so, whether they can be removed.

3.1. The removal of endogenous impediments to resolvability can be seen as a collaborative process involving the institutions, the competent authorities and the resolution authorities.[72]

Firstly, the resolution authority, after consulting the competent authority and the resolution authorities of the jurisdictions where significant branches are located are requested to draw up a resolution plan for each institution.[73] Resolution plans are developed on the basis of the information that resolution authorities can collect from the institutions’ recovery plans[74] (which are drafted by the institutions themselves) as well as from the information that institutions are obliged to give to the former.[75] In the case of groups, the group resolution plan[76] is drafted by the group-level resolution authorities together with the resolution authorities of subsidiaries and after consulting the resolution authorities of significant branches.[77]

The SRB is in charge for drawing up the resolution plans of significant institutions as well as cross-border institutions.[78] Typically, the process starts with the Internal Resolution Team (IRT)[79] drafting the resolution plan, followed by the consultation of the ECB or the National Competent Authority (NCA).[80] Then the plan is submitted to the SRB’s board for approval and the approved version is eventually communicated to the bank.[81]

The resolution plans are meant to provide for the resolution actions that resolution authorities can take, should the institution be failing or likely to fail.[82] In terms of actual content of the plan,[83] the SRB divides the required information into several headings,[84] and the plan should also include the preferred resolution strategy, whether a multiple or a single point of entry.[85]

The resolvability assessment[86] is made upon the identification of the bank critical functions as well as the credibility and feasibility of a possible wind down under national insolvency proceedings.[87] Such assessment focuses on seven dimensions, i.e.: 1) governance, 2) loss absorption and recapitalisation capacity, 3) liquidity and funding in resolution, 4) operational continuity and access to financial market infrastructures (FMIs), 5) information systems and data requirements, 6) communication, and 7) separability and restructuring.[88] The resolvability assessment is therefore a key component of resolution planning[89] in that it aims at making banks prepared ‘for their potential failure’.[90]

When drawing up the resolution plan, the resolution authorities should identify any impediment to resolvability as well.[91] They are meant to do so at the same time as they assess the resolvability of each institution.[92] Also, when this is considered necessary and proportionate, the resolution authority should outline the relevant actions to put in place in order to address such impediments.[93]

In the case in which the resolution authority, after consulting the competent authority, determines that there are substantive impediments to resolvability, it has to inform in writing the institution, the competent authority as well as the resolution authorities of the jurisdictions where significant branches are located.[94] When the SRB is the resolution authority, in such a situation it is requested to ‘prepare a report, in cooperation with the competent authorities, addressed to the institution or the parent undertaking analysing the substantive impediments to the effective application of resolution tools and the exercise of resolution powers’.[95]

In the face of this situation, within 4 months the institution concerned is required to propose to the resolution authority the measures needed to address or remove the impediments.[96] This is the first step of the procedure.[97] The proposed measures are then assessed by the resolution authority, and, if the latter, after consulting the competent authority, is not persuaded that such measures are effective, it can require the institution to adopt alternative and proportionate measures and notify such measures[98] to the institution.[99] This is the second step of the procedure.[100] These ‘measures range from additional information requirements to changes to the structure, to the cessation of activities’[101] and, according to the EBA, can be grouped under 3 headings: 1) structural measures concerning the organisational, legal and business structure of an institution, 2) financial measures relating to its assets and liabilities, and 3) products and additional information requirements.[102] As far as institutions under the SRB’s remit are involved, the latter has the power to instruct NRAs to require the institutions to take such measures.[103] Nonetheless, where it is possible, NRAs shall directly apply these measures.[104]

Resolution authorities have a significant amount of discretion in selecting the measures that they consider appropriate in order to remove the impediments. Still they are driven in this choice by the EBA Guidelines on Measures to Reduce or Remove Impediments to Resolvability.[105]

3.2. The key phase for the identification of the endogenous impediments to resolvability is therefore the preparation and drafting of resolution plans. This is when the resolution authority has the chance to deeply look into the internal structure of the institution (and its group) and to get a better understanding of its way of working as well as of the main elements that could represent obstacles to its resolvability.

Yet, the position of the SRB in this regard is that banks have to proactively work to make themselves resolvable, and accordingly the SRB expects banks to demonstrate that they are resolvable.[106] Such position is based on the assumption that banks ‘know their business structure and how to address possible impediments best’[107] and has been further reiterated with the publication of a consultation document where the SRB has clearly defined its expectations from banks to ensure an appropriate level of resolvability.[108] In that paper it is clearly said that in achieving resolvability ‘banks are expected to play an active role in the process of identifying and removing impediments – this is the most efficient way to progress towards resolvability’.[109] Accordingly, the paper spells out the initiatives that banks have to take to make themselves resolvable by providing a number of principles relating to seven different dimensions[110] that the institutions should comply with.[111]

Overall the legal framework on resolution has significantly developed over time also thanks to the notable efforts of the SRB in clarifying its views and expectations.

Against this background, however, the main issue in assessing the status quo of impediments to resolvability potentially affecting the EU institutions derives from the confidentiality of resolution plans. They are indeed unavailable for public consultation. This obviously does not allow to analyse and to evaluate the approach taken by the SRB and the NRAs in relation to both the identification of such impediments and their removal. And this is why we have already advocated the publication of a non-confidential and abridged version of the plans, on the grounds that this would not violate professional secrecy requirements since there would not be any illegitimate disclosure of confidential information.[112] This is what already happens in the US, where the publication of the plans does not seem to negatively affect public confidence or market competition.[113] Accordingly, the Financial Stability Board (FSB) has recently published a discussion paper emphasising the importance of public disclosure of information on resolution planning and resolvability of institutions and pointing to the benefits for investors and market discipline that such disclosure could bring about.[114]

Still, since Banco Popular was resolved in 2017 by the SRB, some parts of its resolution plan have been published.[115] In such resolution plan, it was stated that there were a number of potential barriers to resolution, however none of them was considered to be a substantive impediment and therefore no formal procedure was launched to adopt specific measures.[116] Nevertheless, the list of impediments is abridged so it is not possible to further analyse them nor to assess the approach adopted by the SRB in determining that they were not substantive.

What has been publicly disclosed by the SRB in its Work Programme 2020 is that it is already achieving its target of resolution plans for all banking groups under its remit and it expects to adopt, by March 2021,[117] 117 resolution plans covering all banking groups under its remit.[118] According to the SRB multi-annual planning and work programme 2018 the target is to develop complete resolution plans for all the banks under its remit by 2020, including setting minimum requirements for own funds and eligible liabilities (MREL) targets on all levels of a group.[119]

This represents a step forward compared to the past. In this regard, in the SRB Annual Report 2018, published in 2019, it was said that ‘In pursuing its mission to ensure resolvability for significant institutions, the SRB continued its close and successful cooperation with the NRAs through internal resolution teams (IRTs) to draft 109 resolution plans for the 2018 resolution planning cycle’[120] and that regarding its oversight function on less significant institutions, in 2018 it ‘received from NRAs notifications for 1189 draft resolution plans, which marks a sizable increase compared to 2017’.[121] Similarly, in the SRB Work Programme 2019, published in 2018, it was said that ‘The year 2019 will see significant progress in resolution planning, both in the scope of banks covered by plans and in their content. Banking groups previously not covered will be addressed by new plans, leading to the adoption of a total of 113 resolution plans in the 2019 resolution planning cycle. With regard to content of resolution plans, all plans will be further substantiated reflecting the development of new or updated internal SRB policies’.[122]

Yet, the fact that every institution by March 2021 will have a resolution plan ready to be adopted if needed is not enough in itself to address the substantial concerns raised by the ECA[123] as well as by a Member of the European Parliament (MEP)[124] in relation to the actual content of such plans and their compliance with the regulatory requirements.[125]

In 2017, the ECA had access to a sample of resolution plans and its final evaluation was that ‘in none of the sampled documents did the SRB conclude categorically whether the bank could actually be resolved. While some chapters contained a brief summary of the assessment of resolvability, in most of them the summary was limited to a few of the identified potential impediments’.[126]

Similarly and moving from the ECA’s findings, in July 2019, a MEP asked the Chair of the SRB the following three questions:

1) For how many of the 127 banks within its remit has the SRB adopted final (phase four) resolution plans?

2) For how many of them has it concluded categorically by a specific reporting date whether the bank could actually be resolved?

3) For how many of them has it sent notifications of non-resolvability to the EBA?[127]

Interestingly, in replying the questions, on 20 August 2019, the Vice Chair of the SRB declared that ‘certain banks may have to undertake considerable efforts to achieve resolvability, which must be phased-in over time. As long as banks are making credible progress towards this goal, categorically declaring a bank not resolvable may only slow down the progress in this regard. The SRB considers this approach an effective and promising way forward, which is in line with international practice. Only when banks do not respond and engage proactively with the SRB, formal measures will be necessary. Until today this has not been the case. For this reason, until now the SRB did not inform EBA about an institution not being resolvable in line with article 10(3) SRMR. In this context it should be noted, that the notification to the EBA as such would not restore the resolvability of an institution’.[128]

The supportive approach adopted by the SRB in the process towards resolvability is certainly thoughtful and well-balanced. The fact that certain banks need to make efforts to achieve resolvability is understandable and the patient support provided by the SRB is probably the most effective strategy to reach such goal over time. Nevertheless, this allows to think that there are still banks that in the view of the SRB are currently not resolvable.

What remains unclear, in particular, is whether endogenous impediments to resolvability have been identified and, even more importantly, removed.[129] Some insights can be found in what the Chair of the SRB has stated in the Work Programme 2020, where it is said that ‘Work on the identification of impediments has also moved forward’. The fact that the identification of such impediments has moved forward is by definition a positive outcome, but what still needs to be done is unknown and what the Work Programme 2020 outlines does not look reassuring. It is said that ‘In recent years, IRTs have carried out the preliminary identification and analysis of potential impediments (as part of the so-called resolvability assessment) and communicated the outcomes to banks, together with consequential working priorities. IRTs have conducted workshops with banks on the resolvability assessment as an important step towards the removal of potential barriers to resolution’.[130] The reference to ‘step towards the removal of potential barriers’ might be interpreted as the implicit admission that some institutions are still affected by such impediments, which therefore have not been removed yet.[131] But if this was the case, then it would mean that there are a number of banks that currently are not considered to be resolvable.[132] And this conclusion would be in line with what stated by the Chair of the SRB in the SRB Work Programme 2019, where it is said that ‘making banks resolvable is a marathon not a sprint; it will take a number of years’[133] as well as with what the Vice Chair of SRB has said in replying the MEP’s questions.[134]

4. This paper has analysed the impediments to resolvability, distinguishing between exogenous (or architectural) impediments and endogenous (or stricto sensu) impediments.

Both are obstacles that are potentially able to hinder the effective resolution of a failing or likely to fail institution.

The first ones result from the legal framework and include 1) the definition of ‘resolvability’, 2) the involvement of different authorities in the resolution process, 3) the concept of ‘public interest’, 4) the misalignments between the State aid framework and the resolution regime, and 5) the legal constraints in the provision of public financing.

The second ones directly result from the institution and/or its group and relate to 1) structure and operations; 2) financial resources; 3) information; 4) cross-border issues; 5) legal issues.

Whilst the removal of the former needs legislative action to amend the rules which cause them, the latter should be removed through an effective collaboration between the resolution authorities, the competent authorities and the institutions concerned.

Yet, whether it is clear which are the main exogenous-architectural impediments to resolvability and this, in turn, allows to advance proposals to remove them, on the contrary, it is more complicated to find out the main endogenous-stricto sensu impediments to resolvability, mostly due to the confidential nature of resolution plans. Their confidentiality does not allow to ascertain whether such impediments have been identified by the resolution authorities and, more importantly, whether they have been removed. As a consequence, it is not currently possible to know with certainty whether all the EU institutions are considered to be resolvable. And this creates challenges in the resolution process.

Author: Marco Bodellini is Associate Lecturer in Banking and Financial Law at Queen Mary University of London

[1] The same definition is provided by both article 15(1) of BRRD and article 10(3) of SRMR, therefore the discussion in this chapter relates to both articles even when only one of them is mentioned.

[2] A similar definition is provided by article 16(1) of BRRD and article 10(4) of SRMR concerning the resolvability of groups.

[3] The resolution objectives are according to article 31(2) of BRRD: a) ‘the continuity of critical functions’; b) ‘to avoid a significant adverse effect on the financial system, in particular by preventing contagion, including to market infrastructures, and by maintaining market discipline’; c) ‘to protect public funds by minimising reliance on extraordinary public financial support’; d) ‘to protect depositors covered by Directive 2014/49/EU and investors covered by Directive 97/9/EC’; and e) ‘to protect client funds and client assets’.

[4] A similar provision is contained in article 14(1) of SRMR.

[5] Elsewhere we have argued that ‘it is not a coincidence that the continuity of critical functions and the avoidance of adverse effects on financial stability are listed before the protection of public funds’; see Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, Banking Union Scrutiny, In-Depth Analysis, Requested by the ECON Committee – European Parliament, 14; accordingly see SRB, (2017), ‘SRB Multi-Annual Planning and Work Programme 2018’, available at http://www.srb.europa.eu, 4, where it is clearly stated that the SRB’s mission is to ensure ‘an orderly resolution of failing banks with minimum impact on the real economy, the financial system, and the public finances of participating Member States and beyond’.

[6] See Biljanovska, (2016), ‘Aligning Market Discipline and Financial Stability: a More Gradual Shift from Contingent Convertible Capital to Bail-in Measures’, European Business Organisation Law Review, 17, 105-106, arguing that there might be cases where ‘market discipline and financial stability cannot be achieved simultaneously’; in this regard see also Dewatripont, (2014), ‘European Banking: Bailout, Bail-in and State Aid Control’, International Journal of Industrial Organization, 34, 37, pointing out that the public interest should be then identified primarily with the maintenance of financial stability, which in turn might require the use of public resources.

[7] See Huertas, (2014), ‘A resolvable bank’, LSE Financial Markets Group Special Paper Series, Special Paper 230, March 2014, 3, arguing that ‘A resolvable bank is one that is “safe to fail”: it can fail and be resolved without cost to the taxpayer and without significant disruption to the financial markets or the economy at large’; Schoenmaker, (2016), ‘The impact of the legal and operational structures of euro-area banks on their resolvability’, Bruegel, Policy Contribution, Issue n. 23/2016, 2, arguing that ‘a resolvable bank is one that is safe to fail, in that it can be readily recapitalised without public support and can continue carrying out essential functions practically without interruption, while not disrupting financial markets and the real economy’.

[8] Accordingly see SRB (2019), ‘Reply to written question Z-038/2019 by MEP Sven Giegold’ 20 August 2019, available at www.srb.europa.eu, 3.

[9] See article 23 of Commission Delegated Regulation 2016/1075.

[10] According to article 24(2) of Commission Delegated Regulation 2016/1075, ‘When assessing the credibility of liquidation, resolution authorities shall consider the likely impact of the liquidation of the institution or group on the financial systems of any Member State or of the Union to ensure the continuity of access to critical functions carried out by the institution or group and achieving the resolution objectives of Article 31 of Directive 2014/59/EU. For this purpose, resolution authorities shall take into account the functions performed by the institution or group and assess whether liquidation would be likely to have a material adverse impact on any of the following: a) financial market functioning and market confidence; b) financial market infrastructures … c) other financial institutions … d) the real economy and in particular the availability of critical financial services’.

[11] According to article 24(4) of Commission Delegated Regulation 2016/1075, for the purpose of assessing the feasibility of liquidation, ‘resolution authorities shall consider whether the institution’s or group’s systems are able to provide the information required by the relevant deposit guarantee schemes for the purposes of providing payment to covered deposits in the amounts and time frames specified in Directive 2014/49/EU of the European Parliament and of the Council (1), or where relevant in accordance with equivalent third country deposit guarantee schemes, including on covered deposit balances. Resolution authorities shall also assess whether the institution or the group has the capability required to support the deposit guarantee schemes’ operations, in particular by distinguishing between covered and non-covered balances on deposit accounts’.

[12] See ECA, (2017), ‘Special report no 23/2017: Single Resolution Board: Work on a challenging Banking Union task started, but still a long way to go’, available at https://www.eca.europa.eu/en/Pages/DocItem.aspx?did=44424, 23.

[13] According to article 25(1) of Commission Delegated Regulation 2016/1075, ‘Resolution authorities shall assess whether a candidate resolution strategy is appropriate to achieve the resolution objectives given the structure and business model of the institution or group, and the resolution regimes applicable to legal entities in a group’. Under article 25(2) of Commission Delegated Regulation 2016/1075, ‘In particular for groups, resolution authorities shall assess whether it would be more appropriate to apply a single point of entry or a multiple point of entry strategy’.

[14] See article 23(3) of Commission Delegated Regulation 2016/1075 as well as article 11 of BRRD.

[15] According to article 26(1) of Commission Delegated Regulation 2016/1075, ‘Resolution authorities shall assess whether it is feasible to apply the selected resolution strategy effectively in an appropriate time frame and shall identify potential impediments to the implementation of the selected resolution strategy’.

[16] According to article 32(1) of Commission Delegated Regulation 2016/1075, ‘After assessing the feasibility of the selected resolution strategy, resolution authorities shall assess its credibility, taking into consideration the likely impact of resolution on the financial systems and real economies of any Member State or of the Union, with a view to ensuring the continuity of critical functions carried out by the institution or group’.

[17] See Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 9.

[18] Id., 9.

[19] Id., 9.

[20] Lastra, (2015), ‘International Financial and Monetary Law’, Oxford, Oxford University Press, 366.

[21] See articles 12, 13 and 16 of BRRD.

[22] See Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 9.

[23] Lastra, (2015), ‘International Financial and Monetary Law’, supra, passim.

[24] Case C-9/56 and 10/56, Meroni v High Authority, [1957/1958] ECR 133.

[25] See Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 10.

[26] Id., 10.

[27] See Ferran, (2014) ‘European Banking Union: Imperfect, But It Can Work’, (April 17, 2014). University of Cambridge Faculty of Law Research Paper No. 30/2014. Available at SSRN: http://ssrn.com/abstract=2426247 or http://dx.doi.org/10.2139/ssrn.2426247, passim.

[28] See Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 10.

[29] See Bodellini, (2018) ‘To Bail-In, or to Bail-Out, that is the Question’, European Business Organization Law Review, 19, passim.

[30] See Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 11.

[31] See Wojcik, (2016), ‘Bail-in in the Banking Union’, Common Market Law Review, 53, 98, arguing that such an assessment involves a significant degree of discretion.

[32] See Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 11.

[33] Id., 11.

[34] Id., 11, where we underline that a similar approach has been developed by the Bank of England, that ‘considers that provision of fewer than around 40,000 to 80,000 transactional bank accounts (accounts from which withdrawals have been made nine or more times within a three-month period) is generally likely to indicate that a modified insolvency would be appropriate’; see Bank of England, (2018), ‘The Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)’, Statement of Policy, 5.

[35] See SRB, (2019), ‘Public Interest Assessment: SRB Approach’, available at http://www.srb.europa.eu, 6, where it is stated that the SRB approach to the PIA for the banks under its remit has been developed by the SRB itself in close collaboration with the NRAs and in consultation with the ECB in order to ensure a level playing field in the Banking Union.

[36] Id., 6.

[37] Id., 7.

[38] Id., 8.

[39] Id., 9.

[40] Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 11.

[41] On the publicly funded liquidation of Banca Popolare di Vicenza and Veneto Banca, see Bodellini (2017), ‘Greek and Italian lessons on bank restructuring: is precautionary recapitalization the way forward?’, Cambridge Yearbook of European Legal Studies, 19, 164.

[42] Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 11.

[43] Id., 11.

[44] Id., 11.

[45] Id., 11.

[46] Id., 11.

[47] Id., 11.

[48] Id., 11; on this point, the IMF is of the view that the alignment of concepts such as ‘solvency’, ‘financial stability’ and ‘public interest’, as well as of their meaning would help unify the regime; see IMF, (2018), ‘Euro Area Policies, Financial System Stability Assessment’, IMF Country Report No. 18/226, July 2018, 7.

[49] See IMF, (2018), ‘Euro Area Policies, Financial System Stability Assessment’, supra, 7.

[50] In a similar vein see SRB, (2017), ‘SRB Multi-Annual Planning and Work Programme 2018’, available at www.srb.europa.eu, 5, where it is underlined that ‘other crisis cases in 2017 also revealed the need to take a broader look at the overall regulatory framework, in particular the interplay between the Bank Recovery and Resolution Directive (BRRD), the national insolvency regimes and the rules regarding State Aid and whether incentives are set correctly’.

[51] Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 11.

[52] See IMF, (2018), ‘Euro Area Policies, Financial System Stability Assessment’, supra, 7.

[53] See Bodellini, (2018) ‘To Bail-In, or to Bail-Out, that is the Question’, supra, passim.

[54] IMF, (2018), ‘Euro Area Policies, Financial System Stability Assessment’, supra, 27.

[55] Access to SRF resources is considered public financing even though the Fund raises contributions from the industry.

[56] See Lastra – Russo, (2018), ‘The financing of bank resolution – who should provide the required liquidity?’ Banking Union Scrutiny, In-Depth Analysis, Requested by the ECON Committee – European Parliament, 7.

[57] Id., 7.

[58] See Hallerberg – Lastra, (2017) ‘The single monetary policy and decentralisation: an assessment’, In-Depth Analysis for the ECON Committee, Monetary Dialogue, passim.

[59] On the new capital requirements introduced with the so-called Basel IV package see Bodellini (2019), ‘The long ‘journey’ of banks from Basel I to Basel IV: has the banking system become more sound and resilient than it used to be?’, ERA Forum, 20, 81-97.

[60] Point 4 of the ELA Agreement.

[61] Id.

[62] Article 76 of SRMR.

[63] See https://www.consilium.europa.eu/media/36400/summing-up-letter-eurogroup-inclusive-format-7-september.pdf.

[64] See Recital (20) and art 19 SRMR.

[65] See EP Briefing, (2018) ‘Public hearing with Elke Konig, Chair of the SRB Supervisory Board’, presenting the SRB annual report 2017, available at www.europarl.europa.eu/RegData/etudes/BRIE/2018/624403/IPOL_BRI(2018)624403_EN.pdf, passim.

[66] See De Groen – Gros, (2015) ‘Estimating the bridge financing needs of the Single Resolution Fund: How expensive is it to resolve a bank?’, In-Depth Analysis for the Economic and Monetary Affairs Committee, passim.

[67] See De Groen, (2018), ‘Cash outflows in crisis scenarios. Do liquidity requirements and reporting obligations give the Single Resolution Fund sufficient time to react?’, In-Depth Analysis requested by the ECON Committee, passim.

[68] See Lehmann, (2018), ‘Cash outflows in crisis scenarios: do liquidity requirements and reporting obligations give the SRB sufficient time to react?’, In-Depth Analysis requested by the ECON committee, passim; De Groen, (2018), ‘Cash outflows in crisis scenarios. Do liquidity requirements and reporting obligations give the Single Resolution Fund sufficient time to react?’, supra, passim; Mersch, (2018), ‘The limits of central bank financing in resolution’, available at www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180130.en.html, passim.

[69] See article 17(5) of BRRD.

[70] The Commission Delegated Regulation 2016/1075 has implemented the EBA Regulatory Technical Standards on the Content of Resolution Plans and the Assessment of Resolvability of 19 December 2014.

[71] Article 26(3) of Commission Delegated Regulation 2016/1075.

[72] Accordingly, article 10(5) of BRRD clearly states that ‘resolution authorities may require institutions to assist them in the drawing up and updating of the plans’; see also article 8(8) of SRMR.

[73] Article 10(1) of BRRD.

[74] According to article 10(2) of SRMR, ‘The ECB or the relevant national competent authority shall provide the Board with a recovery plan or group recovery plan. The Board shall examine the recovery plan with a view to identifying any actions in the recovery plan which may adversely impact the resolvability of the institution or group and make recommendations to the ECB or the national competent authority on those matters’.

[75] Article 11(1)(b) of BRRD.

[76] According to article 12(1) second part of BRRD, ‘Group resolution plans shall include a plan for resolution of the group headed by the Union parent undertaking as a whole, either through resolution at the level of the Union parent undertaking or through break up and resolution of the subsidiaries’.

[77] Article 12(1) of BRRD.

[78] Article 8(2) of SRMR, stating that ‘The Board shall draw up the resolution plans, after consulting the ECB or the relevant national competent authorities and the national resolution authorities, including the group-level resolution authority, of the participating Member States in which the entities are established, and the resolution authorities of non-participating Member States in which significant branches are located insofar as relevant to the significant branch. To that end, the Board may require the national resolution authorities to prepare and submit to the Board draft resolution plans and the group-level resolution authority to prepare and submit to the Board a draft group resolution plan’.

[79] ‘IRTs are the main fora via which the SRB and NRAs cooperate in performing resolution activities (resolution planning and preparation of resolution schemes) at expert level. IRTs are composed of staff of the SRB and of the relevant NRAs, and are headed by coordinators appointed from the SRB’s senior staff’. See SRB (2016), ‘Introduction to resolution planning’, available at http://www.srb.europa.eu, 1.4.3.

[80] Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 23.

[81] Id., 23.

[82] Article 10(1) of BRRD and Article 8(5) and 6 of SRMR.

[83] About the resolution plan content see article 10(7) of BRRD and article 8(9) of SRMR. According to article 22(1) of Commission Delegated Regulation 2016/1075, a resolution plan shall contain: ‘(1) a summary of the plan, including a description of the institution or group … (2) a description of the resolution strategy considered in the plan … (3) a description of the information, and the arrangements for the provision of this information, necessary in order to effectively implement the resolution strategy … (4) a description of arrangements to ensure operational continuity of access to critical functions during resolution … (5) a description of the financing requirements and financing sources necessary for the implementation of the resolution strategy foreseen in the plan … (6) plans for communication with critical stakeholder groups … (7) the conclusions of the assessment of resolvability … (8) any opinion expressed by the institution or group in relation to the resolution plan’.

[84] Namely: (1) Strategic business analysis; (2) Preferred Resolution Strategy; (3) Financial and Operational Continuity in Resolution; (4) Information and Communication plan; (5) Conclusion of the Resolvability Assessment; (6) Opinion of the bank in relation to the resolution plan. See SRB, (2016), ‘Introduction to resolution planning’, supra, 19-20.

[85] Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 23.

[86] It is clearly stated that the resolvability assessment cannot assume any of the following: ‘(a) any extraordinary public financial support besides the use of the financing arrangements established in accordance with Article 100; (b) any central bank emergency liquidity assistance; (c) any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms’; see article 15(1) of BRRD and article 16(1) of BRRD in relation to groups; se also article 8(6) fifth part of SRMR.

[87] See SRB, (2016), ‘Introduction to resolution planning’, supra, 11.

[88] SRB (2019), ‘Expectations for banks 2019’, available at http://www.srb.europa.eu. 10.

[89] A detailed description of the assessment of resolvability is indeed one of the elements to include in the resolution plan according to article 10(7)(e) of BRRD and article 12(4) of BRRD in relation to groups.

[90] See SRB (2019), ‘Expectations for banks 2019’, supra, 6.

[91] Article 10(2) of BRRD and Article 8(6) third part of SRMR.

[92] Article 15 of BRRD.

[93] Article 10(2) of BRRD and Article 8(6) third part of SRMR.

[94] Article 17(1) of BRRD.

[95] See article 10(7) of SRMR, also stating that ‘That report shall consider the impact on the institution’s business model and recommend any proportionate and targeted measures that, in the Board’s view, are necessary or appropriate to remove those impediments in accordance’.

[96] Article 17(3) of BRRD and article 10(9) of SRMR.

[97] EBA (2014), ‘Guidelines on the specification of measures to reduce or remove impediments to resolvability and the circumstances in which each measure may be applied under Directive 2014/59/EU’, 19 December 2014, 3.

[98] See article 17(5) of BRRD.

[99] Article 17(3) and (4) of BRRD and article 10(10) of SRMR.

[100] EBA (2014), ‘Guidelines on the specification of measures to reduce or remove impediments to resolvability and the circumstances in which each measure may be applied under Directive 2014/59/EU’, supra, 3.

[101] SRB (2019), ‘Expectations for banks 2019’, supra, 7.

[102] EBA (2014), ‘Guidelines on the specification of measures to reduce or remove impediments to resolvability and the circumstances in which each measure may be applied under Directive 2014/59/EU’, supra, 3; see also Article 17(4) of BRRD, also stating that ‘In identifying alternative measures, the resolution authority shall demonstrate how the measures proposed by the institution would not be able to remove the impediments to resolvability and how the alternative measures proposed are proportionate in removing them. The resolution authority shall take into account the threat to financial stability of those impediments to resolvability and the effect of the measures on the business of the institution, its stability and its ability to contribute to the economy’. Concerning the UK legal framework see Bank of England (2015), ‘The Bank of England’s power to direct institutions to address impediments to resolvability’, Statement of Policy, December 2015, 12.

[103] Article 10(11) of SRMR.

[104] Id.

[105] EBA, (2014), ‘Guidelines on the specification of measures to reduce or remove impediments to resolvability and the circumstances in which each measure may be applied under Directive 2014/59/EU’, supra, 3.

[106] SRB, (2019), ‘Single Resolution Board Work Programme 2020’, available at http://www.srb.europa.eu, 4-15.

[107] SRB, (2019), ‘Annual Report 2018’, available at www.srb.europa.eu, 5.

[108] SRB (2019), ‘Expectations for banks 2019’, supra, 7.

[109] Id., 7, also stating that ‘It is the SRB’s task to set the direction and to ensure it actually happens. Only where this proves unsuccessful, the SRB will use its authority to set in motion formal procedures to remove substantive impediments’.

[110] I.e.: 1) governance, 2) loss absorption and recapitalisation capacity, 3) liquidity and funding in resolution, 4) operational continuity and access to FMIs, 5) information systems and data requirements, 6) communication, and 7) separability and restructuring.

[111] SRB (2019), ‘Expectations for banks 2019’, supra, 14.

[112] Lastra – Russo – Bodellini, (2019), ‘Stock take of the SRB’s activities over the past years: What to improve and focus on’, supra, 25.

[113] Russo, (2019), ‘Resolution plans and resolution strategies: do they make G-SIBs resolvable and avoid ring fence?’, European Business Organization Law Review, 20.

[114] See FSB (2019), ‘Public Disclosures on resolution Planning and Resolvability’ Discussion Paper for Public Consultation, 3 June 2019, 2.

[115] See SRB (2016), ‘Introduction to resolution planning’, supra, 34-35.

[116] Id., 34-35.

[117] It is said that the next 12-month resolution planning cycle will start in April 2020 and finish in March 2021.

[118] SRB, (2019), ‘Single Resolution Board Work Programme 2020’, available at http://www.srb.europa.eu, 4-6; according to the SRB’s website as of 5 September 2019, there were 124 banks under the SRB’s remit; see https://srb.europa.eu/en/content/banks-under-srbs-remit; they were 126 at the end of 2018, see SRB (2019), ‘Annual Report 2018’, available at www.srb.europa.eu, 11.

[119] SRB, (2017), ‘SRB Multi-Annual Planning and Work Programme 2018’, available at http://www.srb.europa.eu, 4-9.

[120] SRB, (2019), ‘Annual Report 2018’, supra, 9.

[121] Id., 9.

[122] SRB, (2018), ‘Single Resolution Board Work Programme 2019’, available at http://www.srb.europa.eu, 6; see also SRB (2017), ‘SRB Multi-Annual Planning and Work Programme 2018’, supra, 9, where it was said that ‘In 2018, the SRB will enhance resolvability inter-alia by drafting and adopting resolution plans for 99% of the groups under its responsibility. The only banks not covered by a resolution plan will be those that are subject to structural changes … All plans will be further improved in quality, benefiting from further developed internal policies and standards … In 2018, the SRB will also carry out a first identification of substantive impediments to resolution. Prior to defining these as substantive, the SRB will assess whether the actions taken by a bank are sufficient to avoid initiating formal procedures’.

[123] ECA, (2017) ‘Special report no 23/2017: Single Resolution Board: Work on a challenging Banking Union task started, but still a long way to go’, supra, passim.

[124] See Giegold, (2019), ‘(Verts/ALE), Question for written answer Z-00038/2019 to the Chair of the Single Resolution Board, Rule 141, Subject: Adoption of resolution plans and assessments of resolvability’ available at https://www.europarl.europa.eu/doceo/document/ECON-QZ-639806_EN.pdf, 1.

[125] The SRB has already reacted to the observations raised by the ECA saying that ‘it should be pointed out that the ECA Special Report examined the state of play and resolution plans drafted by the SRB in 2016. Many of the Court’s findings have been already addressed in the resolution plans which were prepared in 2017 or have been included as priorities in the Multiannual Planning and Work Programme (MAP) published in December 2017’; see SRB, (2018), ‘Annual Report 2017’, available at http://www.srb.europa.eu, 4-5.

[126] ECA, (2017), ‘Special report no 23/2017: Single Resolution Board: Work on a challenging Banking Union task started, but still a long way to go’, supra, paragraph 35.

[127] See Giegold, (2019) ‘(Verts/ALE), Question for written answer Z-00038/2019 to the Chair of the Single Resolution Board, supra, 1.

[128] SRB (2019), ‘Reply to written question Z-038/2019 by MEP Sven Giegold’ 20 August 2019, available at www.srb.europa.eu, 3.

[129] Grande, (2017), ‘Resolution Planning in Practice’, Presentation delivered at the Florence School of Banking and Finance, 4 October 2017, available at www.srb.europa.eu, passim, saying that examples of potential impediments identified by the SRB in 2016 are: 1) insufficient loss absorbing capacity, 2) operational continuity, such as continuity of access to FMIs, 3) inability to provide information in time, 4) execution of bail-in, 5) funding during/post resolution, 6) group structure (i.e. lack of a holding company), 7) cross-border issues.

[130] SRB, (2019), ‘Single Resolution Board Work Programme 2020’, available at www.srb.europa.eu, 15.

[131] Similarly see SRB, (2019), ‘Annual Report 2018’, available at www.srb.europa.eu, 14, where it is said that ‘Since almost all banks under the SRB’s remit are now covered by resolution plans an increasing focus is now put on further operationalising the existing plans, which benefit from more numerous and more comprehensive internal SRB policies. The most recent plans cover almost every aspect of planning, including the choice of resolution tools, resolvability assessment, public interest assessment or the use of simplified obligations’.

[132] Accordingly see FSB (2015), ‘Removing Remaining Obstacles to Resolvability’, report to the G20 on progress in resolution, 9 November 2015, passim, stating that at that point in time ‘Some G-SIB home authorities identified material impediments to the resolvability of the G-SIB or G-SIBs in their jurisdiction and stated that they would not consider the G-SIB or G-SIBs resolvable until these issues have been addressed’; particularly the impediments to resolvability identified at that time were related to: 1) funding and liquidity needs in resolution, 2) continuity of shared services that are necessary to maintain the provision of a firm’s critical functions in resolution, 3) continued access to payment, settlement and clearing services, 4) capabilities to generate accurate and timely information in resolution, 5) implementation of the new TLAC standard, 6) making bail-in operational, 7) cross-border effectiveness of resolution actions’.

[133] SRB, (2018), ‘Single Resolution Board Work Programme 2019’, available at http://www.srb.europa.eu, 3.

[134] SRB (2019), ‘Reply to written question Z-038/2019 by MEP Sven Giegold’, supra, 3.