Brussels,

Single Resolution Mechanism (SRM)

The single resolution mechanism (SRM) is a central institution for bank resolution in the EU, and the second pillar of the main components of the banking union.

The Single Resolution Mechanism (SRM) is a key component of the European Union's banking union framework, which was established to address the issues revealed during the financial crisis of 2007-2008 and subsequent Eurozone sovereign debt crisis. The SRM, adopted with the Regulation (EU0 806/2014, became fully operational on January 1, 2016. Its primary objective is to ensure that failing banks within the Eurozone can be resolved in an orderly and effective manner while minimizing the use of taxpayer funds.
​
The main features of the Single Resolution Mechanism include:

1. Single Resolution Board (SRB): The SRB is a central authority responsible for the resolution of significant banks across the Eurozone. It operates independently from national authorities and the European Central Bank (ECB). The SRB plays a key role in planning and implementing the resolution process.

2. Resolution Plans: Banks deemed "significant" are required to submit detailed resolution plans to the SRB. These plans outline how the bank can be resolved in case of severe financial distress or failure without causing systemic disruptions. The plans include measures such as transferring assets, selling parts of the business, or recapitalization.

3. Resolution Tools: The SRB has access to several resolution tools that can be applied in the event of a bank's failure. These tools include:

   - Bail-in: This tool allows a failing bank's shareholders and creditors to absorb losses and contribute to recapitalizing the bank before any public funds are used.
   
   - Bridge Institution: If necessary, a bridge institution can be created to temporarily take over critical functions of a failing bank, allowing for a smoother transition to new ownership or resolution.

   - Asset Separation: Certain assets and liabilities of the failing bank can be transferred to a separate entity, often referred to as a "bad bank," to isolate toxic assets from the healthy parts of the business.

   - Sale of Business: Another bank or investor can be identified to acquire parts of the failing bank's business, helping to maintain financial stability.
Picture
Click to read
Picture
Click to read
4. Single Resolution Fund: This fund, financed by the banking sector, is used to support the resolution process, thereby shielding taxpayers from bearing the costs of bank failures.

The establishment of the Single Resolution Mechanism aims to provide a consistent and coordinated approach to resolving failing banks within the Eurozone. By ensuring that failing banks can be resolved without destabilizing the broader financial system, the SRM contributes to a more resilient and stable banking sector. Please note that developments may have occurred after September 2021, and I recommend consulting official EU sources for the most up-to-date information.

Delegated and implementing acts