The Single Resolution Mechanism (SRM) is the second pillar of the European Banking Union, established by Regulation (EU) No 806/2014. It became fully operational on 1 January 2016, complementing the Single Supervisory Mechanism (SSM) run by the European Central Bank. Its purpose is to ensure that when a significant bank in the euro area (or in any participating Member State) is failing or likely to fail, it can be resolved efficiently, with minimal cost to taxpayers and limited financial-stability spillovers.
The SRM rests on two main components:
- The Single Resolution Board (SRB), headquartered in Brussels, which is the central resolution authority for banks directly supervised by the ECB and for cross-border banking groups. It plans resolutions in peacetime and takes resolution decisions in a crisis.
- The Single Resolution Fund (SRF), financed by ex-ante contributions from banks themselves. The SRF was built up over an eight-year transition under the 2014 Intergovernmental Agreement and reached its target level (around 1% of covered deposits) in 2023.
Resolution tools available under the SRM mirror those in the Bank Recovery and Resolution Directive (BRRD): sale of business, bridge institution, asset separation, and bail-in of shareholders and certain creditors. Bail-in must absorb losses of at least 8% of total liabilities and own funds before the SRF can contribute.
The SRM's first major test came in June 2017, when the SRB declared Spain's Banco Popular failing or likely to fail and resolved it overnight through sale to Banco Santander for €1, wiping out shareholders and junior bondholders. The same month, the SRB declined to resolve two Italian banks (Veneto Banca and Banca Popolare di Vicenza), which were instead liquidated under Italian national insolvency law — exposing ongoing tensions between EU and national regimes.
A common backstop to the SRF via the European Stability Mechanism was agreed in 2020 but its entry into force has been delayed pending ratification.
Example
In June 2017, the Single Resolution Board used the SRM to resolve Spain's Banco Popular over a single night, selling it to Banco Santander for €1 after the ECB declared it failing or likely to fail.
Frequently asked questions
The SSM, run by the ECB, supervises banks day-to-day to prevent failure; the SRM, run by the Single Resolution Board, steps in when a bank nonetheless fails and must be resolved or wound down.
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