What is the Single Resolution Fund?

Published: 3/6/2020

The Single Resolution Fund (SRF) was established in 2015 by Regulation (EU) No 806/2014. The Fund is managed by the SRB and its purpose is to ensure funding for resolution within the banking union. The responsibility of the Fund is to ensure efficient funding of the use of resolution tools and to ensure that other resolution powers can be exercised. Ex ante contributions to the SRF are paid annually by all credit institutions (and some investment firms) with a head office in the banking union Member States.

The SRF will, in the initial period of eight years from the establishment, i.e. from 2016-2023, gradually collect contributions from credit institutions until they reach at least 1% of the amount of covered deposits of all credit institutions in the banking union until 31 December 2023. Following the contributions paid in 2019, the balance in the SRF amounted to almost EUR 33 billion and in 2020 this will be around EUR 40 billion. Eventually, the Fund will reach about EUR 60 – 65 billion. Because the total amount of the Fund is a percentage of covered deposits, the exact amount that will be in the Fund after the initial build-up period is subject to change.

The SRF may be used for the following purposes:

  1. to guarantee the assets or the liabilities of the institution under resolution, its subsidiaries, a bridge institution or an asset management vehicle;
  2. to grant loans to the institution under resolution, its subsidiaries, a bridge institution or an asset management vehicle;
  3. to purchase assets of the institution under resolution;
  4. to make contributions to a bridge institution and an asset management vehicle;
  5. to pay compensation to shareholders or creditors if an independent evaluation has shown that they have incurred greater losses than they would have incurred in a winding up under normal insolvency proceedings;
  6. to make a contribution to the institution under resolution 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 in accordance with the provisions of law;
  7. to take any combination of the actions referred to in points (a) to (f).

Since one of the basic principles of resolution is that shareholders and creditors bear the costs of the failing institution, and not the taxpayers, the SRF may be used only to absorb losses or recapitalise a credit institution after the bank’s shareholders and creditors contribute to loss absorption or recapitalisation in the amount of minimum 8% of the total liabilities of that institution, including own funds.