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The resolution funds can be used to support resolution measures

To ensure the effective application of the resolution tools, resolution funds have been set up which are financed by contributions from the institutions. In addition, in the event of a straightforward liquidation, the Deposit Guarantee and Resolution Fund (FGDR) is used to reimburse depositors, holders of securities and beneficiaries of guarantees.

Financial support for resolution measures

When an institution is placed under resolution, the European Single Resolution Fund (SRF) or National Resolution Fund (NRF; see Resolution funds financed by contributions from institutions) can be used to finance the resolution measures, subject to the conditions set out in Article 76 of the SRM regulation and in Article 101 of the BRRD.

Use of the Single Resolution Fund

The SRF can be used to finance the application of resolution tools (sale of business, bridge institutions, separation of assets and bail-in).

It can only be used for the following purposes: to guarantee the assets or liabilities of the institution under resolution, its subsidiaries, a bridge institution or an asset management vehicle, or to provide them with loans or contributions; to purchase the assets of the institution under resolution; to pay compensation to shareholders or creditors who might have incurred greater losses than they would have under normal insolvency proceedings.

The SRF can only intervene to cover losses once losses totalling at least 8% of the institution's liabilities have been absorbed by the shareholders and creditors. Moreover, contributions from the fund are limited to 5% of the institution's liabilities (including own funds). This is consistent with Article 15 of the SRM regulation setting out the general principles governing resolution, which states that shareholders of the institution under resolution bear first losses, followed by the creditors, in accordance with the order of priority of their claims.

Use of the National Resolution Fund

The National Resolution Fund can be used for the same purposes as the SRF, but is reserved for institutions not falling within the scope of the SRF as of 1 January 2016. It can also grant loans to other financing arrangements, but strictly on a voluntary basis.

Guarantee of deposits, securities and sureties

In the event of a resolution, the deposit guarantee scheme, which subrogates to the rights of covered depositors, is not required to make a contribution greater than the amount of losses it would have had to bear if the institution had been wound up under normal insolvency proceedings, or greater than 0.4% of the total amount of covered deposits held by its members.

In the event of a liquidation, the deposit guarantee scheme is used for the following purposes:

  • to reimburse depositors up to a maximum of EUR 100,000 per person and per establishment, within seven business days;
  • to compensate investors up to a maximum of EUR 70,000 per person and per establishment in respect of any securities (shares, bonds, shares in UCITS) or other financial instruments that cannot be returned to them;
  • to act in place of the bank if the latter is no longer able to honour the sureties or guarantees it has provided.

In France, the role of the deposit guarantee scheme is carried out by the Deposit Guarantee and Resolution Fund (FGDR).

Updated on: 10/20/2017 09:39