Resolution can be financed by the assets of a resolution fund. The banking union has a supranational Single Resolution Fund that is administered by the Single Resolution Board (SRB). In addition to the Single Resolution Fund, Finland also has a national Resolution Fund maintained by the Financial Stability Authority. The Fund’s assets can be used as part of the resolution of Finnish investment firms.
The Single Resolution Fund of the banking union
The banking union’s Single Resolution Fund (SRF) is maintained to ensure the effectiveness and credibility of resolution tools. The SRF can be used in the resolution of an institution after other financing methods have been exhausted. The underlying basic principle of the banking union is that the costs incurred from failing banks should not be borne by taxpayers. The assets of the SRF can also be used in the form of loans and guarantees, for example. The SRF is not used to cover the losses of institutions placed under resolution. As a rule, the assets of the SRF also cannot be used for the recapitalisation of institutions.
The Single Resolution Fund is financed by stability contributions collected annually from approximately 3,000 institutions in the euro area. A Commission Delegated Regulation has been issued regarding the calculation of stability contributions. The obligation to pay stability contributions applies to all credit institutions in the banking union as well as certain investment firms. A target level has been set for the SRF based on the amount of covered deposits of credit institutions. The target level is one per cent of the covered deposits of the credit institutions in the banking union and it must be reached by 31 December 2023. Based on current information, the target level corresponds to approximately EUR 73-78 billion. The level corresponds to one one-hundredth of the covered deposits of the institutions.
The creation of the Single Resolution Fund is based on the EU’s Single Resolution Mechanism Resolution. A separate treaty has also been signed regarding the transfer of stability contributions to the Single Resolution Fund and the combination of fund units.
A national resolution fund for the resolution of investment firms
In addition to the banking union’s Single Resolution Fund, Finland also has a national Resolution Fund. It can be used to partly finance the resolution of Finnish investment firms and the Finnish branches of certain foreign credit institutions.
The size of the national resolution fund is one per cent of the covered deposits of the institutions within its scope in Finland. The fund will be financed until the end of 2024, at which time it will reach its target level. Based on current information, the target level is EUR 174,000. The Financial Stability Authority administers the domestic Resolution Fund and collects stability contributions from the liable institutions annually. The national Resolution Fund and the calculation of the contributions to the Fund are based on the Act on the Financial Stability Authority.
The stability contribution of each investment firm is determined by its size. The stability contributions of investment firms will continue to be determined at the national level going forward. The Financial Stability Authority calculates the national stability contributions of investment firms and sends the decisions on the contributions to the firms usually at the turn of April–May. The due date for the payment of the contributions is the end of May.
The FFSA can use the national fund to cover the costs of resolution measures pertaining to investment firms. Such resolution measures include, for example, granting loans or guarantees to asset management vehicles or bridge institutions as well as buying assets from an investment firm under resolution.
Useful links related to this topic:
- Act on the Financial Stability Authority (in Finnish)
- EU Single Resolution Mechanism Resolution 806/2014
- Treaty concerning the transfer of stability contributions to the Single Resolution Fund (in Finnish)
- Commission Delegated Regulation 2015/63 on the calculation of stability contributions