The use of the assets of the Single Resolution Fund
The Single Resolution Fund (SRF) is an important component of a credible resolution framework. It ensures that resolution tools are supported by adequate funding to be effective. The SRF also ensures that the effectiveness of resolution tools is not dependent on the home country of the institution under resolution. The SRF can be used to support resolution tools as follows:
Sale of business:
- guarantees for the buyer
- loan to the buyer
Supporting a bridge institution:
- capital contribution
Supporting an asset management vehicle:
- capital contribution
Support for an institution under resolution:
- asset purchases
In connection with using the bail-in tool:
If the write-down and conversion of liabilities (bail-in) is chosen as the resolution tool, the Single Resolution Fund can be used for the payment of compensation to shareholders or creditors if the losses incurred by them are higher than the losses arising from a normal insolvency situation. The fund can also be used for capital contributions in relation to the use of the bail-in tool, but only subject to strict conditions. Particularly, if the decision is made to exclude certain creditors from the scope of the write-down of liabilities, a capital contribution can be made to the institution under resolution instead of the write-down or conversion of the receivables of certain creditors for five (5) years at a maximum.
A capital contribution can only be made when both of the following conditions are met:
- A contribution to loss absorption equal to an amount not less than eight per cent (8%) of the total liabilities of the institution under resolution has been made by the shareholders and holders of liabilities.
- The contribution of the Single Resolution Fund does not exceed five per cent (5%) of the total liabilities of the institution under resolution.
During the transition period, i.e. until the end of 2023, the assets accrued in the Single Resolution Fund have been allocated to national compartments in such a way that the proportion of merged assets available to all of the countries will gradually increase year by year. The national compartments will no longer exist after 2024.
A backstop will be implemented for the Single Resolution Fund at the end of 2023 at the latest. The backstop will double the amount of funds available for resolution. It will make it easier to use resolution tools. The loan incurred from implementing the backstop will be repaid through contributions collected from the banking sector.
More information on resolution tools is available here.