Resolution is the orderly restructuring of a bank by a resolution authority when the bank is failing or likely to fail. This procedure ensures that a bank failure does not harm the broader economy or cause financial instability.
The single resolution mechanism (SRM) applies to banks covered by the single supervisory mechanism. It is the second pillar of the banking union.
If a bank fails despite stronger supervision, the SRM allows bank resolution to be managed effectively through
- a single resolution board
- a single resolution fund that is financed by the banking sector
The purpose of the SRM is to ensure an orderly resolution of failing banks with minimal costs for taxpayers and to the real economy.
The SRM regulation establishes the framework for the resolution of banks in EU countries participating in the banking union.
Single resolution board
The single resolution board, established by the SRM regulation, is a fully independent EU agency acting as the central resolution authority within the banking union. Together with the national resolution authorities of participating countries, it forms the SRM.
The mission of the SRB is
- ensuring the orderly resolution of failing banks with minimum impact on the real economy and the public finances of banking union countries
- managing the single resolution fund