This Commentary takes a close look at the basic elements of the Single Resolution Mechanism (SRM) agreed last year by the eurozone finance ministers for dealing with banks in difficulty. It finds that the plan for the gradual constitution of a common resolution fund constitutes an awkward step in the right direction as it leaves as many problems unresolved as it addresses. But the end result is likely to be quite strong, because it establishes a key innovation: a common fund that effectively mutualises much of the risk resulting from bank failures.
Daniel Gros is Director of CEPS. A shorter version of this commentary was originally published by Project Syndicate on 7 February 2014 (see http://www.project-syndicate.org/commentary/daniel-gros-examines-the-inelegant-but-fundamental-innovation-that-is-the-single-resolution-mechanism).