22 Nov 2018

Financing bank resolution

An alternative solution for arranging the liquidity required

Willem Pieter De Groen


Banking Union Scrutiny by Willem Pieter de Groen

An in-depth analysis requested by the European Parliament’s ECON Committee.

Liquidity in resolution is one of the unresolved elements of the Single Resolution Mechanism. Currently, with the Single Resolution Fund (SRF) and the Eurosystem, there are two potential sources of liquidity in resolution, which both have clear limitations in use and amounts. Straightforward solutions to give the SRF and/or Eurosystem more firepower in resolution go against the main objectives of the resolution mechanism (i.e. breaking the sovereignbank nexus and avoiding use of taxpayers’ money). This paper proposes an ECB liquidity facility with an SRF guarantee as an alternative solution for banks in resolution. The funds available should be broadly sufficient to address potential liquidity needs for resolution tools. The proposed solution primarily requires agreement on the ESM backstop for the SRF, a firmer commitment for (possible) future contributions for the SRF as well as a change to the current emergency liquidity assistance or introduction of a new dedicated Transitional Liquidity Assistance by the Eurosystem.

The full paper is available here.

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