Estimating the Bridge Financing Needs of the Single Resolution Fund: How expensive is it to resolve a bank?

Wednesday, 25 November 2015
CEPS Special Reports
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Authors: Willem Pieter De Groen and Daniel Gros

Series: CEPS Special Report No. 122  No of pp: 39

 

The Single Resolution Board (SRB) will be responsible for the resolution of banks in the euro area from 1 January 2016. However, the resources of the Single Resolution Fund (SRF) at the disposal of the SRB will only gradually be built up until 2023. This paper provides estimates of the potential financing needs of the SRF, based on the euro area bank resolutions that actually occurred between 2007 and 2014. We find that the SRF would have been asked to put a total amount of about €72 billion into these failing banks, which is more than the target for the SRF (€55 billion) but less than the amount the SRF could draw on, if the ex-post levies are also taken into account. As this sum would have been required over eight years, the broad conclusion is that bridge financing, in addition to the existing alternative funding, would only have been needed in the early years of the transition.

Willem Pieter De Groen is a Research Fellow at CEPS. Daniel Gros is Director of CEPS. This study was originally requested by the European Parliament’s Economic and Monetary Affairs Committee and has been published on the Parliament’s website (www.europarl.europa.eu/RegData/etudes/IDAN/2015/542687/IPOL_IDA(2015)542687_EN.pdf). It is republished on the CEPS website with the kind permission of the European Parliament.