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Future-proofing our crisis management framework
Dear ladies, dear gentlemen,
First, let me thank Dr. Thomas Gstädtner and the European Banking Institute for inviting me here today. I would also like to thank Prof. Dr. R. Alexander Lorz for his remarks and the support of the State of Hessen that made this event possible.
The title of the conference gives it away: this year, we are celebrating the tenth anniversary of the Single Resolution Board (SRB) and of the Single Resolution Mechanism (SRM).
As we hit this 10-year mark, the moment feels right to pause for a second and ask ourselves – where do we stand and where are we headed?
And while I would love to dwell on all of the SRB’s achievements in its decade-long existence, I will try to keep that first part short and rather focus on the much more interesting future in a second part. In particular, I would like to focus on how our framework for managing crisis will need to adapt to stay ahead.
This means:
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How we keep our crisis management toolkit up to date;
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How we make our framework more effective and integrated;
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And finally, how we deal with new risks looming on the horizon.
But allow me to proceed chronologically.
1. Where do we stand after 10 years?
Let me tell you that we have come a long way!
Bank resolution, I mean its framework and the second pillar of the Banking Union, started from scratch. We started from a theoretical idea of dealing with bank crises to protect financial stability without using public money – that is without “bail-outs”, which had proven so costly during the great financial crisis to the taxpayer.
Fast forward 10 years to 2025. What a difference the establishment of a crisis management framework makes!
Over the last decade, the SRM resolved two banks without using one euro of public funds while preserving European financial stability.
To illustrate my point, let’s travel back in time to 2008 and take, for instance, the Irish situation.
So we are in 2008; the financial crisis has spilled over from the US and is gripping Europe. Ireland becomes a victim of this global economic downturn and its lenders are on the brink of collapse. The Irish government has to inject more than 64 billion EUR into the failing banks. That is 64 billion EUR for a population of 4.5 million people at the time – I let you do math of the bailout!
Now, let’s move to 2017. After a run on deposits and a liquidity crisis, the ECB declares Banco Popular failing or likely to fail. The SRB together with the NRA resolve the bank, imposing the losses on the shareholders and creditors and sells the bank to another banking group. The cost for the taxpayer was precisely zero, and the impact of financial stability is also zero.
The impact of a crisis management framework is clear and it is there for everyone to see.
But there is a second – perhaps more subtle but equally important – contribution of the SRM to financial stability: resolution planning.
In fact, this day-to-day work is about building resilience into the financial system. We perform our resolution planning task by asking banks to be ready to handle a crisis – that is by developing their “resolvability” in the Resolution Expert’s jargon.
This is because we consider that an orderly resolution is key to protecting financial stability, the real economy and shielding public finances.
Let me give you some figures to illustrate this resolvability progress over the past decade:
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More than EUR 2.6 trillion of loss absorbing capacity built by banks in the Banking Union;
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EUR 80 billion of Single Resolution Fund ready to be deployed;
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150 operational and actionable resolution plans drafted and updated every year for significant and less-significant institutions.
European banks are more resilient today thanks, in part, to that planning and to the existence of a functioning crisis management framework.
However, this progress does not mean our “resolvability journey” is over, in fact these elements are only the foundations of our framework.
In line with our SRM Vision 2028, we have now entered the second, more mature, phase of the SRM’s existence. In terms of resolvability, this means that we are now moving out of the capability-building phase and shifting our focus to testing those capabilities to ensure that these are operational in crisis. We will also be carrying out more on-site inspections to verify banks’ progress across the various resolvability dimensions.
Now, let me turn to the future and the challenges ahead.
2. Where are we headed?
It comes as no surprise to you that there is still a lot to be done.
Resolving banks will always be complicated, full of surprises and to some extent costly – financial stability does not come for free.
If we knew precisely how a bank would fail, there would be no need for an elaborate crisis management framework. The reality unfortunately is that we do not have a crystal ball to predict the future!
This is why, we need to ensure that we are prepared no matter what. This means that our crisis management framework should be able to deal with any type of crisis, no matter its origin.
To stay ahead, the SRM needs to change and adapt to new developments and challenges. Here’s how, and for this, I will use some key words up-to-date, effective and integrated, agile.
3, Our resolution toolkit needs to remain up-to-date
For resolution to be credible, it is important that our resolution toolkit remains as up-to-date as possible. In Europe – despite European banks’ resilience – this means drawing the lessons from the last crises cases, in particular the 2023 bank turmoil in the US and Switzerland.
One key lesson from the failures of Silicon Valley Bank and Credit Suisse was that also larger banks could be sold. If a bank is well prepared and the price is right, a buyer can be found. Our resolution strategies need to cater to that possibility and embed a certain degree of optionality.
This is why, for banks under our remit, we need to develop optionality in our resolution strategies. Concretely, this means being ready to use any resolution tool at our disposal in crisis – both alone or in combination with another tool. To that end, we have already asked banks to develop variant resolution strategies alongside our preferred ones.
More often than not, the development of variant strategies means the use of transfer tools.
This refocusing on transfer tools is also backed by experience. Most crisis cases in the last years were resolved with the use of the sale of business or bridge bank tool. A sale of business over the weekend has clearly been the cleanest solution to resolve a bank used so far.
This is well acknowledged internationally. In fact, the Financial Stability Board has just issued a Practices paper on the Operationalisation of Transfer Tools. Also, the FDIC recently stated that it wanted to focus more on sale of business (than on using bridge bank).
Of course, this is easier said than done.
In the Banking Union, in order to sell a bank or create a bridge bank, one must comply with European and national rules in different Member States of the EU. We recognise that this is no small task and we are intensely collaborating with national authorities to find solutions to be able to fully operationalise these tools.
All these efforts should not contradict the necessity to keep the other tools available, in particular the bail-in tool. It is clear indeed that for the biggest banks nobody will be ready to take them over as a whole. Bail-in stays the preferred strategy for the majority of SRB banks.
In this regard, the Credit Suisse crisis definitely showed the need to further develop the operationalisation of the bail-in tool in a cross-border context, where loss-absorbing instruments are issued in a foreign jurisdiction and held by non-domestic investors.
Needless to say, we have many banks under our remit that operate cross-borders. Compliance with the applicable securities laws – such as those of the US ones – can pose challenges in some cases.
The SRB is working intensively at many levels to address this issue, from the FSB-level where a task force has been set up to the level of individual banks where IRTs are intensifying their engagement .
But there is a lot more to crisis readiness. For my next point, I will broaden my focus to our crisis management framework. And, here, the key words are effectiveness & integration.
4. How to make our framework more effective and integrated
I think we can all agree that our framework should be modern, simple and streamlined. It should promote resilience and protect financial stability, but also make European banks more competitive globally.
This is the clear first and best outcome. Unfortunately, these elements can come at a trade-off when simplification and deregulation are conflated.
A look across the Atlantic will remind us that the push for deregulation in 2018, which exempted US mid-sized banks from reporting the liquidity coverage ratio can be considered today as an important factor in SVB’s downfall. It incentivised the bank to take on more risks and turned out to be a blind spot for the supervisor.
This is to say that financial stability is no free lunch and resolution will only work if our framework is credible. A 50 percent successful resolution does not exist. Either it works or it doesn’t.
Let me be clear. Yes, our framework is complex and yes, there is room for improvement. But its simplification should not compromise our objectives.
With this in mind, I will briefly spell out how the SRB intends to contribute to the simplification debate to become more effective.
I will first focus on our initiatives at an SRB-level.
The good news is that with 10 years of experience, we have found ways to deliver on our mandate in a more efficient way. In fact, we have already taken steps in that direction when we launched our strategic review in 2024, the SRM Vision 2028.
Our core activity – resolution planning – has become more targeted and streamlined. For example, starting this year, we are no longer asking the banks to update certain deliverables like playbooks or communication plans every year.
Moreover, we have been collaborating closely with authorities such as the ECB and the EBA to streamline reporting, avoid duplicate requests and better coordinate our engagement.
We also communicated a number of areas, where we consider that more simplification is possible to the Commission and EBA. One of them is the prior permissions regime – we believe authorisations could be simpler!
But of course, there is only so much we can do within our remit. If we wish to unlock true simplification, we need to look at the wider picture.
First, let me react to the ongoing debate on the capital framework.
The complexity of the capital framework has drawn a lot of attention. This is understandable: banks, regulators and investors have to find their way through a complex maze of acronyms and requirements. Quite naturally, there is a temptation to tweak certain requirements or to scrape one layer.
I share this assessment as well – we can surely have something that is as effective but simpler. All I ask however is that we review these changes to the micro- and macroprudential and resolution frameworks holistically.
Going concern and gone-concern requirements are two sides of the same coin. Adjusting capital or AT1 rules will directly affect the calibration of the MREL. A system-wide view should be the departing assumption!
But let me take a step back.
I must admit that in the current simplification debate, I am at times puzzled by the lack of ambition for a less fragmented and more integrated Banking Union. Finding pragmatic solutions to complete the Banking Union would deliver tremendous growth.
With CMDI nearly finalised, co-legislators should now look to complete the Banking Union. The third pillar, the European Deposit Insurance Scheme, is still missing from the original design.
This reform would provide equal protection for all depositors across the euro area, fuelling trust in the system regardless of where a bank is located. This would help foster a more competitive environment for banks to develop cross-border activities. And we are happy to discuss the different options for building an EDIS, not exclusively the 2015 historical proposal.
But a complete Banking Union is more than EDIS.
With one supervisor and one resolution authority after 10 years, I do not see many reasons to continue operating with so many internal barriers. But, still, banks and authorities need to deal with many options and discretions.
Reducing fragmentation between jurisdictions, for instance by overcoming barriers to the portability of Deposit Guarantee Scheme (DGS) funds or to group-level waivers could already be powerful measures of simplification inside the Banking Union.
I mentioned before that the SRM needs to stay ahead of new risks that banks may face. And here is my last keyword for today: Let’s be agile.
5. How do we deal with new risks looming on the horizon?
Let me start with cyber risk – perhaps this risk is already there.
According to the IMF, the number of cyber-attacks has more than doubled since the pandemic. Banks and their service providers are a prime target for cyber criminals and malignant foreign actors due to the high value of the data and potential for significant financial gain.
This was also confirmed by ENISA – the European cybersecurity agency – which found that European credit institutions were the most frequently targeted actors in the finance sector at a 46% rate.
To be clear, these attacks do not always reach their full objective.
But a successful cyber-attack could easily cause significant outages, threaten the operational continuity of a bank’s critical functions and, in turn, shatter customers’ confidence in the financial system.
The bank would be unable to service its customers and could fail despite having ample capital and liquidity.
At the SRB, we have already started working on how to best deal with this kind of crisis. Our starting point is that data availability will always be at the core of a successful resolution. We need to work further with banks to ensure data will always be available in case of resolution.
To be clear with you: at this stage, I am not sure that our legal framework is entirely fit for this type of risk.
But let’s continue the analysis before reaching a definite conclusion!
I will now move to my final point or risk on the horizon – NBFIs.
The wave of regulation that followed the Great Financial Crisis pushed parts of the risks outside the banking sector. Risk, by definition, did not disappear. Instead, it developed outside of the traditional banking sector, with new markets and actors, such as family offices, growing in size and relevance.
The broad term for these actors is non-bank financial intermediaries, or NBFIs put simply. They form a tricky category, grouping together many very different market players: insurance companies, pension funds, hedge funds, family offices, etc.
Over the last years, we have witnessed how some of these NBFIs have grown increasingly interconnected with the banking sector.
You will surely remember the Archegos episode in 2021.
Credit Suisse had already been grappling with deep-seated reputational and structural problems when, in 2021, Archegos Capital Management — a US family office — defaulted on its margin calls. As one of its prime brokers, Credit Suisse suffered significant losses that exposed serious weaknesses in its risk management and control frameworks.
Banks’ exposure to NBFIs has become an increasing concern and rightly so. This is why, authorities like the SRB need to pay a closer attention to these interconnections and monitor banks’ exposure.
But, in my view, there is a need to go further.
While some of these players – namely insurers and CCPs – already have resolution planning requirements, we should start asking ourselves if the current scope of resolution is sufficient? Maybe the scope should be even broader to also encompass other NBFIs that have become systemic. When we see the speed of evolution and growth of some sectors via private Credit or stable coins, we should not wait too long to think about an appropriate toolkit for these actors (when systemic and in failure).
These are clearly questions that will need to be addressed at FSB-level.
Let me conclude.
6. Conclusion
I remember that, when negotiating the key attributes of the FSB around 2010 – 2013, the table was divided between “prophets” describing a brave new world to come, where financial stability would be guaranteed forever thanks to resolution, and, in contrast, “disbelievers” who were much more sceptical and thinking that at the end governments will still be obliged to step in.
Today, we can safely say that the reality is in between: on the one hand, we have taken decisive steps to ensure our citizens that, all other things equal, they won’t pay more taxes in case of an idiosyncratic failure of a banking group. And I can tell you that the SRB/SRM is working day after day to achieve this goal.
However, on the other hand, let’s also recognise that our financial world is evolving rapidly, perhaps even more rapidly than before. That implies that we should stay humble and sufficiently agile to address the new challenges to come at the service of financial stability, here in Europe, and beyond.
Thank you for your attention.