The European Court of Auditors has an obligation to report each year on any financial risk arising from legal proceedings relating to the Single Resolution Mechanism (SRM), the EU system managing the orderly winding-up of failing banks within the Banking Union. For the 2020 financial year, the Single Resolution Board (SRB) has not reported any contingent liabilities relating to a resolution decision, but relating to litigations about banks’ contributions to the Single Resolution Fund (SRF). The auditors consider the disclosures appropriate, but highlight new case-law, resulting in lower financial risks. Thus, they recommend for next year that the SRB should reassess its risks based on a new method.
The SRM, which entered into force 2014, comprises the SRB, the European Commission, the Council and the national resolution authorities. The SRB plays a central role and administers the Single Resolution Fund, which is funded by banks through ex-ante contributions and can be used to support bank resolutions. So far, the SRF has not been called upon, but there are a considerable number of ongoing legal proceedings.
“It is difficult to predict the outcome of legal proceedings related to bank resolution and their effect”, said Rimantas Šadžius, the member of the European Court of Auditors responsible for the report. “However, for interested parties it is important to know the best estimate of the possible financial exposure. This is why the SRB should find a way to reassess the impact of ongoing disputes concerning banks’ contributions to the Fund, especially given the new case-law”.