Bank resolution in the European financial architecture
The crisis has shown that Europe lacked centralized decision-making in the supervision and resolution of banks. This resulted in a vicious circle between Member States finances and their financial sector, as the former had to massively intervene to the rescue of the latter, through the ring-fencing of bank assets and bail-outs. Banking crises were transformed into sovereign debt crises, leading to a Eurozone debt crisis. It became clear that the single currency could be threatened by differing national responses. A deeper, institutional, integration was necessary in order to break the link between bank crises and the debt crises and to address the moral hazard deriving from the “too big to fail” perception.
In fact before and during the crisis authorities were faced with a dilemma, when dealing with an ailing bank: to let it go bust, and bear the consequences, or to use public money to “save” it. This dilemma draws from an overarching question: is there a trade-off between financial stability and market discipline? Should we give up on one, in order to secure the other? Or can they be synonymous?
This presentation illustrates how, stemming from the lessons learnt during the crisis, the EU has created an integrated system of supervision and resolution, the Banking Union, based on common centralised rules and institutions aimed at preventing banking crises and resolving banks. The main focus, however, is put on the second pillar of the Banking Union (i.e. the Single Resolution Mechanism, SRM), its core concepts and on the role of the Single Resolution Board (SRB), the resolution authority for Europe.
The main driver for such legislative intervention is the idea that the appropriate way to secure stability is the application of market discipline and that rules should not only reduce the probability of default of banks, but also to deal with the social costs of banks failures. In order to achieve this, a bank resolution framework is needed, governed at European level by the SRB. Through cooperation with National Resolution Authorities (NRAs), the SRB prepares plans for the resolution of banks and stands ready to enact them, when conditions are met. Under such new scenario, banks can only stay on the market in their own capacity, with no public aid. If incapable, they exit the market, or undergo orderly restructuring through resolution, amidst the least possible consequences on stability and on market discipline.
Joanne Kellermann is a Member of the SRB since its inception in 2015. As Director of Resolution Planning and Decisions she is responsible for the banks under the direct remit of the SRB in 6 EU Member States and for 2 GSIBs as well as for a number of resolution teams involved in resolution planning. She chairs the Committee on resolution planning on behalf of the SRB.
Until 2014, she was an Executive Director of the Netherlands Central Bank (DNB), responsible for supervision. After a Master’s degree in Civil Law (1984), she started her career as a lawyer in the Netherlands’ largest law firm, NautaDutilh. Having become a partner in 1992, she specialised in banking regulation and cross-border financial transactions and then headed the firm’s financial practice in London (2001-2005). After that she worked for DNB, initially as General Counsel. In 2007 she became a member of the Governing Board of DNB and was actively involved in all major crisis interventions in the Dutch financial sector. She chaired the Financial Expertise Centre, the body coordinating the fight against fraud and financial crime in the Netherlands, and was a member of the Board of Supervisors of EIOPA. She is currently a non-executive director of the University of Utrecht and of the Van Gogh Museum.