French banks have won their legal battle with the European Central Bank (ECB). The European Court of Justice has ruled that part of the contributions paid to the Single Resolution Fund should not reduce their equity capital. Read more.
A 42 billion euro jackpot
The Single Resolution Fund (SRF) is a reserve scheme managed by the Single Resolution Board (SRB) and funded by contributions from the banking sector. Created in 2015, it aims to avoid using public money in the event of a bank failure. In July, the fund announced that it had collected €9 billion in annual contributions, bringing its total kitty to €42 billion. The aim is to reach 1% of total guaranteed deposits in the 19 countries of the Banking Union by the end of 2023, CRU vice-president Jan Reinder De Carpentier recently stated.
A calculation method contested by the banks
The increase in household savings linked to the Covid-19 crisis is mechanically pushing the initial target from 55 billion to 70 billion euros. Since January, deposits have risen by almost 10%, according to the ECB.
The FRU's calculation method is widely contested by French banks. For 2019, these establishments paid €3 billion into the fund, compared with €2.4 billion in 2018. In 2017, several including BNP Paribas, Société Générale, BPCE, Crédit Agricole and Crédit Mutuel Arkéa lodged an appeal with the Court of Justice of the European Union (CJEU) to get things moving. " The system for calculating individual contributions is opaque, difficult to predict and disadvantages French banks that already have guaranteed outstandings on their balance sheets," argued Jérôme Grivet, deputy CEO of Crédit Agricole SA, during the bank's earnings release.
2 billion euros in additional capital
In 2019, a further appeal was lodged against an ECB decision concerning the treatment of these payments, part of which is paid in cash and the other part (15% of the amounts) can be settled in the form of irrevocable payment undertakings. According to the ECB, this off-balance-sheet sum had to be deducted from the banks' equity capital, as it cannot always be used to cover an institution's losses in the event of bankruptcy. While the EU court acknowledged that "the existence of the risk thus identified by the ECB cannot be denied", it nevertheless specified that an "individual prudential examination" must be carried out for each bank.
The French banks have thus won a legal victory that could enable them to book over 2 billion euros in additional capital.