Every year, banks make contributions to a rescue fund known as the Single Resolution Fund (SRF). A source of conflict between the financial sector and the European authority in charge of it, the Single Resolution Board, the SRF protects increasingly large funds, which will lead to higher contributions.
The amount of contributions to the RUF, a source of tension
Chaired by Elke König, the Single Resolution Board is responsible for mobilizing the Single Resolution Fund when a bank in difficulty needs to be restructured. Shareholders, creditors and high-net-worth customers are called in to help before the fund is activated. The FRU makes it possible to avoid mobilizing public money in the event of bankruptcy.
Each year, banks pay contributions into the Single Resolution Fund. The amount of these contributions is often a source of tension between the banks and the Single Resolution Board.
Recently, Elke König responded to the banks' protests at a press conference, urging them not to contest the amount of the contributions, but to consider them as current expenses that should be taken into account in their business model.
Health crisis and increased savings: towards a rise in contributions
The amount of contributions is not expected to decrease, but to increase: once fully replenished, which is planned for the end of 2023, the amount of the FRU will be equivalent to 1% of deposits falling within the scope of European deposit guarantee regulations. These so-called covered deposits are protected up to a limit of 100,000 euros per bank and per customer.
Under normal circumstances, the fully-funded FRU should have amounted to 55 billion euros. However, the Covid-19 pandemic prompted Europeans to save on a massive scale, leading to an increase in the amount of protected deposits.
This means that by the end of 2023, the FRU should be raising not €55 billion, but €70 billion. This influx of savings will consequently lead to an increase in contributions from banking institutions.
French banks have taken various actions to reduce the amount of these contributions. In July 2020, they lodged an appeal against the FRU calculation method used by the Single Resolution Board. In September 2020, they obtained permission from the Court of the European Union to continue accounting for part of the contributions paid as equity capital.
The reason French banks are so up in arms about the FRU is that they feel penalized by contributions that last year accounted for 32% of all contributions paid by European banks to the fund.
To ease tensions, the Single Resolution Board decided in early March to launch a consultation with banks on calculation methods.