Financing bank resolution: An alternative solution for arranging the liquidity required

Liquidity in resolution is one of the unresolved elements of the Single Resolution Mechanism. Currently, with the Single Resolution Fund (SRF) and the Eurosystem, there are two potential sources of liquidity in resolution, which both have clear limitations in use and amounts. Straightforward solutio...

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Bibliographic Details
Published in:Policy File 2018
Main Author: de Groen, Willem Pieter
Format: Report
Language:English
Subjects:
Banking/Finance
Centre for European Policy Studies
Government
Online Access:Request full text
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Summary:Liquidity in resolution is one of the unresolved elements of the Single Resolution Mechanism. Currently, with the Single Resolution Fund (SRF) and the Eurosystem, there are two potential sources of liquidity in resolution, which both have clear limitations in use and amounts. Straightforward solutions to give the SRF and/or Eurosystem more firepower in resolution go against the main objectives of the resolution mechanism (i.e. breaking the sovereignbank nexus and avoiding use of taxpayers' money). This paper proposes an ECB liquidity facility with an SRFguarantee as an alternative solution for banks in resolution. The funds available should be broadly sufficient to address potential liquidity needs for resolution tools. The proposed solution primarily requires agreement on the ESMbackstop for the SRF, a firmer commitment for (possible) future contributions for the SRF as well as a change to the current emergency liquidity assistance or introduction of a new dedicated Transitional Liquidity Assistance by the Eurosystem.