(1)

The Union resolution framework for credit institutions and investment firms (‘institutions’) was established in the aftermath of the 2008-2009 global financial crisis and following the internationally endorsed Key Attributes of Effective Resolution Regimes for Financial Institutions (3) of the Financial Stability Board. The Union resolution framework consists of Directive 2014/59/EU of the European Parliament and of the Council (4) and Regulation (EU) No 806/2014 of the European Parliament and of the Council (5). Both acts apply to institutions established in the Union, and to any other entity that falls under the scope of that Directive or that Regulation (‘entities’). The Union resolution framework aims at dealing in an orderly manner with the failure of institutions and entities by preserving institutions and entities’ critical functions and avoiding threats to financial stability, and at the same time protecting depositors and public funds. In addition, the Union resolution framework intends to foster the development of the internal market in banking by creating a harmonised regime to address cross-border crises in a coordinated way and by avoiding level playing field issues.

(1a)

At present, the banking union rests on just two of its intended three pillars, namely, the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). It therefore remains incomplete, due to the absence of its third pillar, the European deposit insurance scheme (EDIS). The completion of the banking union forms an integral part of economic and monetary union and of financial stability, most notably by mitigating the risks of so-called ‘doom loop’ that arise as a result of the bank-sovereign nexus.

(2)

Several years into its implementation, the Union resolution framework as currently applicable does not deliver as intended with respect to some of those objectives. In particular, while institutions and entities have made significant progress towards resolvability and have dedicated significant resources to that end, in particular through the build-up of the loss absorption and recapitalisation capacity and the filling-up of resolution financing arrangements, the Union resolution framework is seldom resorted to. Failures of certain smaller and medium-sized institutions and entities are instead mostly addressed through unharmonised national measures. Regrettably, taxpayer money is still used rather than industry-funded safety nets, including resolution financing arrangements. That situation appears to arise from inadequate incentives. Those inadequate incentives result from the interplay of the Union resolution framework with national rules, whereby the broad discretion in the public interest assessment is not always exercised in a way that reflects how the Union resolution framework was intended to apply. At the same time, the Union resolution framework saw little use due to the risks for depositors of deposit-funded institutions to bear losses to ensure that those institutions can access external funding in resolution, in particular in the absence of other bail-inable liabilities. Finally, the fact that there are less stringent rules on access to funding outside resolution than in resolution has discouraged the application of the Union resolution framework in favour of other solutions, which often entail the use of taxpayers’ money instead of the own resources of the institution or entity or industry-funded safety nets. That situation in turn generates risks of fragmentation, risks of suboptimal outcomes in managing institutions and entities’ failures, in particular in the case of smaller and medium-sized institutions and entities, and opportunity costs from unused financial resources. It is therefore necessary to ensure a more effective and coherent application of the Union resolution framework and to ensure that it can be applied when that is in the public interest, including for smaller and medium-sized institutions ▌.

(3)

Pursuant to Article 4 of Regulation (EU) No 806/2014, Member States which have established a close cooperation between the European Central Bank (ECB) and the respective national competent authorities are to be considered participant Member States for the purposes of that Regulation. However, Regulation (EU) No 806/2014 does not contain any details on the process for preparing the start of the close cooperation on resolution-related tasks. It is therefore appropriate to lay down those details.

(4)

The intensity, and level of detail, of the resolution planning work needed with respect to subsidiaries that have not been identified as resolution entities varies depending on the size and risk profile of the institutions and entities concerned, the presence of critical functions, and the group resolution strategy. The Single Resolution Board (the ‘Board’) should therefore be able to consider those factors when identifying the measures to be taken in respect of such subsidiaries and follow a simplified approach where appropriate.

(5)

An institution or entity that is being wound up under national law, following a determination that the institution or entity is failing or likely to fail and a conclusion by the Board that its resolution is not in the public interest, is ultimately heading towards market exit. That implies that a plan for actions to be taken in case of failure is not needed, irrespective of whether the competent authority has already withdrawn the authorisation of the institution or entity concerned. The same applies for a residual institution under resolution after the transfer of assets, rights, and liabilities in the context of a transfer strategy. It is therefore appropriate to specify that in those situations, the adoption of resolution plans is not required.

(6)

The Board may currently prohibit certain distributions where an institution or entity fails to meet the combined buffer requirement when considered in addition to the minimum requirement for own funds and eligible liabilities (‘MREL’). However, to ensure legal certainty and alignment with the existing procedures for the implementation of decisions taken by the Board, it is necessary to specify more clearly the roles of the authorities involved in the process for prohibiting distributions. It is therefore appropriate to lay down that the Board should address an instruction to prohibit such distributions to the national resolution authority, which should implement the Board’s decision. In addition, in certain situations, an institution or entity might be required to comply with the MREL on a different basis than the basis on which that institution or entity is required to comply with the combined buffer requirement. That situation creates uncertainties as to the conditions for the exercise of the Board’s powers to prohibit distributions and for the calculation of the Maximum Distributable Amount related to MREL. It should therefore be laid down that, in those cases, the Board should instruct national resolution authorities to prohibit certain distributions based on the estimate of the combined buffer requirement resulting from Commission Delegated Regulation (EU) 2021/1118 (6). To ensure transparency and legal certainty, the Board should communicate the estimated combined buffer requirement to the institution or entity, which should then publicly disclose that estimated combined buffer requirement.

(7)

Directive 2014/59/EU and Regulation (EU) No 575/2013 lay down powers to be exercised by resolution authorities, some of which are not included in Regulation (EU) No 806/2014. In the Single Resolution Mechanism, this can create uncertainty as to who should exercise those powers and in what conditions they should be exercised. It is therefore necessary to specify how national resolution authorities should exercise certain powers set out only in Directive 2014/59/EU in relation to entities and groups that fall under the direct responsibility of the Board. In those cases, the Board should be able, where it deems necessary, to instruct national resolution authorities to exercise those powers. In particular, the Board should be able to instruct national resolution authorities to require an institution or entity to maintain detailed records of the financial contracts to which the institution or entity is a party, or to apply the power to suspend some financial obligations pursuant to Article 33a of Directive 2014/59/EU. However, given that the permissions for the reduction of eligible liabilities instruments laid down in Regulation (EU) No 575/2013 of the European Parliament and of the Council (7), which is also applicable to institutions and entities and liabilities subject to the MREL, do not require the application of national legislation, the Board should be able to grant those permissions to institutions or entities directly, without having to instruct national resolution authorities to exercise that power.

(8)

Regulation (EU) 2019/876 of the European Parliament and of the Council (8), Regulation (EU) 2019/877 of the European Parliament and of the Council (9) and Directive (EU) 2019/879 of the European Parliament and of the Council (10) implemented in Union law the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet’, published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’), for global systemically important banks, referred to in Union law as global systemically important institutions (G-SIIs). Regulation (EU) 2019/877 and Directive (EU) 2019/879 also amended the MREL set out in Directive 2014/59/EU and in Regulation (EU) No 806/2014. It is necessary to align the provisions in Regulation (EU) No 806/2014 on the MREL with the implementation of the TLAC standard for G-SIIs with respect to certain liabilities that could be used to meet the part of the MREL that should be met with own funds and other subordinated liabilities. In particular, liabilities that rank pari passu with certain excluded liabilities should be included in the own funds and subordinated eligible instruments of resolution entities where the amount of those excluded liabilities on the balance sheet of the resolution entity does not exceed 5 % of the amount of the own funds and eligible liabilities of the resolution entity and no risks related to the ‘no creditor worse off’ principle arise from that inclusion.

(9)

The rules for determining the MREL are mostly focused on setting the appropriate level of the MREL with the assumption of the bail-in tool as the preferred resolution strategy. However, Regulation (EU) No 806/2014 allows the Board to use other resolution tools, namely those relying on the transfer of the business of the institution under resolution to a private purchaser or to a bridge institution. It should therefore be specified that, in case the resolution plan envisages the use of the sale of business tool or of the bridge institution tool ▌, independently or in combination with other resolution tools, the Board should determine the level of the MREL for the resolution entity concerned on the basis of the specificities of those resolution tools and of the different loss-absorbing and recapitalisation needs those tools entail.

(10)

The level of the MREL for resolution entities is the sum of the amount of the losses expected in resolution and the recapitalisation amount that enables the resolution entity to continue to comply with its conditions for authorisation and enabling it to pursue its activities for an appropriate period. Certain preferred resolution strategies entail the transfer of assets, rights and liabilities to a recipient▌, in particular the sale of business tool. In those cases, the objectives pursued by the recapitalisation component might not apply to the same extent as in the case of an open-bank bail-in strategy, because the Board will not be required to ensure that the resolution entity restores compliance with its own funds requirements after resolution action. Nevertheless, the losses in such cases are expected to exceed the resolution entity’s own funds requirements. It is therefore appropriate to lay down that the level of the MREL of those resolution entities continues to include a recapitalisation amount that is adjusted in a way which is proportionate to the resolution strategy.

(11)

Where the resolution strategy envisages the use of resolution tools other than exclusively bail-in, the recapitalisation needs of the entity concerned will generally be smaller after resolution than in case of open bank bail-in. The calibration of the MREL in such a case should take that aspect into account when estimating the recapitalisation requirement. Therefore, when adjusting the level of the MREL for resolution entities the resolution plan of which envisages the sale of business tool or the bridge institution tool ▌, independently or in combination with other resolution tools, the Board should take into account the features of those tools, including the expected perimeter of the transfer to the private purchaser or to the bridge institution, the types of instruments to be transferred, the expected value and marketability of those instruments, and the design of the preferred resolution strategy, including the complementary use of the asset separation tool. Since the resolution authority has to decide on a case by case basis on any possible use in resolution of funds from the deposit guarantee scheme and since such decision cannot be assumed with certainty ex ante, the Board should not consider the potential contribution of the deposit guarantee scheme (in resolution when calibrating the level of the MREL. That approach also reduces the likelihood of moral hazard by ensuring that entities are not pre-emptively assuming that funds from the respective deposit guarantee scheme will be used to reach the 8 % total liabilities and own funds target.

▌

(13)

Pursuant to Article 4 of Council Regulation (EU) No 1024/2013 (11), the ECB is competent to carry out supervisory tasks in relation to early intervention. It is necessary to reduce the risks stemming from diverging transpositions into national laws of the early intervention measures in Directive 2014/59/EU and to facilitate the effective and consistent application by the ECB of its powers to take early intervention measures. Those early intervention measures were created to enable competent authorities to remedy the deterioration of the financial and economic situation of an institution or entity and to reduce, to the extent possible, the risk and impact of a possible resolution. However, due to a lack of certainty regarding the triggers for the application of those early intervention measures and partial overlaps with supervisory measures, early intervention measures have seldom been used. The provisions of Directive 2014/59/EU concerning early intervention measures should therefore be mirrored in Regulation (EU) No 806/2014, thereby ensuring a single and directly applicable legal tool for the ECB, and the conditions for the application of those early intervention measures should be simplified and further specified. To dispel uncertainties concerning the conditions and timing for the removal of the management body and the appointment of temporary administrators, those measures should be explicitly identified as early intervention measures and their application should be subject to the same triggers. At the same time, the ECB should be required to select the appropriate measures to address a specific situation in compliance with the principle of proportionality. To enable the ECB to take into account reputational risks or risks related to money laundering or information and communication technology, the ECB should assess the conditions for the application of early intervention measures not only on the basis of quantitative indicators, including capital or liquidity requirements, level of leverage, non-performing loans or concentration of exposures, but also on the basis of qualitative triggers.

(14)

It is necessary to ensure that the Board is able to prepare for the possible resolution of an institution or entity. The ECB or the relevant national competent authority should therefore inform the Board of the deterioration of the financial condition of an institution or entity sufficiently early, and the Board should have the necessary powers for the implementation of preparatory measures. Importantly, to enable the Board to react as swiftly as possible to a deterioration of the situation of an institution or entity, the prior application of early intervention measures should not be a condition for the Board to make arrangements for the marketing of the institution or entity or to request information to update the resolution plan and prepare the valuation. To ensure a consistent, coordinated, effective and timely reaction to the deterioration of the financial situation of an institution or entity and to prepare properly for a possible resolution, it is necessary to enhance the interaction and coordination between the ECB, the national competent authorities and the Board. As soon as an institution or entity meets the conditions for application of early intervention measures, the ECB, the national competent authorities and the Board should increase their exchanges of information, including provisional information, and monitor the financial situation of the institution or entity jointly.

(14a)

Where the Board requires information that is necessary for the purposes of updating resolution plans, preparing for the possible resolution of an entity, or carrying out a valuation, the ECB or the relevant national competent authorities should provide the Board with that information to the extent that it is available to them. Where the relevant information is not already available to the ECB or the relevant national competent authorities, the Board and the ECB or the relevant national competent authorities should cooperate and coordinate to collect the information considered necessary by the Board. In the context of such cooperation, the national competent authorities should collect the necessary information having due regard to the principle of proportionality.

(15)

It is necessary to ensure timely action and early coordination between the Board and the ECB, or the relevant national competent authority, with respect to less significant cross-border groups when an institution or entity is still a going concern but where there is a material risk that that institution or entity may fail. The ECB or the relevant national competent authority should therefore notify the Board as early as possible of such risk. That notification should contain the reasons for the assessment of the ECB or of the relevant national competent authority and an overview of the alternative private sector measures, supervisory action or early intervention measures that are available to prevent the failure of the institution or entity within a reasonable timeframe. Such early notification should not prejudice the procedures to determine whether the conditions for resolution are met. The prior notification by the ECB or by the relevant national competent authority to the Board of a material risk that an institution or entity is failing or likely to fail should not be a condition for a subsequent determination that an institution or entity is actually failing or likely to fail. Moreover, if at a later stage the institution or entity is assessed to be failing or likely to fail and there are no alternative solutions to prevent such failure within a reasonable timeframe, the Board has to take a decision whether to take resolution action. In such a case, the timeliness of the decision to apply resolution action to an institution or entity can be fundamental to the successful implementation of the resolution strategy, in particular because an earlier intervention in the institution or entity can contribute to ensuring sufficient levels of loss absorption capacity and liquidity to execute that strategy. It is therefore appropriate to enable the Board to assess, in close cooperation with the ECB or the relevant national competent authority, what constitutes a reasonable timeframe to implement alternative measures to avoid the failure of the institution or entity. When conducting that assessment, the need to preserve the ability for the resolution authority and for the entity concerned to implement effectively the resolution strategy where that is ultimately needed should also be taken into account but should not prevent alternative measures from being taken. In particular, the envisaged timeframe for the alternative measures should be such that it does not put at risk the effectiveness of a potential implementation of the resolution strategy. To ensure a timely outcome and to enable the Board to prepare properly for the potential resolution of the institution or entity, the Board and the ECB, or the relevant national competent authority, should meet regularly, and the Board should decide on the frequency of those meetings considering the circumstances of the case.

(16)

To cover material infringements of prudential requirements, it is necessary to further specify the conditions for determining that parent undertakings, including holding companies, are failing or likely to fail. An infringement of those requirements by a parent undertaking should be material where the type and extent of such infringement is comparable with an infringement that, if committed by a credit institution, would have justified the withdrawal of the authorisation by the competent authority in accordance with Article 18 of Directive 2013/36/EU.

(17)

The resolution framework is meant to be applied to potentially any institution or entity, irrespective of its size and business model with a positive public interest assessment. To ensure such outcome, the criteria to apply the public interest assessment to a failing institution or entity should be specified. In that respect, it is necessary to clarify that, depending on the specific circumstances, certain functions of the institution or entity can be considered critical if their discontinuance would impact financial stability or critical services at regional level, in particular where the substitutability of the critical functions is determined by the relevant geographic market .

(18)

The assessment of whether the resolution of an institution or entity is in the public interest should reflect the consideration that depositors are better protected when deposit guarantee scheme funds are used more efficiently and the losses for those funds are minimised. Therefore, in the public interest assessment, the resolution objective of protecting depositors should be considered better achieved in resolution if opting for insolvency would be more costly for the deposit guarantee scheme.

(19)

The assessment of whether the resolution of an institution or entity is in the public interest should also reflect, to the extent possible, the difference between, on the one hand, funding provided through industry-funded safety nets (resolution financing arrangements or deposit guarantee schemes) and, on the other hand, funding provided by Member States from taxpayers’ money. Funding provided by Member States bears a higher risk of moral hazard and a lower incentive for market discipline, and should be considered only under extraordinary circumstances . Therefore, when assessing the objective of minimising reliance on extraordinary public financial support, the Board should find funding through the resolution financing arrangements or the deposit guarantee scheme, preferable to funding through an equal amount of resources from the budget of Member States.

(19a)

Where national insolvency and resolution frameworks achieve effectively the objectives of the framework to the same extent, preference should be given to the option that minimises the risk for taxpayers and the economy. That approach ensures a prudent and responsible course of action, aligned with the overarching goal of safeguarding both the interests of taxpayers and broader economic stability.

(19b)

Taxpayer-funded extraordinary financial support to institutions and entities should be granted, if at all, only to remedy a serious disturbance in the economy of an exceptional and systemic nature, as it imposes a significant burden on public finances and disrupts the level playing field in the internal market.

(20)

To ensure that the resolution objectives are attained in the most effective way, the outcome of the public interest assessment should consider whether the winding up of the failing institution or entity under normal insolvency proceedings would achieve the resolution objectives more effectively than resolution and not only to the same extent as resolution.

(21)

In light of the experience acquired in the implementation of Directive 2014/59/EU, Regulation (EU) No 806/2014 and Directive 2014/49/EU, it is necessary to specify further the conditions under which measures of a precautionary nature that qualify as extraordinary public financial support may exceptionally be granted. To minimise distortions of competition arising from differences in nature of deposit guarantee schemes in the Union, interventions of such schemes in the context of preventive measures complying with the requirements laid down in Directive 2014/49/EU that qualify as extraordinary public financial support should exceptionally be allowed where the beneficiary institution or entity does not meet any of the conditions for being deemed as failing or likely to fail. It should be ensured that precautionary measures are taken sufficiently early. The ECB currently bases its consideration that an institution or entity is solvent, for the purposes of precautionary recapitalisation, on a forward-looking assessment for the following 12 months of whether the institution or entity can comply with the own funds requirements set out in Regulation (EU) No 575/2013 or in Regulation (EU) 2019/2033, and the additional own funds requirement laid down in Directive 2013/36/EU or Directive (EU) 2019/2034. That practice should be laid down in Regulation (EU) No 806/2014. Moreover, measures to provide relief for impaired assets, including asset management vehicles or asset guarantee schemes, can prove effective and efficient in addressing causes of possible financial distress faced by institutions and entities and preventing their failure and could therefore constitute relevant precautionary measures. It should therefore be specified that such precautionary measures can take the form of impaired asset measures.

(22)

To preserve market discipline, protect public funds and avoid distortions of competition, precautionary measures should remain the exception and only be applied to address serious disturbances in the market or to preserve financial stability , in particular in the event of a systemic crisis . Moreover, precautionary measures should not be used to address incurred or likely losses. The most reliable instrument to identify incurred or likely to be incurred losses is an asset quality review by the ECB, the European Supervisory Authority (European Banking Authority) (EBA), established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (12) or national competent authorities. The ECB and national competent authorities should use such a review to identify incurred or likely to be incurred losses if such review can be carried out within a reasonable timeframe. Where that is not possible, the ECB and national competent authorities should identify incurred or likely to be incurred losses in the most reliable way possible under the prevailing circumstances, based on on-site inspections where appropriate.

(23)

Precautionary recapitalisation is aimed at supporting viable institutions and entities identified as likely to encounter temporary difficulties in the near future and to prevent their situation from deteriorating further. To avoid that public subsidies are granted to businesses that are already unprofitable when the support is granted, precautionary measures granted in the form of acquisition of own funds instruments or other capital instruments or through impaired asset measures should not exceed the amount necessary to cover capital shortfalls as identified in the adverse scenario of a stress test or equivalent exercise. To ensure that public financing is ultimately discontinued, those precautionary measures should also be limited in time and contain a clear timeline for their termination (▌a ‘ strategy to exit the support measure’ ). Perpetual instruments, including Common Equity Tier 1 capital, should only be used in exceptional circumstances and be subject to certain quantitative limits because by their nature they are not well suited for compliance with the condition of temporariness.

(24)

Precautionary measures should be limited to the amount that the institution or entity would need to maintain its solvency in case of an adverse scenario event as determined in a stress test or equivalent exercise. In the case of precautionary measures in the form of impaired asset measures, the receiving institution or entity should be able to use that amount to cover losses on the transferred assets or in combination with an acquisition of capital instruments, provided that the overall amount of the shortfall identified is not exceeded. It is also necessary to ensure that such precautionary measures in the form of impaired asset measures comply with existing State aid rules and best practices, that they restore the institution or entity's long-term viability, that State aid is limited to the minimum necessary and that distortions of competition are avoided. For those reasons, the authorities concerned should, in case of precautionary measures in the form of impaired asset measures, take into account the specific guidance, including the AMC Blueprint (13) and the Communication on Tackling Non-Performing Loans (14). Those precautionary measures in the form of impaired asset measures should also always be subject to the overriding condition of temporariness. Public guarantees granted for a specified period in relation to the impaired assets of the institution or entity concerned are expected to ensure better compliance with the temporariness condition than transfers of such assets to a publicly supported entity. To ensure that institutions receiving support comply with the terms of the support measure, the ECB or national competent authorities should request a remediation plan from institutions that failed to fulfil their commitments. Where the ECB or a national competent authority is of the opinion that the measures in the remediation plan are not capable of achieving the institution’s long-term viability or where the institution failed to comply with the remediation plan, the ECB or the relevant national competent authority should carry out an assessment of whether the institution is failing or is likely to fail , in accordance with Article 18 of Regulation (EU) No 806/2014.

(25)

It is important to ensure swift and timely resolution action by the Board where such action involves the granting of State aid or Fund aid. It is therefore necessary to enable the Board to adopt the resolution scheme concerned before the Commission has assessed whether such aid is compatible with the internal market. However, to ensure the good functioning of the internal market in such a scenario, resolution schemes involving the granting of State aid or Fund aid should ultimately remain subject to the Commission approving such aid. To enable the Commission to assess as early as practicable whether the Fund aid is compatible with the single market, and to ensure a smooth flow of information, it is also necessary to lay down that the Board and the Commission should promptly share all information necessary regarding the possible use of Fund aid and to provide for specific rules on when and what information the Board should provide to the Commission in order to inform the Commission’s assessment of Fund aid compatibility.

(26)

The procedure governing the entry into resolution and the procedure governing the decision to apply the write down and conversion powers are similar. It is therefore appropriate to align the respective tasks of the Board and of either the ECB or the national competent authority, as relevant, when, on the one hand, they assess whether the conditions for the application of the write down and conversion powers are present, and, on the other hand, when they assess the conditions for adopting a resolution scheme.

(27)

It is possible that resolution action is to be applied to a resolution entity that is the head of a resolution group, while write down and conversion powers are to be applied to another entity of the same group. Interdependencies between such entities, including the existence of consolidated capital requirements to be restored and the need to activate loss upstream and capital downstream mechanisms, may make it challenging to assess the loss absorption and recapitalisation needs for each entity separately, and thus to determine the necessary amounts to be written down and converted for each entity. The procedure for the application of the power to write down and convert capital instruments and eligible liabilities in those situations should therefore be specified, whereby the Board should take such interdependencies into account. For that purpose, where one entity meets the conditions for the application of the write down and conversion power and another entity within the same group meets at the same time the conditions for resolution, the Board should adopt a resolution scheme covering both entities.

(28)

To increase legal certainty, and in view of the potential relevance of liabilities which may arise from future uncertain events, including the outcome of litigations pending at the time of resolution, it is necessary to lay down which treatment those liabilities should receive for the application of the bail-in tool. The guiding principles in that respect should be those provided in the accounting rules, and particularly the accounting rules laid down in the International Accounting Standard 37 as adopted by Commission Regulation (EC) No 1126/2008 (15). On that basis, resolution authorities should draw a distinction between provisions and contingent liabilities. Provisions are liabilities that relate to a probable outflow of funds and which can be reliably estimated. Contingent liabilities are not recognised as accounting liabilities as they relate to an obligation which cannot be considered probable at the time of the estimate or cannot be reliably estimated.

(29)

Since provisions are accounting liabilities, it should be specified that such provisions are to be treated the same way as other liabilities. Such provisions should be bail-inable, unless they meet one of the specific criteria for being excluded from the scope of the bail-in tool. Given the potential relevance of those provisions in resolution and to ensure certainty in the application of the bail-in tool, it should be specified that provisions are part of the bail-inable liabilities and that, as a result, the bail-in tool applies to them.

(30)

According to accounting principles, contingent liabilities cannot be recognised as liabilities and should therefore not be bail-inable. It is however necessary to ensure that a contingent liability that would arise from an event that is improbable or cannot be reliably estimated at the time of resolution does not impair the effectiveness of the resolution strategy and in particular of the bail-in tool. To achieve that objective, the valuer should, as part of the valuation for the purposes of resolution, assess contingent liabilities that are included in the balance sheet of the institution or entity under resolution and quantify the potential value of those liabilities to the valuer’s best abilities. To ensure that, after the resolution process, the institution or entity can sustain sufficient market confidence for an appropriate amount of time, the valuer should take into account that potential value when establishing the amount by which bail-inable liabilities need to be written down or converted to restore the capital ratios of the institution under resolution. In particular, the resolution authority should apply its conversion powers to bail-inable liabilities to the extent necessary to ensure that the recapitalisation of the institution under resolution is sufficient to cover potential losses which may be caused by a liability that may arise because of an improbable event. When assessing the amount to be written down or converted, the resolution authority should carefully consider the impact of the potential loss on the institution under resolution based on a number of factors, including the likelihood of the event materialising, the time frame for its materialisation and the amount of the contingent liability.

(31)

In certain circumstances, after the Single Resolution Fund has provided a contribution up to the maximum of 5 % of the institution or entity’s total liabilities including own funds, the Board may use additional sources of funding to further support their resolution action. It should be specified more clearly in which circumstances the Single Resolution Fund may provide further support where all liabilities with a priority ranking lower than deposits that are not mandatorily or discretionarily excluded from bail-in have been written down or converted in full.

(32)

The success of resolution hinges on timely access for the Board to relevant information from the institutions and entities that fall under the responsibility of the Board and from public institutions and authorities. Within that context, the Board should be able to access information of a statistical nature which the ECB collected under its central bank function, in addition to the information available to the ECB as a supervisor within the framework of Regulation (EU) No 1024/2013. Pursuant to Council Regulation (EC) No 2533/98 (16), the Board should ensure the physical and logical protection of confidential statistical information and should require authorisation to the ECB for the further transmission that may be necessary for the execution of the tasks of the Board. As information related to the number of customers for which an institution or entity is the only or principal banking partner, which is held by the centralised automated mechanisms set up pursuant to Directive (EU) 2015/849 of the European Parliament and of the Council (17), may be necessary to carry out the public interest assessment, the Board should be able to receive that information on a case-by-case basis. The exact timing of indirect access to information by the Board should also be specified. In particular, when the relevant information is available to an institution or authority which is obliged to cooperate with the Board when the Board requests information, such institution or authority should provide that information to the Board. If, at that time, the information is not available, irrespective of the reason for this unavailability, the Board should be able to obtain that information from the natural or legal person that has that information through the national resolution authorities or directly, after having informed those national resolution authorities thereof. It should also be possible for the Board to specify the procedure under, and the form in which it should receive information from financial entities to ensure that such information is the most suited to its needs, including virtual data rooms. In addition, to ensure the broadest cooperation possible with all entities susceptible of holding data relevant to the Board, and necessary for the performance of the tasks conferred on it, and to avoid duplicating requests to institutions and entities, the public institutions and authorities with which the Board should be able to cooperate, check the availability of information and exchange information, should include the members of the European System of Central Banks, the relevant DGSs, the European Systemic Risk Board, the European Supervisory Authorities and the European Stability Mechanism. Finally, to ensure a timely intervention of financial arrangements contracted for the Single Resolution Fund in case of need, the Board should inform the Commission and the ECB as soon as it considers that it may be necessary to activate such financial arrangements and provide the Commission and the ECB with all information necessary for the performance of their tasks in respect of such financial arrangements.

(33)

Article 86(1) of Directive 2014/59/EU provides that normal insolvency proceedings in relation to institutions and entities within the scope of that Directive are not to be commenced except at the initiative of the resolution authority and that a decision placing an institution or an entity into normal insolvency proceedings is to be taken only with the consent of the resolution authority. That provision is not reflected in Regulation (EU) No 806/2014. In line with the division of tasks specified in Regulation (EU) No 806/2014, national resolution authorities should consult the Board before they act in accordance with Article 86(1) of Directive 2014/59/EU for institutions and entities that are under the direct responsibility of the Board.

(34)

The selection criteria for the position of the Vice-Chair of the Board are the same as those for the selection of the Chair and other full-time members of the Board. It is therefore appropriate to provide also the Vice-Chair of the Board with the same voting rights as those enjoyed by the Chair and the full-time members of the Board.

▌

(36)

To allow for a preliminary assessment by the Board in its plenary session of the draft preliminary budget before the Chair presents its final draft, the period for the Chair to put forward an initial proposal for the annual budget of the Board should be extended.

(37)

After the initial build-up period of the Single Resolution Fund referred to in Article 69(1) of Regulation (EU) No 806/2014, its available financial means may face slight decreases below its target level, in particular resulting from an increase in covered deposits. The amount of the ex-ante contributions likely to be called in those circumstances is thus likely to be small. It may therefore be possible that, in some years, the amount of those ex ante contributions is no longer commensurate to the cost of the collection of those contributions. The Board should therefore be able to defer the collection of the ex ante contributions for up to three years until the amount to be collected reaches an amount that is proportionate to the cost of the collection process, provided that such deferral does not materially affect the capacity of the Board to use the Single Resolution Fund.

(38)

Irrevocable payment commitments are one of the components of the available financial means of the Single Resolution Fund. It is therefore necessary to specify the circumstances in which those payment commitments may be called, and the applicable procedure when terminating the commitments in case an institution or entity ceases to be subject to the obligation to pay contributions to the Single Resolution Fund. In addition, to provide more transparency and certainty with respect to the share of irrevocable payment commitments in the total amount of ex ante contributions to be raised, the Board should determine such share on an annual basis, subject to the applicable limits.

(39)

The maximum annual amount of extraordinary post contributions to the Single Resolution Fund that are allowed to be called, is currently limited to three times the amount of the ex ante contributions. After the initial build-up period referred to in Article 69(1) of Regulation (EU) No 806/2014, such ex ante contributions will depend only, in circumstances other than the use of the Single Resolution Fund, on variations in the level of covered deposits and are therefore likely to become small. Basing the maximum amount of extraordinary ex post contributions on ex ante contributions could then have the effect of drastically limiting the possibility for the Single Resolution Fund to raise ex post contributions, thereby reducing its capacity for action. To avoid such an outcome, a different limit should be laid down and the maximum amount of extraordinary ex post contributions allowed to be called should be set at three times one-eighth of the target level of the Fund.

(40)

The Single Resolution Fund can be used to support the application of the sale of business tool or of the bridge institution tool, whereby a set of assets, rights, and liabilities of the institution under resolution are transferred to a recipient. In that case, the Board may have a claim against the residual institution or entity in its subsequent winding up under normal insolvency proceedings. That may occur where the Single Resolution Fund is used in connection to losses that creditors would otherwise have borne, including under the form of guarantees to assets and liabilities, or coverage of the difference between the transferred assets and liabilities. To ensure that the shareholders and creditors left behind in the residual institution or entity effectively absorb the losses of the institution under resolution and improve the possibility of repayments in insolvency to the Board, those claims of the Board against the residual institution or entity, and claims that arise from reasonable expenses properly incurred by the Board, should benefit from the same priority ranking in insolvency as the ranking of the claims of the national resolution financing arrangements in each participating Member State, which should be higher than the priority ranking of deposits and of deposit guarantee schemes. Since compensations paid to shareholders and creditors from the Single Resolution Fund due to breaches of the ‘no creditor worse off’ principle aim to compensate for the results of resolution action, those compensations should not give rise to claims of the Board.

(41)

Since some of the provisions of Regulation (EU) No 806/2014 concerning the role that deposit guarantee schemes may play in resolution are similar to those of Directive 2014/59/EU, the amendments made to those provisions in Directive 2014/59/EU by [OP please insert the number of the directive amending Directive 2014/59/EU] should be mirrored in Regulation (EU) No 806/2014.

(42)

Transparency is key to ensuring market integrity, market discipline, and the protection of investors. To ensure that the Board is able to foster, and participate in, efforts towards greater transparency, the Board should be allowed to disclose information that result from its own analyses, assessments and determinations, including its resolvability assessments, where such disclosure would not undermine the protection of the public interest as regards financial, monetary or economic policy and where there is an overriding public interest in the disclosure.

(43)

Regulation (EU) No 806/2014 should therefore be amended accordingly.

(44)

To ensure consistency, the amendments to Regulation (EU) No 806/2014 that are similar to the amendments to Directive 2014/59/EU by … [OP, please insert the number of the directive amending Directive 2014/59/EU] should be applied from the same date as the date for the transposition of … [OP, please insert the number of the directive amending Directive 2014/59/EU], which is … [OP please insert the date = 18 months from the date of entry into force of this amending Regulation]. However, there is no reason to delay the application of those amendments to Regulation (EU) No 806/2014 that relate exclusively to the functioning of the Single Resolution Mechanism. Those amendments should therefore apply from … [OP please insert the date = 1 month from the date of entry into force of this amending Regulation].

(45)

Since the objectives of this Regulation, namely to improve the effectiveness and efficiency of the recovery and resolution framework for institutions and entities, cannot be sufficiently achieved by the Member States due to the risks that diverging national approaches might entail for the integrity of the single market but can rather, by amending rules that are already set at Union level, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on the European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives,

(1)

Article 3(1) is amended as follows:

(2)

in Article 4, the following paragraph 1a is inserted:

(3)

Article 7 is amended as follows:

(4)

Article 8 is amended as follows:

(5)

Article 10 is amended as follows:

(6)

Article 10a is amended as follows:

(7)

in Article 12, the following paragraph 8 is added:

(8)

in Article 12a, paragraph 1 is replaced by the following:

(9)

Article 12c is amended as follows:

(10)

in Article 12d, paragraph 3, eighth subparagraph, and paragraph 6, eighth subparagraph, the words ‘critical economic functions’ are replaced by the words ‘critical functions’;

(11)

the following Article is inserted:

(12)

in Article 12e(1), the words ‘G-SII or part of a G-SII’ are replaced by the words ‘G-SII entity’;

(13)

Article 12g is amended as follows:

(14)

Article 12k is amended as follows:

(15)

Article 13 is replaced by the following:

(16)

the following Articles 13a, 13b and 13c are inserted:

(17)

in Article 14(2), points (c) and (d) are replaced by the following:

(18)

in Article 16, paragraph 2 is replaced by the following:

(19)

Article 18 is amended as follows:

(20)

the following Article 18a is inserted:

(21)

Article 19 is amended as follows:

(22)

Article 20 is amended as follows:

(23)

Article 21 is amended as follows:

(24)

Article 27 is amended as follows:

(25)

Article 30 is amended as follows:

(26)

the following Article is inserted:

(**)  Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ L 141, 5.6.2015, p. 73).’;"

(27)

▌Article 31 is amended as follows :

(28)

in Article 32(1), the first subparagraph is replaced by the following:

‘Where a group includes entities established in participating Member States as well as in in non-participating Member States or third countries, without prejudice to any approval by the Council or the Commission required under this Regulation, the Board shall represent the national resolution authorities of the participating Member States for the purposes of consultation and cooperation with non-participating Member States or third countries in accordance with Articles 7, 8, 12, 13, 16, 18, 45h, 55, and 88 to 92 of Directive 2014/59/EU.’;

(29)

Article 34 is amended as follows:

(30)

in Article 43(1), the following point (aa) is inserted:

(30a)

Article 45 is amended as follows:

(31)

in Article 50(1), point (n) is replaced by the following:

(31a)

in Article 50(1), the following point is added:

(32)

Article 53 is amended as follows:

(33)

in Article 55, paragraphs 1 and 2 are replaced by the following:

(34)

Article 56 is amended as follows:

(35)

Article 61 is replaced by the following:

(35a)

in Article 62, paragraph 3 is replaced by the following:

(36)

in Article 69, paragraph 4 is replaced by the following:

(37)

Article 70 is amended as follows:

(38)

in Article 71(1), the second subparagraph is replaced by the following:

‘The total amount of extraordinary ex-post contributions per year shall not exceed three times 12,5 % of the target level.’;

(39)

in Article 74, the following paragraph is inserted:

‘The Board shall inform the Commission and the ECB as soon as it considers that it may be necessary to activate financial arrangements contracted for the Fund in accordance with this Article, and shall provide the Commission and the ECB with all information necessary for the performance of their tasks in respect of such financial arrangements.’;

(40)

Article 76 is amended as follows:

(41)

Article 79 is amended as follows:

(41a)

the following articles are inserted:

(42)

in Article 85(3), the words ‘referred to in’ are replaced by the words ‘adopted under’;

(43)

in Article 88, the following paragraph 7 is added:

(43a)

in Article 94(1), the following point is inserted: