Importance of orderly resolution
During the crisis, governments worldwide had to provide support to banks. The failure of a large internationally active bank would bring unacceptable risks to financial stability and the economy. Tools for orderly bank resolution were not available. This underlines the importance of establishing specific resolution authorities with credible tools and powers, which are able to intervene at failing banks in a timely and effective fashion. span>
Appointment of national resolution authorities
Against this backdrop, fundamental changes are now taking place, which will come into effect in the forthcoming period. For example, the Bank Recovery and Resolution Directive (BRRD) must be incorporated in national legislation by 1 January 2015. The BRRD requires banks to draw up recovery and resolution plans and provides EU Member States with tools for bank resolution. The SRM (Single Resolution Mechanism) Regulation will be phased in from the same date. The SRM will provide for the decision-making about bank resolution within the banking union. From 1 January 2016, decision-making about resolution of the largest, cross-border banks will be taken at the European level by one central resolution authority, viz the Single Resolution Board (SRB).
These institutional changes require the appointment of national resolution authorities. These authorities will have a seat on the SRB and, in that capacity, will participate in the decision-making process in respect of the large Dutch banks or Netherlands-based parts of a foreign bank. In addition, they will be responsible for the implementation of SRB decisions and for the resolution of small national banks. The resolution authority will draw up resolution plans for these institutions, assess whether resolution of the institution is needed and decide on the application of resolution tools.
DNB's status as resolution authority brings significant advantages
The Minister proposes to assign this resolution duty to DNB on account of the synergies with other DNB duties. For example, assignment to DNB ensures close and effective collaboration and exchange of information between the resolution authority and the supervisory authority. The insights gained from supervision are relevant to the resolution function, by virtue of the specific knowledge gained about individual institutions. In addition, this set-up implies that the resolution authority can make use of DNB's expertise in respect of bank recovery and resolution plans and in crisis management. Thanks to these synergies, DNB's appointment results in a cost-efficient resolution authority with a small division in non-crisis time, which can be scaled up in times of crisis. This set-up does not require the establishment of a separate authority, at a time when already two new European authorities for bank supervision and resolution are to kick off.
The BRRD requires national resolution authorities to be independent. This is also relevant in the context of the banking union, with national authorities continuing to be the competent authority for both supervision and resolution of smaller institutions. Independence ensures that the objectives of the various duties remain clear, for example when considering any measures for problem banks. To this end, resolution duties will be prepared and carried out by a separate DNB division at arm's length from supervision.
To safeguard independent decision-making within DNB, a number of additional arrangements will be put in place. For example, the resolution duty will be allocated to one member of the Governing Board who does not have primary responsibility for banking supervision, financial stability or monetary policy. Although decision-making by DNB's Governing Board takes place on a consensual basis, the Executive Director responsible for resolution will be able to cast the deciding vote in the event of important resolution decisions, including determining the level of an institution's instruments that can be bailed-in.
The statutory mandate that the Minister intends to put before Parliament will lay down that execution of the resolution duty must, in principle, be achieved without recourse to public funds. Any recourse to public funds would only be possible as a last resort if this is necessary to achieve the other resolution objectives such as safeguarding financial stability.
In short, the appointment of DNB as resolution authority in the Netherlands implies making full use of DNB's in-house knowledge and expertise. Independence as regards decision-making about bank resolution will be ensured through the implementation of organisational changes. Orderly resolution of failing banks with minimal costs is in line with DNB's ambition of a healthy, dynamic financial sector that serves the real economy.