Resolution of banks
DNB is responsible for preparing and executing the resolution of banks that fail or are at risk of failing. It performs this task as part of the European Single Resolution Mechanism.
DNB operates on the basis that all banks will be allowed to go bankrupt – just like ordinary businesses – unless the impact on the economy, financial stability or public finances would be too great. If there is a risk of such impact, DNB will perform its role as the resolution authority and take the bank into resolution. The failing bank will then continue to operate, in whole or in part, either independently or as part of another bank.
This ensures among other things that customers retain access to their payment services and savings. Our intervention is also intended to prevent the failing bank bringing down other financial institutions. It also means that the government does not have to bail out a bank with taxpayers' money and that shareholders and investors bear the loss. If the impact of a bankruptcy is not substantial enough to justify resolution, the bank will be allowed to go bankrupt. Under the Deposit Guarantee Scheme customers will have their savings up to EUR 100,000 repaid to them within ten working days.
Resolution is the last resort. As a supervisory authority, DNB naturally aims to prevent a bank getting into difficulty. If this nevertheless happens and the bank is unable to recover on its own, DNB will take over the task in its capacity as the resolution authority. The bank then goes into bankruptcy or resolution.
When does a bank go into resolution?
DNB will only take a bank into resolution if bankruptcy would have an unduly negative impact, for example because the bank has critical functions, such as a large volume of payment accounts and savings deposits. In assessing the impact we consider various aspects, including:
- size of bank
- amount of savings deposits (including covered deposits) and number of savings accounts
- number of payment accounts
- interconnectedness with the financial system
- risk of contagion to other financial institutions
In practice, most banks do not qualify for resolution. This means bankruptcy will be applied for, with the Deposit Guarantee Scheme guaranteeing savings of up to EUR 100,000 for each account holder.
Preparation and tools
DNB determines in advance how it will approach a bank if it gets into difficulty. It does so by drawing up a resolution strategy and a resolution plan. These state among other things whether DNB will allow a bank to go bankrupt or take it into resolution if it fails. DNB has several resolution tools at its disposal, such as a bail-in of shareholders and creditors or the sale of parts of the bank. DNB can use these tools to enable the bank’s activities to continue (in full or in part).
DNB can use two resolution funds to implement the resolution strategy: The National Resolution Fund and the Single Resolution Fund. These are currently funded by banks.
Resolution within the European banking union
The resolution mechanism was created in response to the financial crisis, when governments were forced to save failing banks with taxpayers' money. It also became clear that financial institutions were very closely interconnected, and that there was no uniform supervision system within Europe. After the financial crisis, central supervision became the responsibility of the European Central Bank (ECB) and European resolution regulations were introduced – the Banking Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR). This brought a centralised approach to failing banks.
The European Single Resolution Mechanism (SRM) consists of a network of national resolution authorities and a central decision-making body, the Single Resolution Board (SRB) in Brussels. We are the national resolution authority for the Netherlands.
Responsibilities of the SRB and DNB
The SRB has a leading role in the resolution of banks under the ECB's direct supervision and banks operating in multiple countries. It draws up the resolution plans for these institutions and decides whether or not a failing bank is to be resolved. If so, we are responsible for executing the resolution. If a bank under our supervision that operates only in the Netherlands fails, we hold primary responsibility for its resolution.
DNB has compiled a Resolution Compendium, where you will find more information on resolution for banks and insurers.