When does a bank go into resolution?
As a rule, all banks can go bankrupt, just like any other business. But not if the impact on the economy, financial stability or public finances is too great. If any of these risks looms, we take action in our capacity as the national resolution authority, taking the bank into resolution. The failing bank will then be relaunched, either independently or as part of another bank.
This ensures that customers retain access to their payment services and savings. Resolution should also prevent bringing down other financial institutions as a result of a bank's bankruptcy. It also means that there is no need for the government to bail out a bank with taxpayers' money because the shareholders and investors bear the losses. If the impact of a bankruptcy is not substantial enough to justify resolution, the bank will be allowed to go bankrupt. Customers will receive the money they held at payment and savings accounts up to EUR 100,000 under the Dutch deposit guarantee within ten working days.
The last resort
Resolution is the last resort. Each bank is subject to our ongoing supervision. Nevertheless, a bank can get into difficulty. If it is unable to recover on its own, we may impose additional measures as the supervisory authority. If a bank ultimately fails or is likely to fail, we ensure, as the national resolution authority, that the bank is carefully wound up. The bank then goes into bankruptcy or resolution.
When does a bank go into resolution?
We 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:
- the bank's size
- the amount in savings deposits covered by the Dutch deposit guarantee scheme and the number of savings accounts
- the number of payment accounts
- the bank's interconnectedness with the financial system
- the risk of contagion to other financial institutions
In practice, most banks will not qualify for resolution. In that case, we file for bankruptcy. Customers will receive the money they held at payment and savings accounts up to EUR 100,000 under the Dutch Deposit Guarantee (Nederlandse Depositogarantie).
Preparation and tools
We determine in advance how we intervene in an ailing bank. We do so by drawing up a resolution strategy and a resolution plan. These set out whether we will allow a bank to go bankrupt or take it into resolution if it fails. We have several resolution tools at our disposal, such as a bail-in by shareholders and creditors, and the sale of (parts of) the bank. We can use these tools to enable the bank’s activities to continue in full or in part.
We can draw on the European Single Resolution Fund (SRF) to implement bank resolution. This fund is filled with contributions from the banks. The Single Resolution Board (SRB) must first authorise us to draw on the SRF. In addition, subject to specific conditions, we may also request a contribution from the Dutch Deposit Guarantee Fund (DGF) to apply a resolution tool. The DGF funds the Dutch deposit guarantee scheme.
Resolution within the European banking union
The concept of resolution was created in response to the financial crisis of 2008, when governments in various European countries were forced to save failing banks with taxpayers' money. It became clear that financial institutions were very closely interconnected, and that Europe was lacking a uniform supervisory system. Many banks operate in multiple European countries, and the European Union stimulates facilitating cross-border activities. This is why it is important that legislation in this field is harmonised as much as possible. After the financial crisis, central supervision became the responsibility of the European Central Bank (ECB). In addition, European regulations on failing banks were introduced – the Banking Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR). This brought a European centralised approach to failing banks. The SRM consists of a network of national resolution authorities (NRAs) and a central decision-making body, the Single Resolution Board (SRB) in Brussels. DNB is the National Resolution Authority for the Netherlands.
Responsibilities of the SRB and DNB
The central 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 its resolution. If a bank under our supervision that operates only in the Netherlands fails, we hold primary responsibility for its resolution.
Within DNB, our resolution task is separate from supervision, because resolution might pursue different objectives than supervision. This is why Resolution is a separate division with its own budget. One member of our Governing Board, Nicole Stolk, is responsible for resolution. She has no direct responsibility for insurance supervision.