Your Contribution to the Single Resolution Fund | KPMG | QA

Your Contribution to the Single Resolution Fund

Your Contribution to the Single Resolution Fund

In the wake of the financial crisis, many EU countries implemented additional national bank levies to decrease the need of public funds in case of distressed financial institutions. On June 17, 2010, the European Council agreed that “Member States should introduce levies and taxes on financial institutions to ensure fair burden-sharing and to set incentives to contain systemic risk”.

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Fourteen EU Member States have since implemented new bank levies. In Belgium, for example, the financial stability contribution[1] has to be paid on an annual basis by all Belgian entities recognized as banks since 2012.


The financial crisis also led to a number of initiatives by the European Commission, in line with the “de Larosière report”, to create a safer and sounder financial sector for the European market. These initiatives eventually led to a new institutional structure and the creation of the Banking Union for the euro area. The three pillars of the Banking Union (supervision, resolution, and deposits protection scheme) are currently being implemented at the level of the EU and by the Member States.


Single Resolution Board and National Resolution Authority

The implementation of the second pillar, the Single Resolution Mechanism, led to the creation of a new separate legal EU entity, the Single Resolution Board (SRB), and to the creation of National Resolution Authorities by the different Member States. Belgium, for example, has created the “Afwikkelingscollege/Collège De Résolution” within the National Bank of Belgium[2].


Single Resolution Fund and National Resolution Funds

Together with the creation of the SRB, a Single Resolution Fund (SRF) has been established. The aim of this fund is to raise financial resources which could be used by the SRB in times of financial distress. These funds would allow for an effective application of the resolution tools and powers to help ensure the orderly resolution of failing banks. The fund will, in principle, be built-up within a period of eight years starting from January 2016.

At the end of 2024, the amount collected should correspond to at least 1% of the amount of covered deposits from all participating Member State credit institutions.

Even though the SRF will only become fully operative in 2016, the National Resolution Authorities will have to raise national contributions through their National Resolution Funds by December 31, 2015. These national contributions will be transferred to the SRF in 2016, according to the principles as laid-out in the agreement that has been signed by all participating Member States in Brussels on May 21, 2015. The draft bill of October 8 2015 implementing this multilateral agreement has already been approved by the Chamber Commission on Foreign Affairs.


Calculation of the contribution

The calculation of the contribution[3] foresees a basic contribution with an adjusted risk factor (for larger institutions).

a) The basic contribution reflects the size of the institution:

Basic contribution = (INDIVIDUAL Liabilities-Own Funds-Covered deposits) / (TOTAL Liabilities-Own Funds-Covered Deposits )

b) The Risk factor adjustment takes into account four risk indicators as shown below and ranges between 0.8 and 1.5.

 

4 Risk Indicators

1. Risk exposure 50% 50%
a) Own funds and eligible liabilities held in excess of MREL  25%
b) Leverage Ratio  25%
c) Common Equity Tier 1 Capital Ratio 25%
d) Total Risk exposure divided by Total Assets 25%

 

2. Stability and variety of sources of funding 20%
a) NSFR 50%
b) LCR 50%

 

3. Importance of an institution to the stability of the financial system or economy 10%
a) Share of interbank loans and deposits in the EU 100% 

 

4. Additional risk indicators to be determined by the resolution authority 20%
a) Trading activities, off-balance sheet exposures, derivatives, complexity and resolvability 45%
b) Membership in an Institutional Protection Scheme (IPS) 45%
c) Extend of previous extraordinary public financial support
10%

The contribution of a small institution consists of a lump-sum annual contribution based on its size.


Status of Belgian legislation

Based on the above, it is clear that the new contribution to the Resolution Fund will have a financial impact on Belgian banks which will be linked to the riskiness of their balance sheet.

In August 2015, the Belgian Resolution Authority issued a reporting template[4] that was sent to all Belgian financial institutions. The objective of this template is to provide the NBB with the necessary information to determine individual ex-ante contributions to be paid in 2015 by the institutions. The accredited statutory auditor must confirm that the reported data is in accordance with the NBB’s instructions and, where relevant, that reported accounting data is, in all material aspects, in accordance with the financial statements and inventories. Starting in 2016, the SRB will provide its own specific template.

However, apart from the establishment of the Belgian Resolution Authority in 2014, and the information request that it sent to the financial institutions, the above European rules have not yet been implemented by the Belgian legislator. It is still unclear how the payment to the Belgian National Resolution Fund will be calculated, and how the payment to the National Resolution Fund (and, in the future, to the SRF) will co-exist with the current Belgian financial stability contribution.

We expect explicit guidelines on the calculation and payment of the contribution to the Belgian national resolution fund within the next months and will keep you up to date in our next regulatory newsletter. In the meantime, please do not hesitate to get in touch with one of our regulatory specialists to help answer any questions you may have regarding these new regulations.

 

 

 

[1] Implemented by the Law of December 28, 2011.
[2] Established by the Law of April 25, 2014.
[3] Set out in the Commission Delegated Regulation (EU) 2015/63
[4] See Links

© 2017 KPMG Central Services, a Belgian Economic Interest Grouping ("ESV/GIE") and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

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