Key facts
- Regulators are better prepared for future bank failures, according to SRB Chair Dominique Laboureix.
- Recent banking crises in the US and Switzerland highlighted the need for increased preparedness.
- Most leading eurozone banks have met a target for issuing special debt to replenish capital in a crisis.
- The SRB aims to ensure banks can be smoothly resolved or wound down without customer disruption.
- The SRB is developing further guidance on assumptions for banks' resolution scenarios, integrating lessons from recent crises.
Dominique Laboureix, the head of the European Single Resolution Board (SRB), has stated that regulators are better equipped to handle future bank failures, drawing lessons from recent crises like the collapse of Silicon Valley Bank and the forced acquisition of Credit Suisse by UBS. Despite the resilience of the European banking sector, Laboureix cautioned that a lack of trust could still lead to market instability.
Recent banking crises have underscored the need for enhanced preparedness. The SRB reported that most leading eurozone banks have met a January 2024 target for issuing special debt, known as Minimum Requirement for Own Funds and Eligible Liabilities (MREL), which is designed to replenish capital during a crisis and allow for a bank's orderly resolution. This debt is written down to bail in the bank, preventing taxpayer bailouts and addressing the 'too big to fail' problem.
By the end of 2022, two-thirds of banks had met their final MREL targets. However, 24 banks still had a shortfall, amounting to €20.5 billion, or 0.3% of total risk exposures. While about €2.7 trillion has been issued, 14 of these banks have been granted extensions until the end of 2024 or 2025 to meet their obligations. The SRB's focus is now shifting towards ensuring banks can credibly demonstrate their ability to be smoothly resolved, restructured, or sold without disrupting customers. The watchdog is also developing further guidance on resolution scenarios, incorporating lessons learned from recent market turmoil, particularly concerning evaporating liquidity.