The European Central Bank said on Friday that the proposed Single Resolution Mechanism (SRM) should be set up by the time it assumes full supervisory responsibilites for the region's banks.
In its opinion, the ECB said it fully supports the establishment of SRM and expects it to provide a necessary complement to the single supervisory mechanism.
"Coordination between national resolution systems has not proved sufficient to achieve the most timely and cost-effective resolution decisions, particularly in a cross-border context," the ECB said.
The central bank said the SRM must include all credit institutions in the euro area and in those EU member states who are participating in the single supervisory mechanism. The central bank published the legal opinion after requests from the Council of the European Union and the European Parliament.
Bank should become subject to resolution only after a surpervisor has assessed them as "failing or likely to faily", the ECB said. The central bank welcomed the proposal to have a bail-in tool in place earlier than 2018.
The ECB also pointed out that the estabilishment of the SRM will not require a treaty change, a concern raised by Germany. The bank supported the proposal that the SRM would enter into force by the middle of 2014 and would become fully operational by January 1, 2015.
The resolution financing must come via a Single Bank Resolution Fund (SBRF) that is funded by all banks under the SRM. Further, "a temporary, fiscally neutral, public backstop should be available, which could be provided in the form of a credit line to the SBRF," the ECB said.
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