The European Union’s body for dismantling failed banks said on Wednesday it would ratchet up pressure on lenders over the coming months to bolster their defences so that none remain “too big to fail” by January 2024.
The Single Resolution Board (SRB), in its first “heat map” on progress in preventing failing banks from needing a taxpayer bailout, said that the shortfall in special debt issuance by banks to replenish burnt-out capital was down to 32.6 billion euros, or 0.45% of the total risk exposure.
The SRB is the main resolution authority for banks in the 19-country euro zone, along with Bulgaria and Croatia.
While most banks have met their target for issuing the special debt known as MREL, the SRB said some lenders still need to improve other elements which ensure smooth “resolution” or winding down if they go under.
“We have seen good progress by all banks, spearheaded by the largest banks. At the same time, we also see clearly the areas that require further attention in 2022 and 2023,” SRB Chair Elke Koenig said in a statement.
The SRB said progress was needed by all banks on the swift mobilisation of liquidity and collateral during resolution, and improving banks’ ability to restructure and separate their operations after a failure so that critical services could continue under a new owner.
The watchdog will shift to more testing and resolution ‘dry runs’ at laggard banks to close their “capability gaps” over the coming 12 months.
Last month, the Bank of England said it was satisfied that major lenders in Britain had taken steps to ensure they were no longer ‘too big to fail’ in any future crisis.
“We do not believe that the failure of these institutions would now onwards require public money, and that, to me, is the critical plank of the too-big-to-fail policy,” BoE Governor Andrew Bailey told Britain’s parliament on Monday.