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Shortcomings in banking rescue for Single Resolution Board, ECA report revealed

Shortcomings in banking rescue for Single Resolution Board, ECA report revealed

Staff shortages and delays for the European entity responsible for the stability of the financial sector in the Euro area. Solutions have been called for the end of 2018 at the latest

Brussels – It was designed to avoid banking crises, to intervene in times of difficulty and, above all, to act before the shocks happen. Together with the national resolution authorities of the Euro area, the Single Resolution Board (SRB) forms the single resolution mechanism, but SRB is not in the position of functioning as it should. It lacks qualified personnel and it won’t be able to get the full staff until 2020, and the result is a series of “shortcomings” in the preparation of resolution plans by. That’s the alarm launched by the European Court of Auditors (ECA) in a report released today.

The Single Resolution Board is a body considered as of vital importance for the stability of the Eurozone. After the economic crisis that hit Europe and showed all the critical issues of the banking sector, the EU Member States took the decision to work on the construction of a banking union with the aim of avoiding the repetition of situations such as those experienced since 2008. According to this new strategy, the Single Resolution Committee, aided by the national resolution authorities, was given the responsibility of setting emergency plans for the resolution of the banks under its competence and of managing the bank resolution procedures, “where necessary and appropriate”. The Court of Auditors noted that more than three years after the entry into force of the Single Resolution Mechanism, the Single Board “has not yet completed planning the resolution for the banks under its jurisdiction”. Where the plans exist, there are critical issues. According to ECA, the plans adopted in 2016 “did not meet a significant number of requirements” foreseen by the single rulebook, the set of harmonised rules for the supervision and resolution of banks.

The Single Rulebook requires a description of any alternatives considered for the preferred resolution strategy in the event that it cannot be implemented. The Court of Auditors’ analysis found that “the vast majority of sampled chapters did not address alternatives to the preferred strategy”. In other words, plans A are not credible and plans B are missing. This is confirmed by the fact that ECA’s experts did not find privileged resolution strategies that would also face unexpected short-term developments. Thus it means that “should resolution decisions become necessary in the near future, they are likely to deviate from the plans”.

The Court of Auditors did not do dramas despite the drama. The EU body stated the work has just started, but “there is still a long way to go”. There are delays, that’s for sure, but they are physiological. It has been recognized that setting up the Single Resolution Board from scratch in a very short period of time “has been an extremely difficult challenge”, and it has inevitably created suboptimal operational situations. That is also because of a constantly under-staffed SRB. “From the start the Single Resolution Board has faced difficulties in recruiting sufficient staff with the appropriate skills. Delays in staffing have negatively impacted all areas of the SRB’s activities”. Just to mention one of them, the SRB’s staff shortages have resulted in high rates of overtime, which accounted for around 15,000 hours or 6% of total working time in the first ten months of 2016.

The one of staff is a structural problem. SRB had foreseen the need for 350 people to be hired by the end of 2017 but this target won’t be meet, and the staff size is still at about 200 (according to data provided by the Court). Therefore for SRB it will be “difficult fully accomplish its legal mandate”, the European auditors warned. Furthermore, according to the Board’s forecasts, even in 2020 the total number of employees at its disposal will not be commensurate with the workforce considered necessary for the full discharge of its obligations. The problem is about skills and remuneration. The Single Resolution Board confirmed that recruitment is challenging due to the lengthy selection processes, the limited number of suitable candidates in a highly competitive labour market and the lack of candidates willing to join the SRB temporary contracts.

The knot must be untangled, otherwise European efforts to guarantee the stability of the Eurosystem’s banks risk to be useless. “Due to the lack of staff, important activities on strategies and guidelines have not been completed”, ECA stressed in the report. Essentially, there are no security policies still in place. The Court of Auditors asked to recruit the necessary staff and set up credible strategies for resolution “as soon as possible” and, any way, by the end of 2018 at the latest.

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