Lucinda Creighton (Dublin South East, Independent)
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51. To ask the Minister for Finance if he will confirm that the bank levy announced in budget 2014 is being used to fund the resolution fund pursuant to section 15 of the Central Bank and Credit Institutions (Resolution) Act 2011; his views on whether the enactment of COD 2013/0253 on the single resolution mechanism and single bank resolution fund will result in an increased revenue contribution from the domestic banks here; when he expects this additional revenue will be raised; and if he will make a statement on the matter. [48539/13]

Michael Noonan (Limerick City, Fine Gael)
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The proceeds from the levy on financial institutions announced in Budget 2014 will be paid into the Exchequer. It will not be used to fund the Resolution Fund pursuant to Section 15 of the Central Bank and Credit Institutions (Resolution) Act 2011. Section 10 of the Central Bank and Credit Institutions (Resolution) Act 2011 established a resolution fund in Ireland. The purpose of this fund is to provide a source of funding for the resolution of financial instability in, or an imminent serious threat to the financial stability of, an authorised credit institution. Authorised credit institutions are required to make contributions to the fund in the form of a resolution fund levy. The domestic banks in Ireland are currently subject to the Credit Institutions Stabilisation Act (“CISA”) 2010 and are therefore outside the scope of the levy until December 2014. Upon expiry of the CISA the domestic banks will be required to pay into the resolution fund.

In July of this year the Commission published its proposal for a Single Resolution Mechanism (SRM) as the next essential step to the banking union. The SRM proposal includes provision for a single resolution fund for Member States participating in the banking union. It is anticipated that when the SRM comes into force the domestic banks in Ireland will contribute to this fund in place of our national resolution fund. Therefore, the domestic banks will be making a contribution as a result of the SRM. This contribution will be held in the single resolution fund to be set up at EU level under the SRM.

The purpose of the single resolution fund is to provide a source of funding for the resolution of banks in the EU banking union. One of the objectives of the SRM is to avoid that funds needed for such purposes come from national budgets. This in turn assists in minimising taxpayers’ exposure to the costs of bank rescues.

The fund is to be built up over a ten year period from the date of entry into force of the SRM. While negotiations are on-going, I expect the SRM to enter into force sometime in 2015.

Lucinda Creighton (Dublin South East, Independent)
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52. To ask the Minister for Finance if he will detail in the context of COD 2013/0253 on the single resolution mechanism and single bank resolution fund if he favours allowing the European Commission having the final responsibility to validate resolution plans of the bank that have been accepted by the resolution board; if he will outline whether as currently envisaged in the context of COD 2013/0253 if the ECB decides, as the single supervisor, that a bank should be shut down, the proposed single resolution fund board could overrule this decision as currently envisaged; if he will outline in the context of the level of liquidity that the ECB provides banks when they cannot access private markets the extent to which the single resolution board will be able to prevent an ECB Governing Council decision to remove liquidity from the banking system, as was threatened in Ireland and Cyprus; and if he will make a statement on the matter. [48540/13]

Michael Noonan (Limerick City, Fine Gael)
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In May 2012 the Commission called for a banking union to restore confidence in banks and in the euro. This was reflected in the report on Economic and Monetary Union prepared by the Presidents of the European Council, the Commission, the Eurogroup and the European Central Bank. The SSM which is the first part of this process was formally adopted by ECOFIN in October and has entered into force. The next important step is the establishment of the SRM. Such a mechanism is considered necessary on the basis of the principle underpinning the banking union that where supervision is centralised it should be complemented with a centralised resolution authority.

The SRM proposal consists of the Single Resolution Board and a Single Resolution Fund, financed by contributions from the financial sector. As the Deputy notes the ultimate decision maker in this process is the Commission, as only an EU institution can carry out such a function and not an agency. While the SRM proposal is under consideration at the Council, the view of the Commission and most Member States is that we should proceed on the basis of the current proposal.

On the second issue raised by the Deputy regarding resolution of a bank, Article 16 of the draft proposal sets out the procedures to be followed.

The first step involves the ECB or a national resolution authority making an assessment whether:

(i) an entity is failing or likely to fail;

(ii) having regard to timing and other relevant circumstances, there is no other reasonable prospect that any alternative private sector or supervisory action would prevent its failure within a reasonable timeframe;

(iii) a resolution action is necessary in the public interest.

If the Single Resolution Board is of the view that all of these conditions have been met, it is required to make a recommendation to the Commission that the bank be placed into resolution. If the Commission agrees with the Board, then it will decide accordingly. If it is however of the view that the conditions are not met, there is a due process that must be followed, but ultimately it can decide not to place the entity in resolution and in such circumstances national insolvency law will apply.

In relation to the Deputy’s final point, there are a number of measures in the proposal which require the ECB to work in conjunction with the Single Resolution Board to ensure consistency so that the system works effectively. Both share the objective of ensuring financial stability and growth in the Euro area. This is considered a crucial step to overcome the current financial fragmentation and uncertainty, to ease funding conditions for sovereigns and banks and to break the link between the two. This is in the best interests of Member States and the banking system as a whole.

Furthermore, Article 12 of the SRM proposal sets out the resolution objectives, which include the need to avoid significant adverse effects on financial stability “in the EU and Member States concerned”. This means that account has to be taken of national interests in any resolution decision.

While this represents the current position of the proposal, the matter will be discussed by Ministers at the forthcoming Ecofin this week.