Opinion of the European Central Bank of 2 September 2015 on bank resolution (CON/2015/31)
Date: 2015-09-02
Institutions: European Central Bank
Subjects: EU banking union, Germany, banking supervision, credit institution, financial stability, financial supervision, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 2 September 2015 

on bank resolution 

 (CON/2015/31) 

Introduction and legal basis 

On 21 May 2015 the European Central Bank (ECB) received a request from the German Federal Ministry 

of  Finance  for  an  opinion  on  a  draft  law  adapting  the  national  banking  resolution  law  to  the  Single 

Resolution Mechanism (SRM) and the Union provisions on the bank levy (hereinafter the ‘draft law’). The 

draft law also delegates certain competences to the Federal Ministry of Finance related to the issuing of 

regulations  in  the  areas  of  internal  governance,  risk  management,  outsourcing  and  recovery  plans  of 

credit institutions. 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC1, as 

the  draft  law  relates  to  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the 

stability  of  financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of  the 

Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1  The  principal  purpose  of  the  draft  law  is  to  align  the  German  regime  for  the  resolution  of  credit 
institutions with Directive 2014/59/EU of the European Parliament and of the Council2 (hereinafter 

the ‘BRRD’) and to clarify the scope of application of the Law on recovery and resolution in light of 
Regulation  (EU)  No  806/2014  of  the  European  Parliament  and  of  the  Council3  (hereinafter  the 

‘SRM  Regulation’).  The  draft  law  amends  several  laws,  in  particular  the  Law  on  recovery  and 

resolution,  the  Law  on  banking  and  the  Law  on  a  resolution  fund,  and  provides  for:  (a)  the 

adaptation  of  national  provisions  on  recovery  and  resolution  to  the  SRM  Regulation;  (b)  the 

adaptation  of the Law  on  a  resolution  fund  to  the BRRD and the  SRM Regulation;  (c) the  use of 

bank contributions collected between 2011 and 2014; and (d) the clarification from the point of view 

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Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for 
the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, 
and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC,  2007/36/EC,  2011/35/EU,  2012/30/EU  and 
2013/36/EU,  and  Regulations  (EU)  No  1093/2010  and  (EU)  No  648/2012,  of  the  European  Parliament  and  of  the 
Council (OJ L 173, 12.6.2014, p. 190). 
Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform 
rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of 
a  Single  Resolution Mechanism  and  a  Single  Resolution  Fund  and  amending  Regulation  (EU)  No 1093/2010 (OJ 
L  225, 30.7.2014, p. 1). 

 
 
 
 
                                                 
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of  German  law  of  the  interaction  between  the  Law  on  recovery  and  resolution  and  the  SRM 

Regulation,  which  is  directly  applicable,  by  incorporating  certain  practical  measures,  notably 

regarding  the  implementation  by  the  national  resolution  authority  of  decisions  of  the  Single 

Resolution Board (SRB). 

1.2  The draft law delegates certain competences to the Federal Ministry of Finance to issue regulations 

relating  to  the  internal  governance,  risk  management,  outsourcing  and  recovery  plans  of  credit 
institutions4.  Such  regulations,  where  issued,  would  replace  the  existing  administrative  guidelines 

issued by the Federal Financial Supervisory Authority, notably the Minimum Requirements for Risk 

Management (MaRisk) and the Minimum Requirements for Designing Recovery Plans. 

1.3  Moreover, the draft law provides for the statutory subordination in bank insolvency proceedings of 

certain  senior  unsecured  debt  instruments  issued  by  credit  institutions.  In  particular,  such  debt 

instruments would be subordinated under statute to interbank deposits, corporate deposits, money 

market  instruments,  certain  claims  under  derivative  transactions,  and  structured  notes  with 
derivative-linked features5. This subordination is intended to facilitate the application of the bail-in 

tool in the course of the resolution of a credit institution. 

1.4  The draft law also sets out how national contributions are to be transferred to the Single Resolution 

Fund (SRF) and provides that contributions to the German resolution fund collected between 2011 

and 2014 may be used during the build-up of the SRF for financing the resolution of national credit 

institutions.  In  addition,  the  mechanisms  for  the  financing  of  the  national  resolution  authority  are 

specified. 

2. 

Scope of the opinion 

This  opinion  focuses  on:  (a)  the  potential  impact  on  the  ECB’s  responsibilities  in  the  context  of  the 

Banking  Union  of  the  delegation  of  competence  to  the  Federal  Ministry  of  Finance  to  issue  binding 

regulations;  (b) the  subordination  of  certain  senior  unsecured  debt  instruments  issued  by  a  credit 
institution to that institution’s other senior debt in bank insolvency proceedings, in light of the proposals6 

of  the  Financial  Stability  Board  (FSB)  on  total  loss-absorbing  capacity  (TLAC)  for  global  systemically 

important banks (G-SIBs) and of the Eurosystem’s collateral eligibility requirements; and (c) the transfer 

of  the  contributions  from  the  German  resolution  fund  to  the  SRF  including  the  use  of  the  contributions 

accumulated by means of the bank levy between 2011 and 2014. 

3. 

Specific observations 

3.1  Competences of the Federal Ministry of Finance to issue regulations 

3.1.1  The  ECB  understands  that  by  means  of  the  abovementioned  delegation  of  competences  to  the 

Federal  Ministry  of  Finance  the  German  legislator  transposes  certain  provisions  of  Directive 

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Sections 25a and 25b of the Law on banking and Section 21a of the Law on recovery and resolution, as amended by 
the draft law. 
Section 46f(5) of the Law on banking, as amended by the draft law. 

Available  on  the  FSB’s  website:  http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Condoc-6-Nov-
2014-FINAL.pdf 

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2013/36/EU  of  the  European  Parliament  and  of  the  Council7  (hereinafter  ‘CRD  IV’),  particularly 

relating  to  risk  management  and  governance  of  credit  institutions,  and  the  BRRD,  including 

provisions  relating  to  the  incorporation  of  several  guidelines  of  the  European  Banking  Authority 

(EBA). These provisions are currently implemented by means of administrative guidelines and take 

effect through the individual supervisory decisions of the national competent authority (NCA).  

3.1.2  Indeed,  CRD  IV  provides  Member  States  with  the  scope  to  accommodate  in  their  legislation 

national specificities of the banking sector, legal requirements and supervisory practices. Pursuant 
to  Article  4(3)  of  Council  Regulation  (EU)  No  1024/20138  (hereinafter  the  ‘SSM  Regulation’),  the 

ECB shall apply all relevant Union law and, where such Union law is composed of Directives, the 

national legislation transposing those Directives.  

3.1.3  While the ECB fully acknowledges the scope granted by CRD IV (and also the BRRD) to Member 

States to make such accommodation in their legislation, this needs to be in line with the objectives 

of  the  Banking  Union.  It  has  to  take  into  account  its  potential  impact  on  the  effectiveness  of  the 

Single  Supervisory  Mechanism  (SSM)  and  on  the  ECB’s  mandate  to  carry  out  prudential 

supervision  with  full  regard  for  the  unity  and  integrity  of  the  internal  market  with  a  view  to 

preventing regulatory arbitrage, as stipulated in Article 1 of the SSM Regulation. In accordance with 

these objectives, and pursuant to Article 6(1) of the SSM Regulation, the ECB is responsible for the 

effective and consistent functioning of the SSM, which shall ensure that the Union’s policy relating 

to  the  prudential  supervision  of  credit  institutions  is  implemented  in  a  coherent  and  effective  way 

and  that  the  single  rulebook  for  financial  services  is  applied  in  the  same  manner  to  credit 
institutions in all Member States concerned9. 

3.1.4  Binding national prudential legislation that leads to fragmentation of the prudential rules applicable 

to  credit  institutions  within  the  Banking  Union  has  an  impact  on  the  ECB’s  exercise  of  its 

responsibilities within the SSM, with respect to both direct supervision and the SSM’s effectiveness 

and consistency. Member States should acknowledge that the advent of the SSM means that the 

ECB’s new responsibilities have to be adequately considered in the context of the adoption of any 

future  banking or  prudential legislation  with  a view to facilitating the  harmonisation  of supervisory 

practices  in  the  Banking  Union.  Indeed,  fragmentation  would  result  in  a  considerable  additional 

burden  not  only  on  the  SSM,  which  would  have  to  consider  and  enforce  at  worst  19  different 

prudential regimes for credit institutions, but also on bank groups themselves, which would have to 

implement such different regimes for each group entity in other Member States participating in the 

Banking Union. 

3.1.5  In addition, national mandatory diverging provisions will have an impact on the level playing field for 

credit  institutions  that  the  ECB  seeks  to  ensure  across  the  Banking  Union.  The  establishment  of 

uniform conditions of competition could be hampered significantly. 

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Directive 2013/36/EU of  the  European  Parliament and of the Council of 26  June 2013 on access  to the activity  of 
credit  institutions  and  the  prudential  regulation  of  credit  institutions  and  investment  firms,  amending  Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 
Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63). 
Recital (12) of the SSM Regulation. 

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3.1.6  In  addition  to  the  above  considerations,  the  ECB  notes  the  following.  The  BRRD  and  CRD IV 

require the EBA, in certain areas, to issue guidelines in order to establish consistent, efficient and 

effective supervisory practices within the European System of Financial Supervision, and to ensure 
the common, uniform and consistent application of Union law10. Competent authorities are subject 

to  a  ‘comply  or  explain’  procedure  in  relation  to  these  guidelines,  pursuant  to  Article  16(3)  of 
Regulation  (EU)  No  1093/2010  of  the  European  Parliament  and  of  the  Council11  (hereinafter  the 

‘EBA  Regulation’).  In  this  regard,  it  should  be  noted  that  the  ECB  is  the  competent  authority  as 

regards matters relating to the tasks conferred on it by the SSM Regulation. Therefore, regulations 

issued  by  the  Federal  Ministry  of  Finance  under  the  competences  delegated  under  the  draft  law 

may conflict with the ECB’s discretion under the EBA Regulation to incorporate the guidelines into 

its  supervisory  practices:  the  regulations,  which  would  qualify  as  national  legislation  transposing 

directives, could vitiate the measure of discretion available to the ECB under the ‘comply or explain’ 

procedure.  

3.1.7  At the same time, the regulations would bind the NCA concerned and the ECB would be deprived, 

on the matters subject to the regulations, of the capacity to establish a consistent, harmonised and 

effective approach across the SSM to the supervision of credit institutions subject to the SSM. The 

alleged  benefit  resulting  from  converting  non-binding  guidelines  into  binding  legal  acts  –  namely, 
that  infringements  can  be  sanctioned  directly12  –  should  therefore  be  balanced  against  the 

objectives of the Banking  Union  and the  abovementioned capacity of the ECB.  An administrative 

guideline  that  contains  provisions  on  governance  and  risk  management  and  incorporates  EBA 

guidelines,  such  as  the  MaRisk  in  its  current  form,  already  allows  the  NCA  concerned  to  issue 

supervisory decisions enforcing the objectives  of the guideline in individual cases, without unduly 

limiting  the  ECB  in  the  performance  of  its  tasks  or  depriving  it  of  its  capacity  to  establish 

consistency across the SSM.  

3.1.8  To  summarise,  banking  legislation  adopted  by  the  Member  States  after  the  establishment  of  the 

SSM  should  facilitate  the  exercise  by  the  ECB  of  its  responsibilities  within  the  SSM  including  its 

capacity  to  enhance  the  consistency  of  the  supervision  of  credit  institutions  across  the  SSM. 

Member  States  should  refrain  from  setting  obstacles  both  to  uniform  supervisory  practice  and  to 

the  exercise  of  supervisory  discretion  by  the  ECB  within  the  SSM.  In  view  of  the  principle  of 

supremacy  of Union  law  and the  ECB’s status as an independent institution, the ECB  will not be 

bound by any governmental regulations or similar measures which may affect its independence or 

the smooth functioning of the SSM, for which the ECB is responsible. 

3.2  Statutory subordination: effects on bail-in and TLAC eligibility 

3.2.1  The  ECB  notes  that  the  proposed  statutory  subordination  of  certain  senior  unsecured  debt 

instruments  of  credit  institutions  to  other  senior  debt  of  those  institutions  is  expected  to  facilitate 

resolution action and the implementation of the FSB’s forthcoming TLAC proposals. 

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Article 16(1) of the EBA Regulation. 
Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a 
European  Supervisory  Authority  (European  Banking  Authority),  amending  Decision  No 716/2009/EC  and repealing 
Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12). 
As set out in the explanatory memorandum to the draft law. 

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3.2.2  Changing the statutory creditor hierarchy in bank insolvency proceedings is expected to  enhance 

the  implementation  of  the  bail-in  tool  in  resolution.  By  means  of  the  subordination,  which  can  be 

achieved statutorily, contractually or structurally, the resolution authority may apply the bail-in tool 

to liabilities under unsecured bank debt instruments prior to operational liabilities such as corporate 

deposits  and  derivatives  while  minimising  the  risk  of  compensation  claims  under  the  ‘no  creditor 

worse  off’  principle.  The  bail-in  of  such  unsecured  bank  debt  instruments  is  perceived  to  carry  a 

lower contagion risk than that of operational liabilities. 

3.2.3  The  ECB  also  notes  that,  due  to  the  statutory  subordination,  the  bail-in  of  unsecured  bank  debt 

instruments is likely to be more effective and credible to market participants. It will allow losses in 

resolution  to  be  allocated  to  holders  of  such  instruments,  who  would  be  bailed-in  ahead  of  other 

senior unsecured creditors, thus fostering effective resolution action and reducing the need to have 

recourse to the resolution fund, which is expected to promote adequate pricing of risk on the side of 

investors. Such statutory subordination is therefore expected to improve the resolvability of credit 

institutions under the Union resolution regime and enhance market discipline. 

3.2.4  In addition, the statutory subordination may facilitate the implementation of the FSB’s forthcoming 

proposals  for  G-SIBs  which  will,  in  particular,  require  TLAC-eligible  debt  instruments  to  be 
contractually, statutorily or structurally subordinated to operational liabilities13. Under the draft law, 

German banks will be able to use some of their already-issued debt instruments to meet the TLAC 

requirements  as  the  statutory  subordination  applies  to  existing  senior  unsecured  bank  debt 

instruments.  This  will  assist  in  reducing  the  possible  disadvantages  faced  by  German  credit 

institutions  with  an  operating  parent  company  model,  in  comparison  with  credit  institutions  that 

have issued TLAC-eligible debt instruments via their holding company, which is a common model 

in some third countries. Moreover, statutory subordination avoids the need to issue a larger volume 

of  contractually  subordinated  debt,  which  may  be  difficult  to  achieve  in  a  short  timeframe.  In 

summary,  the  legislator  introduces  a  legal  feature  (statutory  subordination)  to  make  existing  debt 

instruments TLAC-eligible, without the need for any action by the issuer. 

3.2.5  The ECB notes that the introduction of such statutory subordination will not be without an impact in 

particular  on:  (a)  pricing  and  capital  requirements  for  holding  senior  unsecured  bank  bonds; 

(b) investment mandates; and (c) the ratings and therefore refinancing costs of the German credit 

institutions,  which  should  be  ascertained.  It  is  assumed  that  this  is  also  clear  to  the  legislator. 
Nonetheless,  the  ECB  welcomes  the  effective  removal  of  the  implicit  ‘State  guarantee’14  by  the 

draft  law  and  acknowledges  that  these  impacts  result  in  principle  from  the  efforts  to  facilitate 

resolution in accordance with the BRRD and SRM. 

3.2.6  With  regard  to  senior  unsecured  debt  instruments  issued  under  the  law  of  a  non-European 

Economic Area (EEA) country, credit institutions should in future, in accordance with Article 55 of 

the  BRRD,  and  as  stipulated  in  Section 55  of  the  Law  on  recovery  and  resolution,  contractually 

13  

14  

It  should  be  noted  that  the  TLAC  proposals  are  still  under  discussion,  notably  in  light  of  the  ongoing  impact 
assessment. 

In this context, the implicit state guarantee refers to the fact that, in the absence of a credible resolution option which 
ensures the allocation of losses to creditors, the market will assume that losses will be borne by taxpayers and will 
therefore not adequately reflect the insolvency risk relating to the investment. 

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ensure  that  recognition  of  the  bail-in  tool  is  included  in  the  contractual  terms  and  conditions  of 

these  instruments.  There  is,  however,  significant  uncertainty  as  to  the  treatment  of  existing  debt 

instruments  issued  under  the  laws  of  third  countries  in  the  event  that  there  is  no  contractual 

provision  acknowledging  the  bail-in  mechanism  and/or  the  statutory  subordination.  The  cross-

border implications of the bail-in tool are a matter of substantial legal complexity, with discussions 

currently underway in international fora, including the FSB.  

3.3  Statutory subordination: effects on eligibility of debt instruments as collateral for Eurosystem credit 

operations.  

Guideline  (EU)  2015/510  of  the  European  Central  Bank  (ECB/2014/60)15  sets  out  a  single 

framework that applies in the Eurosystem for assets that can be submitted as eligible collateral for 

the purpose of participating in Eurosystem monetary operations. In order to be eligible as collateral 

for such operations, marketable assets must be debt instruments fulfilling the eligibility criteria laid 

down in Guideline (EU) 2015/510 (ECB/2014/60). In accordance with Article 64 of Guideline (EU) 

2015/510  (ECB/2014/60),  eligible  debt  instruments  shall  not  give  rise  to  rights  to  the  principal 

and/or  the  interest  that  are  subordinated  to  the  rights  of  holders  of  other  debt  instruments  of  the 

same  issuer.  Therefore,  bank  debt  instruments  subject  to  a  statutory  subordination  of  the  kind 

proposed in the  draft law  would currently no longer be eligible as collateral for Eurosystem credit 

operations. Furthermore, Article 141 of Guideline (EU) 2015/510 (ECB/2014/60) already sets a limit 

for the use of unsecured debt instruments issued by a credit institution or by any other entity with 

which the credit institution has close links.   

3.4   Fragmentation  

A common framework at Union level on the degree of subordination of senior unsecured bank debt 

instruments  to  other  senior  unsecured  bank  liabilities  in  bank  resolution  and/or  insolvency 

proceedings  may  help  to  avoid  fragmentation  of  the  market  within  the  Union  market  for  these 

instruments and to avoid complicating the tasks of the ECB both with regard to monetary policy and 

to supervision within the SSM.  

4. 

Use of the contributions to the German resolution fund between 2011 and 2014 

The  ECB  welcomes  the  German  legislator’s  intention  to  provide  for  the  use  of  contributions  to  the 

German resolution fund collected between 2011 and 2014 as an alternative funding measure pursuant to 

Article  73(1)  of  the  SRM  Regulation,  albeit  only  for  the  German  compartment.  The  ECB  welcomes  the 

fact  that  the  draft  law  does  not  make  use  of  the  possibility,  provided  for  in  Article 70(5)  of  the  SRM 

Regulation,  to  compensate  institutions  for  their  ex  ante  contributions  by  using  contributions  from  the 

existing German resolution fund collected prior to the entry into force of the BRRD, which helps to  

15  

Guideline  (EU)  2015/510  of  the  European  Central  Bank  of  19  December  2014  on  the  implementation  of  the 
Eurosystem monetary policy framework (ECB/2014/60) (OJ L 91, 2.4.2015, p. 3). 

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reinforce the SRF, even if limited to the German compartment. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 2 September 2015. 

[signed] 

The President of the ECB 

Mario DRAGHI 

ECB-PUBLIC 

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