EU consults on resolution financing

The European Commission has published a consultation paper on the method for financing the single resolution fund for the banking union, as well as national resolution funds for other EU member states under the Bank Recovery and Resolution Directive (BRRD). The essential concept of a levy that combines a flat rate based on size and a variable rate based on the risk profile of each bank was set out in BRRD, but the commission is now preparing secondary legislation to specify how these levies will be calculated. It must also decide the relative balance between a flat rate and a variable component. The contributions are designed to ensure that funds are available to manage a bank failure – for instance, to finance a bridge bank for healthy assets and liabilities – without drawing on taxpayer resources as a first resort.