FFI: Single resolution fund will be costly for Finnish banks

The ECOFIN council’s new political agreement means that Finnish banks and other credit institutions will be required to pay more than a billion euros to the Single Resolution Fund (SRF). The Federation of Finnish Financial Services (FFI) thinks that the amount is large and that it will be a significant financial burden on Finnish credit institutions.

​On December 9th, the ECOFIN council reached political agreement on how the collection of contributions to the SRM is divided between the credit institutions of different member states. According to current estimates, the aggregate amount of contributions from Finnish banks and other credit institutions will rise above €1 billion for the years 2016–2023. The Fund’s estimated size is about €55 billion, and it will be accumulated over a period of eight years. The Fund’s size is determined by the aggregate amount of covered deposits in all banking union states’ credit institutions.

”This is a significant cost burden to Finnish banks and other credit institutions. We must now make sure that the threshold for using the SRF is kept as high as possible. Otherwise the costs will rise even more”, says Veli-Matti Mattila, FFI’s chief economist.

The amount each credit institution has to contribute depends on its total liabilities (excluding own funds and covered deposits) in proportion to the corresponding aggregate figure of all banking union credit institutions. Each credit institution’s risk profile is also taken into account. The smallest credit institutions have their separate contribution framework.

The contribution framework adopted by the ECOFIN council means that the combined amount of contributions collected from Finnish credit institutions will be €200-300 million larger than the amount that was calculated according to the bank recovery and resolution directive (BRRD). The framework includes rules for transition, which specify that the contributions collected over the first eight years will use a weighted average of the contribution amounts set in the BRRD and the SRM regulation.

”As such, the FFI is satisfied with the transitional contribution framework. It will make the next few years’ contributions more bearable. However, it will not erase the fact that Finnish credit institutions’ contributions to the Single Resolution Fund will be larger than their contributions to a national fund would have been”, Mattila emphasises.

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Financial and Prudential Regulation

Veli-Matti Mattila

Director, Chief Economist