Since 1 January 2018, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) has been the national resolution authority (Nationale Abwicklungsbehörde, NAB) in Germany and therefore part of the Single Resolution Mechanism (SRM). This consists of the Single Resolution Board (SRB) and the NABs of the participating Member States. The newly created division "Abwicklung" of BaFin is headed by Executive Director Thorsten Pötzsch, who was previously a member of the Executive Committee of the Federal Agency for Financial Market Stabilization (Bundesanstalt für Finanzmarktstabilisierung, FMSA). BaFin took over the functions related to resolution of the FMSA at the beginning of the year. Last Tuesday Pötzsch spoke at a SAFE Policy Lecture on the new resolution regime and c widespread misconception.
One of his key messages was that the newly created rules would allow large banks to be wound up without having to resort to tax money. "We are prepared," said Pötzsch, without mentioning specific credit institutions. Pötzsch outlined the various stages of a banking crisis: the resolution regime is used when the financial supervisory authority identifies a threat to the continued existence of a bank, for example through over-indebtedness or insolvency. Other criteria must be met, such as an examination of alternatives such as private insurance schemes. If SRB and the NAB conclude that there is a public interest, the settlement involves various instruments such as bail-in, a sale of a business or a spin-off of assets. In the other case of a lack of public interest, the insolvency of the institution is the consequence.
Even if complex issues are involved, resolution is a suitable instrument for reacting to the threat to the survival of a systemically important bank. "You can also prepare yourself for complex situations," said Pötzsch. To this end, BaFin is developing concrete resolution plans for all German institutions and laying down detailed processes for emergencies. The aim of the BaFin is to complete a resolution plan for each German bank by 2020 in cooperation with the institutes. The resolution plans increase the transparency: "We can thus see where risks accumulate," said Pötzsch.
The jurist also opposed the view that in the event of an emergency the resolution regime would fail due to a lack of liquidity, such as the Single Resolution Fund (SRF). The SRF is planned to reach about 55 billion euro at the end of 2023. Through targeted preparation, BaFin can act swiftly and consistently to separate promising from futureless business: "We can quickly reshape a bank," said Pötzsch. Also, in the case of a new crisis, the need for capital cannot simply be deduced from the recent financial crisis. "The system at that time was a completely different one," said Pötzsch, pointing to new state intervention rights, larger capital buffers and the new rules of banking supervision.