20191206 draft bog resolution 1 nominal cap.pdf

DRAFT BOARD OF GOVERNORS RESOLUTION FOR THE NOMINAL CAP AND THE PROVISIONS
ON THE PROCEDURE FOR THE VERIFICATION OF COMPLIANCE WITH THE CONDITION OF THE
PERMANENCE OF THE LEGAL FRAMEWORK FOR BANK RESOLUTION

DISCLAIMER: this draft document is part of the ESM reform package agreed in principle at
the Eurogroup meeting of 4 December 2019, subject to the conclusion of national
procedures. It is made available for information purposes only. This document can be
formally adopted by the relevant ESM decision-making body only after the entry into force
of the ESM Treaty, as amended by the draft Amending Agreement.

Draft resolution for the nominal cap and the provisions on the procedure for
the verification of compliance with the condition of the permanence of the
legal framework for bank resolution
THE BOARD OF GOVERNORS,
Having  regard  to  the  purpose  of  the  ESM,  pursuant  to  Article  3(2)  of  the  ESM  Treaty,  to
provide the backstop facility to the Single Resolution Board (“SRB”) for the Single Resolution
Fund  (“SRF”)  to  support  the  application  of  the  resolution  tools  and  exercise  of  resolution
powers of the SRB as enshrined in European Union law,
Having regard to the terms of reference of the common backstop to the Single Resolution
Fund endorsed by the Euro Summit of 14 December 2018 (the “Terms of Reference”),
Having regard to Article 18a(1) of the ESM Treaty, specifying that the Board of Governors shall
determine the key financial terms and conditions of the backstop facility, the nominal cap and
any adjustments to it,
Having regard to Article 18a(8) of the ESM Treaty, specifying that the backstop facility and its
use  shall  be  contingent  upon  compliance  with  the  condition  of  permanence  of  the  legal
framework  for  bank  resolution,  and  that  further  provisions  on  the  procedure  on  the
verification of compliance with the condition of permanence of the legal framework and on
the consequences for the backstop facility and its use shall be determined by the Board of
Governors,
Having regard to Article 37(4) of the ESM Treaty, specifying that any dispute between ESM
Members  concerning  the  compliance  with  the  condition  of  the  permanence  of  the  legal
framework for bank resolution laid down in Article 18a(8) of the ESM Treaty may be directly
submitted  to  the  Court  of  Justice  of  the  European  Union  in  line  with  the  procedure  to  be
determined by the Board of Governors,
Recalling  that  the  procedure  for  granting  and  implementing  the  backstop  facility  follows
Article 18a of the ESM Treaty and the detailed guidelines on the modalities for implementing
the backstop facility to be adopted by the Board of Directors in accordance with Article 18a(4)
of the ESM Treaty,
DETERMINES, pursuant to Article 18a(1) and (8) of the ESM Treaty, the following:
1.
Nominal cap
The nominal cap in respect of the backstop facility is set at €68 billion. The nominal cap will
limit the amount available for the backstop facility, so that its maximum amount is at all times
equal to or lower than the nominal cap. The Board of Governors may, by mutual agreement,
adjust the nominal cap initially set. The Board of Governors will review the appropriateness
of the nominal cap initially set according to this paragraph well in time before the end of the
transitional period.
2.
Verification  of  compliance  with  the  condition  of  permanence  of  the  legal
framework
a)
Procedural provisions
(1)
Where  an  ESM Member  considers  that the  condition  of  permanence  of the
legal framework for bank resolution set out in Article 18a(9) lit. (a) of the ESM Treaty
is  not  complied  with  and  the  relevant  change  of  such  legal  framework  has  been
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adopted against the will of such ESM Member, the ESM Member may exercise, as a
Contracting  Party  to  the  Intergovernmental  Agreement  of  21  May  2014  on  the
transfer and mutualisation of contributions to the Single Resolution Fund (“IGA”), its
rights  under  public  international  law  regarding  a  fundamental  change  of
circumstances, in accordance with Article 9(2) IGA, by notifying the other Contracting
Parties to the IGA of its claim. Such notification shall be made in writing within two
months from the entry into force of the relevant change of the legal framework for
bank  resolution.  The  ESM  Member  shall  also  inform  the  ESM  and  the  SRB  of  such
notification and of the date when such notification has been made to all Contracting
Parties to the IGA as well as of any circumstances relevant for the consequences for
the backstop facility and its use described below.
(2)
Where  an  ESM Member  considers  that the  condition  of  permanence  of the
legal  framework  is  not  complied  with  as  the  principles  and  rules  defined  in  Article
18a(9) lit. (b) of the ESM Treaty have been repealed, or otherwise amended against
the will of such ESM Member in a manner which is not equivalent or that does not
lead, at least, to the same and not less stringent result than that deriving from those
principles and rules as in force as of 27 June 2019, the ESM Member may notify the
other ESM Members of such claim. The notification shall be made in writing within
two months from the entry into force of the relevant change of the legal framework
for bank resolution. The ESM Member shall also inform the ESM and the SRB of such
notification  and  of  the  date  when  such  notification  has  been  made  to  all  ESM
Members  as  well  as  of  any  circumstances  relevant  for  the  consequences  for  the
backstop facility and its use described below. Any other ESM Member may, within one
month  from  the  date  when  such  notification  has  been  made  to  all  other  ESM
Members, request the Court of Justice of the European Union pursuant to Article 37(4)
of the ESM Treaty to verify the compliance with the condition of the permanence of
legal framework set out in Article 18a(9) lit. (b) of the ESM Treaty.
(3)
Where  an  ESM  Member  exercises  its  rights  both  under  paragraphs  1  and  2
above, it shall do so in a single notification. In that case, any request to the Court of
Justice of the European Union by an ESM Member pursuant to Article 9(2) IGA and
Article 37(4) of the ESM Treaty shall be made in one single application. The application
shall also specify that the Court of Justice of the European Union is requested to verify
the compliance with the condition of the permanence of legal framework separately
for (i) rules defined in Article 18a(9)(a) of the ESM Treaty and for (ii) principles and
rules defined in Article 18a(9)(b) of the ESM Treaty, respectively. Neither the exercise
of  the  rights  under  paragraph  2,  nor  a  judgment  of  the  Court  of  Justice  of  the  EU
delivered in this respect shall affect performance  or execution of obligations under
the IGA.



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b)
Consequences for the backstop facility
In accordance with Article 18a(8) of the ESM Treaty, a comprehensive review of the
backstop facility will be initiated in the following events (each of them a ‘Fundamental
Change Event’):
i.
no request has been submitted to the Court of Justice of the European
Union pursuant to Article 9(2) of the IGA and/or Article 37(4) of the ESM Treaty
within one month from the date when the notification under lit. a) above has
been  made  to  all  other  ESM  Members  /  Contracting  Parties  to  the  IGA,  as
applicable; or,
ii.
any  such  request  which  has  been  submitted  in  the  time  limits
prescribed under lit. a) above has been withdrawn, or otherwise discontinued;
or
iii.
the Court of Justice of the European Union has concluded, on the basis
of a request submitted to it pursuant to Article 9(2) IGA and/or Article 37(4) of
the ESM Treaty, that there has been a fundamental change of circumstances
in the meaning of Article 9(2) IGA and/or the condition of the permanence of
the legal framework for bank resolution defined in Article 18a(9) lit. b) of the
ESM Treaty is not complied with.
Following a Fundamental Change Event, a meeting of the Board of Governors shall be
convened or a written procedure initiated to decide following a comprehensive review
on whether the backstop facility shall be continued. If the Board of Governors does
not decide following a comprehensive review by mutual agreement to continue the
backstop facility on the same or on amended terms within 90 calendar days after any
Fundamental Change Event, the backstop facility shall be terminated. The Board of
Governors  may  decide  by  mutual  agreement  to  extend  said  time  limit  before  its
expiration. The Managing Director shall notify the SRB thereof in accordance with the
backstop facility agreement. A copy of such notification shall be sent to the European
Commission and the European Central Bank.
c)
Consequences for the use of the backstop facility
For  the  purposes  of  the  approval  of  loans  and  disbursements  pursuant  to  Article
18a(5) of the ESM Treaty, point (f) of paragraph 2 of Annex IV to the ESM Treaty shall
be considered satisfied, unless
i.
a Fundamental Change Event has occurred; or
ii.
within one month from the date when a notification has been made to
all  other  Contracting  Parties  to  the  IGA  pursuant  to  Article  9(2)  IGA,  a
Contracting Party to the IGA has submitted a request to the Court of Justice of
the European Union in accordance with Article 9(2) IGA, however, it has not
requested  a  suspension,  within  the  meaning  of  Article  278  TFEU,  of  the
operation of the measure which is the object of the dispute under Article 9 IGA
or, if it has requested such suspension, the request has been rejected.
Point  (f)  of  paragraph  2  of  Annex  IV  to  the  ESM  Treaty  shall  also  be  considered
satisfied, if, following any of the situations described in i. and ii. above, the Board of
Governors  has  decided  following  a  comprehensive  review  by  mutual  agreement  to
continue the backstop facility on the same or on amended terms.


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