An embarrassing mishap
The verdict of the European Court on the amount of contributions that banks must pay to fill the European emergency fund for the orderly disposal of troubled banks will certainly not have dramatic effects. By the end of 2023, this Single Resolution Fund is expected to have 80 billion euros. Even if various contributions need to be recalculated, the endowment might decrease to 79 billion euros. A reduction of this magnitude is too small to shake the stability of the European emergency architecture. Therefore, first and foremost: All clear.
However, this does not mean that the decision from Luxembourg is insignificant. Firstly, since the importance is greater for a bank dealing with a single or double-digit million amount than it is from the viewpoint of a European fund collecting funds for emergencies. And secondly, because the judges precisely accuse the Single Resolution Board of sloppy work. The panel had "violated its obligation to state reasons" in determining the amount of the contributions, thus breaching the "principles of good administration" and "effective judicial protection." This is more than a mere clumsiness. It is an embarrassing mistake.
Extensive influence
The unified bank resolution is a cornerstone of "financial repair," learning from the lessons of the banking crisis. In case of a crisis, the resolution board effectively has extensive influence, as it ultimately calls the shots under the enormous time pressure of a banking crisis. Its acceptance depends significantly on banks having trust – both in the plausibility of its decisions and in the fairness of cost distribution. The resolution board jeopardizes this trust when it makes mistakes in tasks like justifying the amount of contributions. If the Single Resolution Board reveals deficiencies in these tasks, its measures during a resolution will be scrutinized. And then it might indeed be about significant funds and the stability of the European banking system. It is good if the resolution board takes the judgment from Luxembourg seriously and sharpens its justification for calibrating contributions.
