4.2 Completing the banking union The heads of state and government also agreed that the ESM should backstop the Single Resolution Fund (SRF) in a step towards completing the banking union. If, in the event of a bank resolution, SRF funds proved insufficient, the ESM would then provide a loan to be repaid by the banking sector at a later date.
In principle, this common backstop is appropriate because euro area’s significantly important banks are already subject to joint supervision. But before it comes into force, banks’ balance sheets need to be free of legacy assets. If not, risks that arose under national responsibility would subsequently be communitised.