It should prompt them to make adequate planning, to retain sufficient own funds and to issue MREL-eligible debt, and to take any opportunity that may present itself to comply with the requirements within the period established for the purpose. 5/7  Challenges remaining on the resolution front in Europe Despite the tremendous efforts made on the resolution front in Europe, there are clearly important challenges remaining. First, the details of the backstop for the Single Resolution Fund (SRF) must be outlined. Recently it was agreed that the European Stability Mechanism (ESM) would assume this financial backstop, which would take the form of a credit line, to be used to address exceptional situations where the SRF’s own resources prove insufficient for resolution of certain credit institutions. The backstop will have a limit of 1% of the deposits guaranteed in the banking union. It will come into force in 2024 at the latest and must be fiscally neutral in the medium term, so the resources committed will subsequently be recovered through banking sector contributions. In addition, the introduction of the financial backstop will eliminate the ESM’s tool for direct recapitalisation of banks. In this setting, it is vital to ensure that the backstop is sufficient to meet all the potential challenges that the SRF may have to face. Second, the question of provision of liquidity in bank resolution has to be addressed. If a bank under resolution is sold, the purchaser assumes any liquidity commitments that may arise when the bank opens its doors the next day.
Spain had an oversized banking system, excessively concentrated on lending to the residential property sector and highly dependent on international wholesale financing. In 2008, the consolidated assets of the banking system amounted to 304% of GDP, bank lending to the property sector (in the broad sense of the term) reached 99% of GDP and bank debt held by non-residents accounted for 24% of GDP. Moreover a significant number of deposit-taking institutions suffered from institutional and governance shortcomings. Over the last decade many of these vulnerabilities have been resolved; in particular, those relating to the high level of non-financial private sector debt, which is now at levels similar to those in the rest of the euro area (having fallen by almost 70 percentage points of GDP from its peak in 2010). The weight of lending to property and construction activities has decreased by 47 percentage points of GDP. This reduction in non-financial private sector debt has been reflected in a decrease in the size of the financial sector and, in particular, in bank balance sheets in Spain, since business abroad has proved to be one of the main determinants of the resilience of some institutions. Thus, over the last ten years, the total assets of business in Spain have contracted by 20% (a fall of 72 percentage points of GDP) and employment in the sector has fallen by 32%.