The Palgrave Handbook of European

Banking Union Law Mario P. Chiti

Visit to download the full and correct content document:
https://textbookfull.com/product/the-palgrave-handbook-of-european-banking-union-la
w-mario-p-chiti/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...

The Palgrave Handbook of European Banking 1st Edition

Thorsten Beck

https://textbookfull.com/product/the-palgrave-handbook-of-
european-banking-1st-edition-thorsten-beck/

The political economy of European banking union 1st

Edition Howarth

https://textbookfull.com/product/the-political-economy-of-
european-banking-union-1st-edition-howarth/

European Banking Union 2nd Edition Danny Busch Guido

Ferrarini

https://textbookfull.com/product/european-banking-union-2nd-
edition-danny-busch-guido-ferrarini/

The Palgrave Handbook Of European Referendums Julie

Smith

https://textbookfull.com/product/the-palgrave-handbook-of-
european-referendums-julie-smith/
State aid law of the European Union 1st Edition Hofmann

https://textbookfull.com/product/state-aid-law-of-the-european-
union-1st-edition-hofmann/

European Union Law 3rd Edition Catherine Barnard

https://textbookfull.com/product/european-union-law-3rd-edition-
catherine-barnard/

The Palgrave Handbook of the Hashemite Kingdom of

Jordan P. R. Kumaraswamy

https://textbookfull.com/product/the-palgrave-handbook-of-the-
hashemite-kingdom-of-jordan-p-r-kumaraswamy/

Palgrave Handbook of Research in Historical Culture and

Education 1st Edition Mario Carretero

https://textbookfull.com/product/palgrave-handbook-of-research-
in-historical-culture-and-education-1st-edition-mario-carretero/

The Palgrave Handbook of Applied Ethics and the

Criminal Law Larry Alexander

https://textbookfull.com/product/the-palgrave-handbook-of-
applied-ethics-and-the-criminal-law-larry-alexander/
The Palgrave Handbook
of European
Banking Union Law
Edited by
Mario P. Chiti · Vittorio Santoro
The Palgrave Handbook of European Banking
Union Law
Mario P. Chiti • Vittorio Santoro
Editors

The Palgrave
Handbook of
European Banking
Union Law
Editors
Mario P. Chiti Vittorio Santoro
Emeritus Professor of Administrative Law Professor of Business Law, University of Siena
University of Florence, Firenze, Italy Siena, Italy
Jean Monnet Chair ad personam of European
Administrative Law, University of Florence
Firenze, Italy

ISBN 978-3-030-13474-7    ISBN 978-3-030-13475-4 (eBook)

https://doi.org/10.1007/978-3-030-13475-4

Library of Congress Control Number: 2019934131

© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2019
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the
whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations,
recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or
information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar
­
­methodology now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does
not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective
laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this book are
believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors
give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions
that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps
and institutional affiliations.

Cover illustration: © Gianluca D. Muscelli/shutterstock.com

This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG.
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
 Preface

The establishment of the European Banking Union (EBU) represents the

most important achievement of the European Union (EU) in the last decade,
one which goes well beyond the boundaries of the banking area and
the Eurozone.
Before the explosion of a multidimensional crisis in autumn 2008, the cre-
ation of the EBU was not considered by the European institutions as an
urgent policy issue. Some preliminary measures were approved according to
the calm pace of ordinary times. But just after the break of the financial and
economic crisis, the EU shaped a rather original legal framework, composed
of new rules, such as the Single Rulebook, new administrative bodies, exem-
plified by the three European Supervisory Agencies established in 2010, pro-
cedures aimed at preventing and managing systemic risks, new relations
between the European Central Bank (ECB) and the national central banks
forming the European System of Central Banks (ESCB). In a few years, two
of the three planned “pillars” of the EBU were created. Moreover, a great
number of regulations, directives, decisions and acts of diverse legal nature
were adopted.
While the EBU is mainly based within the context of the Eurozone, its
rules have a wider scope. On the one hand, they are open to the adherence of
Member States whose currency is not the Euro. On the other, they are partly
applicable also outside the Eurozone. Some of the principles elaborated in its
context or in connection with the EBU, such as financial stability, are now
part of the general principles of the EU legal order.
The EBU is a sectional legal order having its own organisation, composed
by the ECB, “mechanisms” such as the Single Supervisory Mechanism (SSM)
and the Single Resolution Mechanism (SRM), new bodies such as the Single

v
vi Preface

Resolution Board. The new organisation operates through specific procedures,

sometimes involving only EU institutions and administrative bodies and on
other occasions involving both EU and national authorities according to the
model of “composite procedures”. The EBU also relies on a set of original
administrative remedies, having a quasi-judicial nature.
Nevertheless, the EBU is not a legal order separated from the EU. The ECB
is an institution of the EU at large, rather than an institution of the EBU or
the Eurozone. All the bodies operating within the context of the EBU are
called to act under the Rule of Law and must respect EU law. Moreover, their
acts are subject to judicial review, without any derogation.
The concrete functioning of the EBU confirms how ample and deep is the
impact of the new set of rules and measures. After a decade since the explosion
of the crisis, it can be stated that the main goals of the EBU have been achieved:
the major bank crises of this difficult period are over, the financial stability has
been preserved, the systemic risks have been avoided.
However, not all that glitters is gold.
The “third pillar” of the EBU—the common deposit guarantee assuring a
uniform level of protection—is still missing. The EBU is therefore an incom-
plete construction. Further efforts by European political actors would be nec-
essary. But the current circumstances and the difficulties to agree on the
establishment of the third pillar of the EBU reflects a lack of a sincere mutual
confidence among the Member States, even in the restricted “Euro Club”.
Moreover, EBU law is highly complex and difficult to implement by all the
actors involved, both public and private. The basic rules, as the SSM and
SRM regulations, are extremely “heavy” and detailed. They also require con-
tinuous adjustments through executive regulations and other specific mea-
sures. These features run against some basic exigencies of the legal order, such
as legal certainty, effective protection and transparency. They also raise obvi-
ous concerns of legitimacy.
In addition to this, some of the new principles have resulted incoherent, if
not in contrast, with the constitutional principles of the Member States. An
example is provided by the tension between the resolution procedure and the
principle of “bail-in”, on the one hand, and a beset of national and EU prin-
ciples, such as the guarantee for savings, the right to property, legitimate
expectation, financial stability, on the other.
So far, the European Court of Justice (ECJ) has been able to make order in
this legal mess, with a clear favour for the European prerogatives and the
ECB. However, it is far from clear that national courts will continue to accept
the ECJ case law in the future, when fundamental rights are at stake. Supremacy
of EU law is under discussion not only in Germany but in many other States.
 Preface vii

Rather unexpectedly, the first years of functioning of the EBU show the
peculiarity of the many bank cases of European relevance. The two “mecha-
nisms” (SSM and SRM) had been thought as competent in relation to almost
all the possible bank events. Yet, the real experience is now demonstrating that
the European supervision does not match adequately the position of several
banks, even if they have the rank of European “significant banks”. Then, the
resolution procedure shows that almost every bank crisis is a case on its own
and that a single and uniform therapy would not be appropriate. In general
terms, the real working of the two “mechanisms” reveals an excess of rigidity
that requires to be adjusted in the very next future and accompanied by some
flexibility.
Even if EBU law presents a number of shortcomings, we should acknowl-
edge that the EBU is irreversible. The process can only go in the direction of
further integration. The ECJ has certainly given a bold and wise support to
such process, thus confirming its role of “master of EU law”. What is still lack-
ing, however, is a genuine and fresh commitment by the EU and national
political institutions.
It is now well known that the financial stability, the primary objective of
the Bank Recovery and Resolution Directive (BRRD), is pursued through
important exceptions to the rules and principles of Insolvency Law, for exam-
ple, the role of shareholders and mostly of debt holders in an insolvency pro-
cedure has been significantly changed. This choice is ensured by the level
playing field in the competition among banks. For this purpose, the BRRD
excludes State aid at least until investors (shareholders, hybrid capital holders
and subordinated debt holders) have contributed to the banks’ rescue.
There is probably less awareness about the fact that both the BRRD
Directive and some rules of Insolvency Law are moving within the same gen-
eral framework, complying with the proposals expressed internationally by
the UNCITRAL and by the World Bank. In fact, the theoretical premises are
found in the economic studies which demonstrate that “speeding up the reso-
lution of debt disputes may increase the probability of timely repayment; that
increasing the protection of creditors and their participation in bankruptcy
proceedings may lead to a lower cost of debt and a higher aggregate level of
credit; and that introducing reorganization proceedings may reduce the rate
of business failure” (World Bank). Consequently, the European legislator is
oriented towards favouring the going concern of business, but by adequately
safeguarding the interests of creditors.
There is a new cultural climate. Regarding the Insolvency Law, the
Recommendation of 12 March 2014 (2014/135/EU) sets the goal to ensure
that “viable enterprises in financial difficulties … have access to national
viii Preface

insolvency frameworks which enable them to restructure at an early stage with

a view to preventing their insolvency, and therefore maximise the total value
to creditors, employees, owners and the economy as a whole” (Recital 1).
Recital 10) of Regulation on insolvency proceedings (2015/848/EU) goes
along the same line. Finally, the Proposal for a Directive (2016/0359, COD),
more punctually, alights the need for restructuring early and also proposes to
guarantee that “viable enterprises in financial difficulties have access to effec-
tive national preventive restructuring frameworks which enable them to con-
tinue operating…” (Recital 1). This Proposal is not intended to be applied to
banks, since they are already regulated by the BRRD.
However, one point unites the Proposal n. 2016/0359(COD) and the
BRRD: both are concerned with intervening at the very beginning of an insti-
tution’s crisis, in order to guarantee the business going concern. Recital 5) of
the BRRD underlines the need “to intervene sufficiently early and quickly in
an unsound or failing institution so as to ensure the continuity of the institu-
tion’s critical financial and economic functions, while minimising the impact
of an institution’s failure on the economy and financial system”.
But some important differences deserve attention: first of all, the Proposal
n. 2016/0359 (COD), as a part of the early warning tools to alert debtors to
the urgency to act, suggests to “include accounting and monitoring duties for
the debtor or the debtor’s management as well as reporting duties under loan
agreements” and to charge “third parties with relevant information such as
accountants, tax and social security authorities … to flag a negative develop-
ment” (Recital 16). Instead, the BRRD entrusts the alert to the same authori-
ties of banking supervision: in fact, the Recital 40) of the BRRD states that,
in order to remedy the deterioration of the financial and economic situation
of a bank, “the competent authorities should have early intervention powers,
including the power to appoint a temporary administrator to replace the body
administration and the senior management of the institution”.
In other words, in the case of banks, the European legislator considers the
legal system self-sufficient. In fact, there is no obligation for creditors, social
security institutions, tax offices and so on to flag potential crisis situations. Of
course, the task of the banking supervisory authorities is certainly strategic,
but it would be appropriate to use other early warning tools, given the recent
history of banking crises, which occurred despite the oversight of public con-
trol. In conclusion, the bank resolution system should have more homoge-
neous rules than those of the insolvency of other companies.
Finally, the chapters published in this book have been written by a group of
distinguished academics and lawyers, world-renowned specialists in the field
of the EBU law. They have accepted our invitation and taken our common
 Preface ix

engagement as an occasion to contribute to the gradual building of EBU law.

Our gratitude to all of them is great.
We also thank Palgrave Macmillan, which has accepted our proposal for
publishing the book and demonstrated a great far-sightedness. A special rec-
ognition to Mrs Tula Weiss and Ruth Noble for their invaluable work in edit-
ing and finalising the book.

Firenze, Italy Mario P. Chiti

Siena, Italy  Vittorio Santoro
 Table of Cases

Judgements of the European Court of Justice

Case C-219/17, Berlusconi, Fininvest/Banca d’Italia, 19.12.2018
Case C-493/17, Weiss and Others, 11.12.2018
Case C-52/17, VTB Bank/Finanzmarktaufsichthoerde, 7.8.2018
Case C-41/15, Dowling/Minister for Finance of the Republic of Ireland,
8.11.2016
Case C-105/15 to C-109/15, Mallis/European Commission and ECB,
20.9.2016
Case C-8/15 to 10/15, Ledra Advertising Ltd/European Commission, 20.9.2016
Case C-526/14, Kotnik/Dravni zbor Republike Slovenije, 19.7.2016
Case 362/2014, Schrems/Data Protection Commission, 6.10.2015
Case 62/14, Gauweiler/Deutscher Bundestag (the “OMT” case), 16.6.2015
Case C-270/12, UK/Council of the European Union and European Parliament
(the “ESMA” case), 22.1.2014
Case C-370/12, Pringle/Government of Ireland, 27.11.2012
Case C-604/11, Genil 48 SL and Comercial Hostelera de Grandes Vinos SL/
Bankinter SA and Banco Bilbao Vizcaya Argentaria SA, 30.5.2013
Case C-415/11, Mohamed Aziz/Caixa d´Estalvis de Catalunya, Tarragona i
Manresa, 14.3.2013
Case C-301/02, Carmine Salvatore Tralli/ECB, 26.5.2005
Case C-210/03, Swedish Match AB/Secretary of the State for Health, 14.12.2004
Case C-434/02, Arnold Andre’ GmbH & Co. KG/Landrat des Kreises Herford,
14.12.2004
Case C-5/85, AKZO Chemie/European Commission, 23.9.1986
Case 98/80, Romano/Institut National d’Assurance Maladie-­Invalidité, 14.5.1981
Case 9/56, Meroni/High Authority, 13.6.1958

xi
xii Table of Cases

Judgements and orders of the General Court

Case T-786/14, Bourdouvali/Council of the European Union, 13.7.2018
Case T-680/13, Chrysostomides/Council and Others, 13.7.2018
Case T-733/16, Banque Postal/ECB, 13.7.2018
Cases T-133/16 to T-136/16, Caisse régionale de crédit agricole mutuel Alpes
Provence/ECB, 13.7.2018
Case T-712/15, Crédit mutuel Arkéa/ECB, 13.12.2017; on appeal before the
Court of Justice in Case C-152/18
Case T-247/16, Trasta Kommercbanka/ECB, [order] 12.9.2017
Case T-122/15, Landeskreditbank Baden-Württemberg/ECB, 16.5.2017; on
appeal before the Court of Justice in Case C-450/17
Case T-191/99, David Petrie and others/European Commission, 11.12.2001
Case T-132/96 and T-143/96, Freistaat Sachsen and Others/Commission,
15.12.1999
European Court of Human Rights
Decision 9.4.2015, Adorisio/The Netherlands, no. 47315/13, 48490/13
and 49016/13
Decision 10.7.2012, Grainger/United Kingdom, no. 34940/10
Decision 24.11.2005, Capital Bank AD/Bulgaria, no. 49429/99
Decision 21.10.2003, Credit and Industrial Bank/the Czech Republic,
no. 29010/95
Austria
Verfassungsgerichtshof, 3.7.2015, G 239/2014 ua, G 98/2015-27
Germany
Bundesverfassungsgericht, 2 BvR 1685/14, 2BvR 2631/14
(Bankenunion) [pending]
Landesgericht (LG) München I, 8.5.2015, 32 O 26502/12, Bayern LB/Hypo
Alpe Adria, 32 O 26502/12
Bundesgerichtshof (BGH), 1.7.2014, II ZR 381/13
Spain
Tribunal Supremo, Sala de lo Civil, 20.1.2014, Caixa d’Estalvis del Penedés
(hoy la entidad Mare Nostrum, S.A.)/Marbres Togi S.L.
Tribunal Supremo, Sala de lo Civil, 9.5.2013, Asociación de Usuarios de los
Servicios Bancarios/Banco Bilbao Vizcaya Argentaria, SA
Tribunal Supremo, Sala de lo Civil, 21.11.2012, 2012:11052
United Kingdom
UK Supreme Court, 24.11.2016, Goldman Sachs International/Novo Banco
SA, [2016] EWCA Civ 1092
UK High Court of Justice, Commercial Court, 7.8.2015, Goldman Sachs
International/Novo Banco SA, [2015] EWHC 2371 (Comm)
 Contents

Part I The European Banking Union and the European Union

Architecture    1

1 Multilevel Governance in Banking Regulation  3

Rosa M. Lastra
1 Introduction   3
2 The Rationale for Regulation   3
3 Historical Developments   6
4 Regulatory Responses   8
5 The Impact of the Global Financial Crisis upon Global and
EU Developments  12
6 Concluding Observations  15
References 17

2 European Banking Union Within the System of European

Banking and Monetary Law 19
Christos V. Gortsos
1 A Definition of EU Banking Law and Its Evolution  19
2 On the Establishment of the Banking Union  21
3 The Legal Acts Establishing the Two First Main Pillars of the
Banking Union and the Related Single Rulebook  24
3.1 The First Pillar: The Single Supervisory Mechanism
(SSM) 24
3.2 The Second Pillar: The Single Resolution Mechanism
and the Single Resolution Fund  25
3.3 The Underlying Single Rulebook  27

xiii
xiv Contents

4 The Sources of EU Banking Law After the Establishment of

the Banking Union  31
5 The Links Between EU Monetary Law and the Banking
Union 32
5.1 The Sources of EU Monetary Law  32
5.2 The Main Links  34
6 Concluding Remarks: ‘European Central Banking Law’ or
‘ECB Law’ as the Result of a (Partial) Synthesis  36
References 38

3 European Banking Union and Its Relation with European

Union Institutions 41
Alexander H. Türk
1 Introduction  41
2 The Single Supervisory Mechanism: Centralisation,
Fragmentation and the Quest for a New Institutional Balance  42
3 What Kind of Accountability for the European Central
Bank Within the Single Supervisory Mechanism?  49
4 Single Resolution Mechanism: Complexity, Agency
Empowerment and an Attempt for a Paradigm Shift  53
5 The CJEU and Institutional Balance: The Silent Influencer  58
6 Conclusion  61
References 63

4 Proportionality in the Single Rule Book 65

Bart Joosen and Matthias Lehmann
1 The Need for Proportional Regulation and Supervision  65
1.1 A Diversified Banking Landscape  65
1.2 Proportionality and Financial Stability  66
1.3 Proportionality and Regulatory Competition  69
2 Legal Aspects of Proportionality  70
2.1 Proportionality as a Principle of Primary Law  70
2.2 Is Proportionality Incompatible with the Single Rule
Book? 71
2.3 The Requirements of Proportionality  73
3 The Current Approach of the EU to Proportionality  74
3.1 Proportionality with Regard to the Banking and
Insurance Sector  74
3.2 Elements of Substantive Proportionality in Banking
Regulation 75
3.3 Procedural Proportionality  77
 Contents xv

3.4 Proportionality in the Context of Better Regulation

and Regulatory Fitness and Performance (REFIT)
Programme 78
3.5 Proposals for Reform: CRR2 and CRDIV  80
3.6 Net Stable Funding Ratio for Small Non-­Complex
Institutions 83
3.7 State of Play as Regards Proportionality in the Single
Rule Book  84
4 An Outlook: A Differentiated Approach to EU Bank
Regulation and Supervision  86
References 88

5 The System of Administrative and Jurisdictional Guarantees

Concerning the Decisions of the European Central Bank 91
Marcello Clarich
1 Introduction  91
2 The General Features of the New Administrative Remedy  92
3 The Internal Character of the Review  95
4 Other Procedural Profiles  98
5 Concluding Remarks 101
References103

6 The European Banking Union in the Case Law of the Court of

Justice of the European Union105
Mario P. Chiti
1 Introduction. The Role of the European Union Judges: The
Judicial Building of the Banking Union 105
2 Judicial Review and Administrative Appeals 108
3 The Workload of Case Law 109
4 The Main Themes of the Case Law of EU Judges 111
5 The Founding Jurisprudence of the ECJ. The Pringle Case 112
6 The Esma Case 116
7 The ECB Powers and Their Justiciability. The Gauweiler
Case120
8 The Principle of Financial Stability and the Protection of
Fundamental Rights 123
9 The SSM and SRM in Action. The Case Law of the General
Court127
10 Conclusions 132
References133
xvi Contents

7 The Future of the European Banking Union: Risk-Sharing and

Democratic Legitimacy135
Pedro Gustavo Teixeira
1 Introduction 135
2 The Legal History of Risk-Sharing and Democratic
Accountability in the Single Financial Market 136
2.1 Beginnings 136
2.2 Multilevel Governance 137
2.3 The Financial Crisis 138
3 Risk-Sharing in the Banking Union 140
3.1 The Direct Recapitalisation of Banks by the ESM 140
3.2 The Prohibition of Bail-Outs and the Introduction of
Bail-In141
3.3 The Single Resolution Fund 142
3.4 The Privatisation of Risk-Sharing 143
4 The Democratic Legitimacy of the Banking Union 144
4.1 Legal Safeguards for Decision-Making 144
4.2 Institutional Independence 145
4.3 Multilevel Accountability 146
4.4 Achieving Legitimacy 148
5 The Future Sustainability of the Banking Union 148
5.1 A Future Without Risk-Sharing? 148
5.2 A Future Without Democratic Legitimacy? 151
5.3 Conclusion 152
References152

Part II The Three Pillars of the European Banking Union 155

8 Single Supervision Mechanism: Organs and Procedures157

Raffaele D’Ambrosio
1 Outlook 157
2 The Incomplete Separation of the Monetary Policy From the
Supervisory Functions and Its Side Effects on the ECB
Organization and Decision-Making Process 158
3 The Uncertain Allocation of Some Supervisory Tasks and
Powers to the ECB and to the NCAs 160
3.1 Tasks Conferred on the ECB and Tasks Remaining in
the Remit of NCAs 160
 Contents xvii

3.2 Uncertainties About the Scope of Some of the ECB’s

Prudential Tasks 162
3.3 Cases of Misallocation Between the ECB’s Tasks and
the NCAs’ Powers 164
4 What are Referred to as National Powers and the
Heightened Uncertainty About the Allocation of
Supervisory Powers Within the SSM 165
4.1 The ECB’s View on Article 9 SSMR 165
4.2 The Author’s Criticism of the ECB’s and the
Commission’s Views 167
5 The ECB’s Remedy to the Unintended Side Effects of the
Increase of its Supervisory Powers: Delegation to the ECB’s
Internal Divisions 169
5.1 The ECB’s Delegation Framework 169
5.2 Advantages and Disadvantages of the ECB’s
Delegation Framework 171
6 The Other Ways Round: The Two Distinct Delegations by
the Supervisory Board and the Governing Council of the
Powers They Respectively Enjoy Under the SSMR or the
NCAs’ Responsibility for Assisting the ECB in the
Performance of its Supervisory Tasks 174
7 What Is the Most Appropriate Form of NCAs’ Assistance to
ECB?179
References182

9 The Concept of Systemic Importance in European Banking

Union Law183
Pablo Iglesias-Rodríguez
1 Introduction 183
2 Systemic Importance in EBU Supervision 185
3 Systemic Importance in EBU Resolution 192
3.1 Systemic Importance in the SRM Pre-­Resolution
Stages194
3.2 Systemic Importance in the SRM Resolution Stages 196
4 An Inconsistent Regime in Action: The Failure and
Nonresolution of Banca Popolare di Vicenza and Veneto
Banca200
4.1 BPV and VB Were Deemed Systemically Important
Banks for Supervisory Purposes… 200
xviii Contents

4.2 …But Nonsystemically Important Banks for

Resolution Purposes… 202
4.3 …And Yet Systemically Important Banks for State
Aid Purposes 204
5 Conclusions 207
References208

10 Non-Performing Loans and the European Union Legal

Framework213
Elisabetta Montanaro
1 Introduction 213
2 NPL Crises in Euro Area Countries 215
3 Country-Specific Constraints Upon Solutions for the NPL
Legacy220
4 Regulatory and Supervisory Aspects of NPLs: Divergences
and Loopholes in the EU Rules 226
5 Towards a European Strategy on NPLs 232
6 Conclusions 239
References240

11 The Single Resolution Mechanism: Authorities and

Proceedings247
Olina Capolino
1 Introduction 247
2 SRM: A Brief Description of the Framework and of Critical
Aspects248
3 The Division of Tasks Within the SRM 252
4 Relationship Between the SRM and the SSM 254
5 Financing Banking Crisis Solutions 255
6 Resolution vs National Insolvency Proceedings 257
7 SRM: Initial Experience 260
8 Public Interest in Resolution: Just One of the Many 264
9 Conclusion 268
References269

12 Recovery and Resolution Planning271

Marilena Rispoli Farina and Luigi Scipione
1 Introductory Notes 271
2 The Living will Approach in US Law. An Outline 273
3 Recovery and Resolution Plans. The Regulatory Framework 274
 Contents xix

4 Recovery Plans: Their Structural Characteristics and

Strategic Aims 276
4.1 The EBA Regulatory Technical Standards 277
4.2 Drawing up a Recovery Plan. From Theory to Practice 278
4.3 Integrating the Recovery Plan into a Bank’s Corporate
Governance280
4.4 Scenarios and Trigger Events in the Recovery Plan 283
4.5 Recovery Measures (Options) and Recovery Plan
Assessment284
5 Resolution Plans. Systematic Profiles 288
5.1 Content and Evaluation of Resolution Plans 289
6 Planning and Coordination at Group Level 291
7 Responsibility for Resolution Plans 293
8 Conclusions 295
References297

13 The Relevance of the Resolution Tools Within the Single

Resolution Mechanism299
Jens-Hinrich Binder
1 Introduction 299
2 The Toolbox and First Cases––Overview 301
2.1 The Elements of the Toolbox and the Framework for
Its Application 301
2.2 The First Cases 303
3 The Relevance of the Toolbox Within the SRM: Functional
Characteristics and Limitations 304
3.1 Overview 304
3.2 Delineating the Lower Threshold: The Function and
Implications of the ‘Public Interest Test’ 305
3.3 Redefining the Relevance of the Resolution Tools:
Functional Characteristics, Strengths and Weaknesses 310
3.4 Delineating the Upper Threshold: Limitations in
Large-scale Insolvencies and Systemic Crises 315
4 Conclusions 316
References317

14 Minimum Requirement for Own Capital and Eligible

Liabilities321
Marco Lamandini and David Ramos Muñoz
1 Introduction 321
xx Contents

2 Burden-Sharing and Its Implications: Bail-in and

Fundamental Rights 322
2.1 Bail-in of Financial Instruments and Its Difficulties 323
2.2 Bail-in, Burden-Sharing and Their Fundamental
Rights Implications 325
2.3 Preliminary Conclusions 331
3 MREL in the Context of Bank Resolution Planning 333
4 MREL, Financial Stability and Investor Protection 341
4.1 Spain: The Pendular Movement from Pro-bank to
Anti-bank Stance, and Its Implications 342
4.2 Italy: A Long Tradition of Bail-outs, a Perceived
Equivalence Between Deposits and Bonds (What
Could Possibly Go Wrong?) and the Long, Winding
Road Towards Clear Transparency Requirements 345
References347

15 Write-down and Conversion of Capital Instruments349

Vittorio Santoro and Irene Mecatti
1 Rationale and Functioning of Write-down and Conversion
Powers349
2 Preliminary Remarks 352
3 The Objectives of the Bank Resolution 353
4 The Problem of the Infringement of Property Rights 356
5 Write-down and Mis-selling of Financial Products 359
6 Ex Ante Remedies to Prevent Mis-selling: The New MiFID
Framework362
7 Ex Post Remedies to Prevent Mis-selling 364
References368

16 Lessons from the First Resolution Experiences in the Context

of Banking Recovery and Resolution Directive371
Luís Silva Morais
1 Introduction 371
2 First Resolution Experiences Within a BRRD Paradigm—
Why National Cases Matter 374
2.1 National Regimes of Resolution in EU Member States
and the Emergence of a BRRD Paradigm of Banking
Resolution374
2.2 Inherent Complexities of the BRRD Paradigm of
Banking Resolution and Why Lessons Arising from
National Experiences of Its Implementation Matter 378
 Contents xxi

3 First Resolution Experiences: The BES Case in Portugal, An

Overall View 379
3.1 The BES Precedent in Context 379
3.2 The BES Precedent: Key Issues at Stake 381
4 BES Case: Other Recent Developments with Supranational
Corollaries and Relevant for Post-resolution Stages 385
4.1 Recent Developments with Supranational Corollaries 385
4.2 BES Case: Other Recent Developments Relevant for
Post-­resolution Stages 387
5 Enforcement of EU Resolution Regime and Public Interest
Test: Recent Cases of Banks in Financial Distress Dealt with
at National Level 388
5.1 Relevant Precedents 388
5.2 Final Considerations 389
References390

17 The Third Pillar of the Banking Union and Its Troubled

Implementation393
Concetta Brescia Morra
1 The Rational for Deposit Insurance Schemes 393
2 The Evolution of the European Regulation of DGSs 394
3 The Main Features of the Current DGSD 395
4 The Proposal for an EDIS 396
5 The Obstacles for Establishing a Fully-­Fledged EDIS 398
5.1 Different Banking Systems in Europe 398
5.2 The Discussion on the Legal Basis 401
6 The Limited Mandate of the EDIS Under the Current
Commission’s Proposal 405
References407

I ndex409
 Notes on Contributors

Jens-Hinrich Binder is Professor at the Universität Tübingen Juristische

Fakultät.
Concetta Brescia Morra is Professor of EU Financial Law, University of
Roma Tre, and the vice-chair of the Administrative Board of Review set up by
the European Central Bank.
Olina Capolino is Head of the Banca d’Italia’s Legal Services Directorate.
Mario P. Chiti is Emeritus Professor of Administrative Law at the University of
Florence and Jean Monnet Chair ad personam of European Administrative Law.
Marcello Clarich is Professor of Administrative Law at the La Sapienza
University of Rome.
Raffaele D’Ambrosio is a Senior Lawyer at the Bank of Italy.
Marilena Rispoli Farina is Emeritus of Business Law at the University of
Naples. She is a member of the ACF—ADR for Financial Disputes of the
Italian Market Authority, CONSOB.
Christos V. Gortsos is Professor of Public Economic Law at Law School of
National and Kapodistrian University of Athens.
Pablo Iglesias-Rodríguez is Senior Lecturer in International Finance Law at
the Sussex Law School, University of Sussex.
Bart Joosen is Professor of Financial Law at VU University Amsterdam and
associated with the ZIFO Institute for Financial and Corporate Law Amsterdam.
He is President of the Academic Board of the European Banking Institute.

xxiii
xxiv Notes on Contributors

Marco Lamandini is Professor of Business Law at the University of Bologna.

Rosa M. Lastra is Professor of Banking Law, Sir John Lubbock Chair, Centre
for Commercial Law Studies, Queen Mary University of London.
Matthias Lehmann is Professor of Civil Law, Private International Law and
International Business Law at the University of Bonn, Director of the Institute
for Private International and Comparative Law. He is member of the Academic
Board of the European Banking Institute.
Irene Mecatti is Senior Lecturer in Business Law at the University of Siena.
Elisabetta Montanaro is Emeritus of Banking and Finance at the University
of Siena.
Luís Silva Morais is tenured Professor of EU Law and Financial Regulation—
Lisbon Law University (UL), Jean Monnet Chair of EU economic regulation,
Chair of CIRSF (Research Centre on Regulation and Supervision of the
Financial Sector), Vice Chair of the Appeal Panel of Single Resolution Board.
David Ramos Muñoz is Senior Lecturer in Business Law of the Universidad
Carlos III Madrid and the University of Bologna. He is also a member of the
Academic Board of the European Banking Institute.
Vittorio Santoro is Professor of Business Law at the University of Siena and
Coordinator of PhD in Jurisprudence of the Universities of Siena and Foggia.
Luigi Scipione is Lecturer in Business and Banking Law at the University of
Naples.
Pedro Gustavo Teixeira is Director-General of the Secretariat of the European
Central Bank. He is a lecturer in European Financial Regulation at the Institute
for Law and Finance of the Goethe-Universität, Frankfurt am Main.
Alexander H. Türk is Professor of Law, Dickson Poon School of Law, King’s
College London, United Kingdom.
 Abbreviations

AQR Asset Quality Review

BC Banking Communication
BCBS Basel Committee on Banking Supervision
BES Banco Espirito Santo
BIS Bank for International Settlements
BPV Banca Popolare di Vicenza
BRRD Bank Recovery and Resolution Directive, 2014/59/EU
CAL Compulsory Administrative Liquidation
CEBS Committee of European Banking Supervisors
CESR Committee of European Securities Regulators
CET1 Common Equity Tier 1 capital
CJEU Court of Justice of the European Union
CRDIV Capital Requirement Directive 4, 2013/36/EU
CRR Capital Requirement Regulation, 575/2013/EU
DG COMP Directorate-General for Competition
DG FISMA Directorate-General for Financial Stability, Financial Services and
Capital Markets Union
DGS Deposit Guarantee Schemes
DGSD Deposit Guarantee Scheme Directive, 2014/49/EU
DIS Deposit Insurance Scheme
DTA Deferred Tax Asset
EBA European Banking Authority
EBF European Banking Federation
EBU European Banking Union
EC European Commission
ECB European Central Bank
ECB RoP ECB Rules of Procedure
ECtHR European Court of the Human Rights

xxv
xxvi Abbreviations

EDIS European Deposit Insurance Scheme

EFSF European Financial Stability Facility
EIOPA European Insurance and Occupational Pensions Authority
EMU Economic and Monetary Union
ESAs European Supervision Authorities
ESFS European System of Financial Supervision
ESM European Stability Mechanism
ESMA European Securities and Markets Authority
ESRB European Systemic Risk Board
EU European Union
FDIC Federal Deposit Insurance Corporation
FICOD Financial Conglomerate Directive 2002/87/EC
FOLTF Failing or Like to Fail
FROB Fondo de Restructuración Ordenada Bancaria
FSB Financial Stability Board
FSF Financial Stability Forum
GAAP General Accepted Accounting Principles
GC General Court
GDLs Guidelines
GDP Gross Domestic Product
G-SIB Global—Systemically Important Bank
G-SII Global—Systemically Important Institution
IAS International Accounting Standard
ICAAP Internal Capital Adequacy Assessment Process
IFRS International Financial Reporting Standard
ILAAP Internal Liquidity Adequacy Assessment Process
IMF International Monetary Fund
IPO Initial public offer
IRB Internal Ratings-Based (approach)
ITS Implementing Technical Standard
LGD Loss Given Default
MiFID II Markets in Financial Instruments Directive 2014/65/EU
MiFIR Markets in Financial Instruments Regulation 600/2014/EU
MPoE Multi Point of Entry
MREL Minimum Requirement of Eligible Liabilities
NCAs National Competent Authorities
NCWO No Creditor Worse Off (Principle)
NPL Non-performing Loan
NRA National Resolution Authority
NRF National Resolution Fund
PONV Point of Non-viability
RA Resolution Authority
RAF Risk Appetite Framework
 Abbreviations xxvii

ROA Return on Assets

RTS Regulatory Technical Standards
RWA Risk-Weighted Assets
SIFIs Systemically Important Financial Institutions
SPoE Single Point of Entry
SRB Single Resolution Board
SREP Supervisory Review and Evaluation Process
SRF Single Resolution Fund
SRM Single Resolution Mechanism
SRMR SRM Regulation
SSM Single Supervisory Mechanism
SSMFR SSM Framework Regulation
SSMR SSM Regulation
TFEU Treaty on the Functioning of the European Union
TLAC Total Loss-Absorbing Capacity
TLOF Total Liabilities Including Own Funds
VB Veneto Banca
WD Write-down and conversion power
 List of Figures

Fig. 10.1 NPLs in the EU and in the euro area. Sources: For NPLs: ECB,
Consolidated Banking Data, Domestic banks and foreign
subsidiaries and branches. For GDP: ECB, Macroprudential
Database216
Fig. 10.2 NPL ratio evolution in the euro area by size of banks, 2014–
2017. Source: ECB, Consolidated Banking Data, Domestic banks
and foreign subsidiaries and branches 216
Fig. 10.3 NPL ratio in high NPL countries before the SSM. Source: IMF,
Financial Soundness Indicators 218
Fig. 10.4 Bank solvency and capital vulnerability of high NPL countries
(2017). Source: ECB, Consolidated banking data, Domestic banks
and foreign subsidiaries and branches 221
Fig. 10.5 Average annual rate of change of NPL ratio (2014–2017). Source:
ECB, Consolidated Banking Data, Domestic banks and foreign
subsidiaries and branches 223
Fig. 10.6 Breakdown of NPLs by economic sectors (2017), %. Source:
ECB, Consolidated Banking Data, Domestic banks and foreign
subsidiaries and branches 224
Fig. 10.7 Efficiency of insolvency proceedings by countries (2017). Source:
World Bank, Doing Business, Resolving Insolvency, data at June
2017. Countries are ordered by increasing rate of recovery and
decreasing length of proceedings 225
Fig. 10.8 Average ROA of banks (2014–2017), %. Source: ECB,
Consolidated banking data, Domestic banks and foreign
subsidiaries and branches 225
Fig. 10.9 NPLs with forbearance measures, % (2017). Source: ECB,
Consolidated banking data, Domestic banks and foreign
subsidiaries and branches 232

xxix
 Part I
The European Banking Union and the
European Union Architecture
 1
Multilevel Governance in Banking
Regulation
Rosa M. Lastra

1 Introduction
This chapter is divided into five sections. Section 2 deals with the rationale for
regulation. Section 3 deals with historical developments. Section 4 deals with
regulatory responses. Section 5 deals with the specific impact of the global
financial crisis upon global and European Union (EU) developments. Section 6
provides some concluding observations.

2 The Rationale for Regulation

Why do we regulate banks? There are essentially three key reasons. Firstly,
there is the prudential rationale. Banks are inherently risky due to their role
in the maturity and liquidity transformation of short-term liquid liabilities
into long-term illiquid assets. Banks accept deposits that are repayable either
on demand or within a relatively short timeframe while making loans that

My thanks to Tolek Petch for his extensive contribution to this chapter and excellent research assistance.
Tolek Petch is a lawyer at Slaughter and May and a PhD candidate at Queen Mary University of
London.

R. M. Lastra (*)
Centre for Commercial Law Studies, Queen Mary University of London,
London, UK
e-mail: r.lastra@qmul.ac.uk

© The Author(s) 2019 3

M. P. Chiti, V. Santoro (eds.), The Palgrave Handbook of European Banking Union Law,
https://doi.org/10.1007/978-3-030-13475-4_1
4 R. M. Lastra

have much longer tenors. This is essential if banks are to perform their social
­function of financing investment in the real economy, including mortgages
and other longer-term finance. Banks are by definition prone to bank runs.
The very nature of commercial banking is the source of their vulnerability.
Trust and confidence are the preconditions of a functioning banking market.
The financial crisis and its aftermath constituted a stark reminder that such
confidence is fragile. Northern Rock in the UK and Banco Popular in Spain
are some of the most recent examples. As Alan Greenspan made clear to the
House Committee on Oversight and Government Reform at the height of
the financial crisis “Those of us who have looked to the self-interest of lend-
ing institutions to protect shareholder’s equity are in a state of shocked dis-
belief ”. There are many reasons for this, although many come back to the
design of incentives within banking organisations. The low level of equity
traditionally held coupled with informational asymmetries between manag-
ers and depositors, the prevailing short-termism of banks’ management and
availability of limited liability mean that senior managers and directors have
incentives to take risks that maximise often personal returns without ade-
quate regard to the losses that a bank’s failure may place on depositors or
society at large. Regulation seeks to change incentives through the imposi-
tion of mandatory prudential standards. In most cases, it is accompanied by
measures to directly protect consumers usually through the provision of
information and depositor protection (protective regulation). More recently,
a consensus has emerged in many jurisdictions that retail depositors need to
be protected through insolvency law and resolution procedures ranking as
preferred creditors in a winding up of a bank (Article 108 of Directive
2014/59/EU, the “BRRD”).
Secondly, regulation may be justified by monetary policy concerns, since
central banks issue money and since bank deposits are the largest component
of the money supply. Independent central banks with a price stability man-
date require some effective control over the money supply. Even if one does
not subscribe to Friedman’s dictum that “inflation is always and everywhere a
monetary phenomenon”, there is a clear historical and empirical connection
between rapid rises in the money supply and inflation (Friedman 1963). A
second monetary policy objective brought into focus in the Eurozone crisis is
the monetary transmission mechanism under which policy rates set by the
central bank in the implementation of monetary policy are translated into real
lending rates for businesses and consumers. Where the banking system is per-
ceived as fragile or risky, then concerns over bank credit risk will prevent
monetary policy decisions being passed on to the real economy with adverse
effects for growth and employment.
Another random document with
no related content on Scribd:
yards. The Austrian army was similarity equipped. The Italians were
equipped with a 105-mm gun essentially of the same characteristics
as the French 105-mm M-1913.
Medium Gun. Ideal. A caliber of between 4.7 and 5” on a carriage
permitting a vertical arc of fire of from minus 5 degrees to plus 80
degrees; a horizontal arc of fire of 360 degrees. Shrapnel and shell
weighing not over 60 pounds, maximum range 18,000 yards; with
semi-fixed or separate loading ammunition permissible.
Medium Gun Practical. Corps artillery should be armed with the
present type 4.7” gun, Model 1906, except that at least one regiment
should be armed with the British type 5”-guns purchased abroad.
Transport. All corps guns should be developed for long, rapid
hauls. Similar ammunition vehicles should be developed. The wheels
for the gun carriage should be rubber-tired.
Medium Howitzer. In the opinion of the French, Italians, British
and the Americans, the 155-mm howitzer (Schnieder) was
conspicuously successful in the present war. It should, therefore, be
retained as a type. The howitzer and carriage as it stands at present,
is a highly satisfactory and efficient piece of armament. For the
future it is believed that effort should be made to increase the range
by improvements in the form of projectile, and it is believed that the
form of howitzer and carriage should be studied with a view of
obtaining, through modifications, a maximum range of approximately
16,000 yards.
Many batteries of 155-mm howitzers (Schnieder) were motorized
in the American Army in France, and the consensus of opinion is
definitely toward the retention of this form of prime mover. It is
interesting to note that all the important belligerents have settled
upon a howitzer of approximately 6” in caliber, and otherwise
essentially of the same ballistic characteristics as the type in
question. The projectile of this caliber is the smallest projectile which
can be called upon to give adequate mining effect against material
targets of semi-permanent nature. The place of this howitzer is,
therefore, determined by considerations of its destructive ability. It is
a splendid destruction and neutralizing weapon.
 Medium Howitzer. Ideal. A caliber of about 155-mm on a carriage
permitting a vertical arc of fire of from minus 5 degrees to plus 65
degrees; and a horizontal arc of fire of 360 degrees. The projectile
should not weigh over 100 pounds and should be interchangeable
with projectiles for other guns of this caliber referred to later on. High
explosive shell, only, should be supplied.
Medium Howitzer. Practical. The corps should be armed with the
155-mm (Schnieder) howitzer referred to above. The type of fuses
for shell should be super quick and long delay.

ARMY ARTILLERY.
Missions. In addition to the division and corps artillery fulfilling the
missions outlined above there must be additional artillery available.
There are missions of interdiction, neutralization and destruction
which fall beyond the activities or capabilities of the normal corps or
medium field types; there must exist a surplus of division or corps
types, properly transported, for strategic reinforcements of divisions
and corps during such times as the normal allotment to such units is
insufficient; there must be artillery of special purpose—mountain
artillery, trench and super guns and howitzers. Of the above
additional artillery, a type of heavy field gun and a type of heavy field
howitzer are considered normally necessary in the armament of a
field army; the gun should have a range of approximately 25,000
yards, and the howitzer a range of about 18,000 yards. These
weapons are more powerful than the medium field types, add range
to the interdiction and harassing and to the neutralization and
destruction possible with the corps type. Considering the paragraphs
pertaining to divisional artillery and the introduction to corps artillery
it will be seen that the normal artillery of a field army can be
accomplished by the assignments of two caliber, i. e., two light
weapons, two medium weapons and two heavy weapons—a gun
and a howitzer in each class—and a satisfactory anti-aircraft gun.
Heavy Field Gun. The consensus of opinion of all artillery officers
—British, Italian and American—is that the heavy field gun should be
of approximately 6” caliber and that guns of greater caliber than this
are necessary in limited number for field operations. The French
were constructing 194-mm guns during the latter stages of the war. It
is believed that in developing this type of gun the French were
actuated almost entirely by the necessity for increased range, since
the German 150-mm gun, Model 1916, outranged the G. P. F. by
approximately 5,500 yards. The French have recently made
considerable progress in securing the necessary increase in range
with the G. P. F. All of the principal nations engaged in the war used
a heavy field gun of approximately 6” caliber. This type has given
such general satisfaction that its continuance is assured. The
principal mission of the heavy field gun is harassing and interdiction
fire, and for these uses the 6” projectile is sufficiently heavy. The
maximum practicable traverse and elevation should be provided by
the carriage of the heavy field gun. The G. P. F. carriage has given
general satisfaction, but its wide tread and the excessive time
required to occupy a position are very objectionable features. It is the
consensus of all artillery officers—French, British and American—
that the heavy field gun should be of approximately 6” caliber and
with a range in excess of 25,000 yards, with not less than 60 degree
traverse, weighing not more than 12 tons, limbered, capable of
occupying and leaving a position quickly, and with a width of tread
which does not prevent two-way traffic on ordinary roads. The
Italians differ from this opinion only in that they are satisfied with a
maximum range of 18,000 yards.
Heavy Field Gun. Ideal. A caliber of about 155-mm on a carriage
permitting a vertical arc of fire from 0 degrees to plus 65 degrees;
with a horizontal arc of fire of 360 degrees. The maximum range
should be about 25,000 yards.
Heavy Field Gun. Practical. Arm with the present type 155-mm
G. P. F. and carry on experiments for type of carriage as outlined for
division field gun. The fuses should be super-quick and short delay.
Transport. All artillery of this type should be motorized and tested
and experiments for ammunition vehicles to correspond with the
types of carriages developed, and should be carried on
simultaneously.
 Heavy Field Howitzer. No type of heavy field howitzer developed
during the war has given general satisfaction. The consensus of all
army artillery officers—French, English and American—is that two
calibers of howitzers are necessary—one a companion piece for the
6” gun and one of the maximum possible power consistent with the
necessary mobility. The lighter of these two howitzers should have
the same mobility as the 6” gun, with a caliber of about 8” and a
maximum range of not less than 16,000 yards. The heavy field
howitzer should be of about 9.5” caliber with a range in excess of
16,000 yards; the carriage should provide for wide traverse and must
have sufficient mobility to accompany the army in the field. It will
probably be necessary to transport this howitzer in more than one
load, and the maximum weight of any load should not exceed 12
tons. The average time necessary for occupying a position should
not exceed six hours under actual field conditions.
Heavy Field Howitzer. Ideal. A caliber of about 8” on a carriage
permitting a vertical arc of fire of from 0 to plus 65 degrees; and a
horizontal arc of fire of 360 degrees. The maximum range should be
18,000 yards.
Heavy Field Howitzer. Practical. Use at present 8” material of
British design which is on hand.
Railway Artillery. The war has demonstrated the necessity for
long range and powerful guns for distant interdiction and harassing
work and for super-heavy howitzers for the destruction of semi-
permanent fortifications. Artillery of these types can best be mounted
on railway carriages and this type of mount offers no serious
disadvantages since these guns will not be used except with large
forces which require extensive railroad systems for their supply. This
does not apply to guns of the type used to bombard Paris; such guns
have no military value and their construction is not justifiable.

ANTI-AIRCRAFT GUNS.
Light Gun. Ideal. Caliber about 3” with initial velocity of at least
2,600 f. s.; semi-automatic breechblock, mounted on carriage,
permitting 80 degrees elevation and 360 degrees traverse;
projectiles weighing not less than 15 pounds, of one type high
explosive shell with maximum ballistic qualities and as large
explosive charge as possible; fixed ammunition; smokeless,
flashless powder, mechanical fuse. In this type every effort must be
made to increase the rate of fire and decrease time of flight; this
latter is limited only by considerations of a reasonable accuracy life
for the gun.
Light Gun. Practical. Arm units with present 3” anti-aircraft
equipment. Continue experiments leading to the development of the
ideal.
Transport. Ideal. Caterpillar mount or caterpillar trailer mount
drawn by caterpillar tractor, each unit to permit a sustained speed of
12 miles per hour.
 CHAPTER V
THE 3-INCH FIELD GUN.

THE GUN.
The Gun is known officially as the 3-inch Field Gun, Model 1905. It
is a built-up construction of nickel-steel and consists of a tube with a
rifled bore, 3 inches in diameter, upon which are shrunk the jacket,
locking hoop and front clip hoop. The jacket reinforces the rear half
of the tube. The locking hoop serves to secure the jacket from any
longitudinal movement to the rear. On the under side of the gun,
extending the entire length of the jacket, locking hoop, and front clip,
are formed two recoil guides or clips which fit over and secure the
gun to the guide rails of the cradle. When the gun is fired, it slides
along the guide rails. The dust guard covers the part of the guide
rails between the locking hoop and the front clip. The rifling of the
bore is right-hand twist and starts with 0 turns at the breech
increasing to 1 turn in 25 calibers at 10 inches from the muzzle, then
uniform to the muzzle.

Weights and Dimensions.

Weight of gun 788 lbs.

Calibre 3 inches
Length about 7 feet
Number of lands and grooves 24
Muzzle velocity 1700 ft. sec.
Maximum pressure per sq. in. 33,000 lbs.
Limit of depression (90 mils.) 5 degrees
Maximum elevation (265 mils.) 15 degrees
Maximum range, trail sunk, about 8,500 yds. (5 M)
Range at 15° elevation (265 mils) 6,000 yds. (3½ M)

3 Inch Field Gun, Models of 1904 & 1905.

Breech Mechanism Assembled.

Nomenclature of parts of Gun:—

Jacket.
Locking hoop.
Tube.
Bore.
Rifling.
Lands.
Grooves
Breech recess.
Front clip.
 Muzzle.
Dust guard.
Recoil guides or clips.
Chamber.
Recoil lug.
Line sight (front and rear).
Handy oilers.

THE BREECH MECHANISM.

The breechblock is of the interrupted-screw type, and is provided
with four threaded and four slotted sectors. The front end of the axial
recess in the block is closed by a bushing. Four ventholes lead from
a cavity in the bushing and permit the escape of gas to the rear in
case of a ruptured primer. On the rear face of the breechblock are
cut gear teeth, in which the gear teeth of the operating lever
bevelgear mesh. The breechblock is concentrically mounted on a
hub on the block carrier, in which the firing-lock case is fitted. Its
position in the breech of the gun with reference to the axis of the
bore is eccentric.
The breechblock is closed or locked by a continuous movement of
the operating lever. When the block is swung to the closed position
the front face of the block latch comes in contact with the rear face of
the breech of the gun, thus forcing the latch out of the notch in the
breechblock and back into a recess in the carrier. By continuing the
motion of closing the mechanism, the breechblock is then rotated on
the hub of the carrier and its threads engage with corresponding
ones in the gun. When the breechblock is in the closed position, a
lug on the firing-lock case serves to lock the carrier to the
breechblock and prevents displacement due to a blowback.
The firing mechanism belongs to that type known as a
continuous-pull mechanism; that is, no cocking of the firing-pin is
required.
 The firing-lock case is eccentrically fitted in the hub of the block
carrier, in such a position that the axis of the firing-pin is always in
line with the bore of the gun. The vent bushing in the front end of the
breech block through which the firing pin passes when in the fired
position, is fitted eccentrically with reference to the breechblock. This
eccentric arrangement of the breechblock, masks the point of the
firing-pin and prevents any possible contact between the pin and the
primer in the cartridge case when the block is unlocked. The block
will be practically fully locked before any contact between the firing-
pin and primer can take place.
Nomenclature of important parts of Breech & Firing Mechanism.
Mod. 1905:—
Name of Part Where located
Breech Block On block carrier
Vent Bushing Front end of block
Block Carrier Hinged to jacket; supports block
Block Stop Screwed into front face of carrier
Hinge Pin Hinges carrier to jacket
Hinge Pin Catch In hinge pin
Extractor In breech recess
Extractor Lever Mounted on hinge pin
Operating Lever Pivoted on block carrier
Lever Pivot Pivots lever on block carrier
Lever Latch In operating lever
Lever Latch Spring In operating lever, lower part
Lever Latch Pivot In operating lever, lower part
Block Latch In recess in carrier
Block Latch Spring Around latch bolt
Firing Lock Case In hub of the block carrier
Locking Bolt Nut and Pin On firing lock case, rear face of carrier
Firing Pin In axle hole, center of firing lock case
Firing Pin Spring Around firing pin
Firing Spring Sleeve Around firing pin spring
Sear In slot in firing lock case
Trigger Fork Rear end firing lock case
Trigger Shaft On rear end firing lock case
Trigger Shaft Detent On trigger shaft
Firing Pallet On pallet shank
Pallet Shank On recoil lug of gun
Firing Handle On firing handle shaft
Firing Handle Bracket Attached to right side of cradle
Firing Handle Shaft Assembled in bracket, right side of cradle
Trip Latch Attached to trip latch plunger
Trip Latch Plunger Assembled to firing handle
Adjusting Screw Assembled to firing handle bracket
Check Nut Assembled in adjusting screw
 3 Inch Gun Carriage, Model of 1902.
Plan

THE GUN CARRIAGE.

The gun carriage for the 3-inch gun Model 1905 is of the type
known as the long-recoil, in which the gun is permitted a sufficient
length of recoil (about 45 inches) upon the carriage to render the
latter stationary under firing stresses. The gun is mounted upon a
cradle which forms a housing for the recoil controlling parts. The
cradle rests upon the rocker and has a small traversing motion of 70
mils on each side of the axis of the carriage. The rocker is journaled
upon the axle and its rear end is supported by the elevating
mechanism, which is seated in the trail.
The principal parts of the carriage are the wheels, axle, trail and
elevating mechanism forming the lower carriage, the cradle and
recoil-controlling parts constituting the upper carriage, and the rocker
and traversing mechanism intermediate between the two. In addition
there are provided shields, ammunition carriers, the road brake, and
the axle seats.
The Wheels and the Axle. The wheels are a modified form of the
Archibald pattern, 56 inches in diameter, with 3-inch tires. The axle is
hollow and forged from a single piece of steel. The wheels are held
on by the wheel fastenings.
Trail.—The trail consists of two steel flasks of channel section with
the flanges turned inward, tied together by transoms and plates to
form the sight and the tool boxes. Attached to the trail are the trail
spade, float trail handspike, trail handles and the lunette.
Elevating Gear.—The elevating gear is of double-screw type and
consists of an inner and outer elevating screw, an elevating-gear
bracket, an elevating bevel gear, two elevating bevel pinions, and
two elevating crank shafts. The inner elevating screw is a steel
screw, threaded with a right-hand thread. It is attached at its upper
end by the elevating pin to the rear end of the rocker. The outer
elevating screw is of bronze and is threaded on the exterior with a
right-hand thread to take the inner elevating screw. On the exterior
are also cut two longitudinal keyways, in which the keys of the bevel
gear work.
Traversing Mechanism.—The traversing mechanism consists of
a shaft, called the traversing shaft, mounted in bearings in the
traversing-gear case, and a traversing nut moving longitudinally on
the shaft, but restrained from turning with it by its bearings in the
gear case. A cylindrical lug on top of the nut fits in a hole in a bronze
traversing link, the right end of which is pivoted by the traversing-link
pivot to the traversing lug on the underside of the cradle. This pivot is
secured to the cradle-traversing lug by a nut and split pin. The left
bearing of the traversing shaft is split for the purpose of assembling
and rests between two collars on the shaft. The bearing, with the
shaft in place, is slipped into its seat in the gear case, where it is
held in position by two pins.
 TRAVERSING GEAR, VERTICAL SECTION

Elevating Gear Half Elevation and Half Section

 The Cradle Complete.—The cradle supports the gun, guides it in
recoil, and forms a housing for the recoil-controlling parts; it consists
of a flange steel body with the upper edges flanged outward. The
flanges are bronze lined, engage the clips on the gun, forming the
guide rails for the gun on recoil. Riveted to the bottom of the cradle
are four steel forgings, the pintle, traversing lug, rear clip, and
elevating and traversing lock lug. The pintle fits the pintle socket in
the rocker and forms a bearing upon which the cradle is traversed.
The traversing lug has been heretofore mentioned as affording a
point of attachment for the traversing-link pivot. The cradle rear clip,
in addition to embracing the rear end of the rocker, has a broad
bearing on the latter directly over the point of attachment of the
elevating screw.
To relieve the pointing mechanism from all strains in travelling, an
elevating and traversing lock is provided, by which the cradle may be
securely locked to the trail.
The recoil-controlling parts contained inside the cradle are the
cylinder, the piston rod, the counter-recoil buffer, the counter-recoil
springs and the spring support.
To the rear end of the cradle is riveted a steel cradle head, rear,
through which the cylinder moves in recoil and projects for
attachment to the recoil lug on the gun by means of the cylinder end
stud and nut. The front end of the cradle is closed by the cradle
head, front, and the retaining ring.
 Recoil Controlling Mechanism

The cylinder lies inside the cradle and is surrounded by the

counter-recoil springs. Its rear end is closed and has a projection on
the inside to which is screwed the counter-recoil buffer, a tapered
bronze rod which fits with small clearance into a bore at the rear end
of the piston-rod. The front end of the cylinder is closed by a bronze
oiltight gland, through which the piston-rod slides. The cylinder is
filled with a neutral oil called hydroline. The interior of the cylinder is
cylindrical. Three longitudinal ribs or throttling bars of uniform width
but varying height extend along the interior from the rear end to
within 19 inches from the front end. Three notches are cut in the
piston head, forming ports for the passage of the liquid from one side
of the piston to the other. The height of the throttling bars is
calculated so that the resistance which the liquid offers, plus the
resistance of the springs, is constant and such that the recoil will be
checked at the desired point. During recoil the front end of the
cylinder is supported by the spring support.
The piston rod is of steel, and is provided with a bronze piston
head, screwed against a shoulder at the rear end. The head has
three notches cut in its perimeter, which fit over the throttling-bar
projections on the cylinder wall. The rear end of the piston is bored
out to take the counter-recoil buffer. In counter recoil the oil in this
bore can escape only by a small clearance. In this way the return of
the gun into battery is so eased and regulated that very little shock
and consequent derangement of the aim of the piece occur. The
front end of the piston-rod is attached to the cradle head, front, by
means of the piston-rod nut.
The counter-recoil springs (three in number each 36 inches long)
are helical, being made from a rectangular steel bar coiled on edge.
They are assembled in the cradle, end to end around the cylinder
and bear in front against the spring support and in the rear against
the cradle head, rear. They are assembled under an initial
compression of approximately 750 lbs. which is sufficient to return
the gun into battery at the maximum elevation. In place of the single
counter-recoil springs a set of three inner and three outer counter-
recoil springs is also being issued.
The spring support forms a support for the front end of the cylinder
and a bearing for the front end of the spring column. It has guide
lugs which fit into and glide along guide rails inside the cradle during
recoil. The spring support is held in place by the retaining ring.

Action of the Mechanism.

The action of the recoil mechanism when the gun is fired is as
follows:—The gun moves to the rear 45 inches on the cradle,
carrying with it the cylinder and compressing the recoil springs. The
piston rod being attached to a fixed part of the carriage in front, (the
cradle-head) does not move. Therefore, since the cylinder moves to
the rear, the oil in it must pass from one side of the piston head to
the other. The energy of recoil of the gun is therefore absorbed by
the resistance which the oil offers when being forced through small
openings between the notches in the piston head and the throttling
bars along the inside of the cylinder and also by the resistance of the
counter-recoil springs to additional compression. The energy stored
up by the springs during this compression, returns the gun and
cylinder to the firing or original position. This return movement is
eased and regulated by the counter-recoil buffer. The piston rod pull
and the spring resistance are transmitted to the carriage, but owing
to the latter’s weight and the resistance opposed to the trail spade by
its engagement in the ground the carriage remains stationary.

Weights and Dimensions.

Weight of gun and carriage complete 2,520 lbs.

Width of track 60 inches
Length of recoil on carriage 45 inches
Amount of traverse of gun on carriage 140 mils
Nomenclature of important parts of the Gun Carriage:—

Axle
Trail, consisting of—
Flasks (right and left)
Tool box
Elevating gear transom
Rear sight box
Spade
Spade Edge
Float
Handspike fulcrum
Cradle, head, rear
Gun slides or Guide Rails
Cradle Pintle
Traversing lug
Rear clip
Lug for elevating and traversing lock
Bracket seat, firing handle
Quadrant fastening
Rear-sight bracket support
Front-sight bracket support
Spring-support guides
Retaining ring, with hasp and fastening
Cradle head, front
Shoulder guard
Cradle brush
Recoil-indicator throw
Recoil indicator
Cylinder head
Cylinder with cylinder end screwed in
Cylinder end stud and nut
Counter-recoil buffer
Rings, packing
Gland
Piston rod, with plug, screwed in
Piston
Piston-rod nut
Filling plug with gasket
Drain plug
Spring support
Counter-recoil springs
Rocker
Cradle Pintle socket
Elevating and traversing lock
Traversing mechanism, consisting of—
Traversing-gear case
Traversing plate
Handwheel with handle and spindle
Traversing shaft
Traversing-shaft bearing in two parts
Traversing link with bushing
Traversing-link pivot with nut
Azimuth pointer and scale
Elevating mechanism, consisting of—
Elevating pin
Inner elevating screw
Outer elevating screw
Wheels guards
Trail handles
Trail seats
 Trail-seat supports
Sponge-staff socket
Name plate
Handspike
Lunette
Cradle, consisting of—
Cradle body
Elevating bevel gear
Elevating bevel pinions
Elevating crank shafts, with handles
Elevating screw cover
Axle seats, include—
Seat arms
Seat-arm guards
Foot rests
Tie rods
Shield braces
Apron shield
Apron latches
Main shield, consisting of—
Main shield
Hood
Shutter, open-sight port
Shutter, panoramic-sight port
Top shield, consisting of—
Top shield
Top shield fastenings
Road brake, includes—
Brake beams
Brake shoes
Springs with covers
Brake rods
Brake lever
Brake shaft
Brake segment with two segment racks
Ammunition carriers
Range quadrant case