The single resolution board (SRB) came under fire last year for deciding not to intervene in two failing Italian banks, weeks after forcing losses on some investors in Spanish lender Banco Popular.
The SRB and European Commission face over 100 lawsuits at the EU’s General Court in Luxembourg and the Spanish National Court over their handling of the resolution process.
Some of the bondholders have also joined a criminal probe in Spain, which is investigating if Banco Popular’s management were guilty of fraud and insider trading.
Launched in 2014 to end an era of bank bailouts, the SRB was also recently strongly criticised by the European Court of Auditors.
The Brussels-based agency is chaired by German regulator Elke Koenig.
Despite facing huge criticism, Konig was recently re-appointed by the European Parliament. There was no alternative candidate proposed by the Commission, even though the relevant EU regulation suggests it should have.
The Banco Popular bondholders are said to be furious about this and have now written voicing their concerns to Roberto Gualtieri, the Italian MEP who chairs the economic and monetary affairs committee, which approved Konig’s reappointment.
Copies have also been sent to Commission Vice-President Valdis Dombrovskis, who is responsible for the euro, and Commissioner Pierre Moscovici, who is responsible for economic and financial affairs, taxation and customs.
The letter, which has been seen by this website and was sent just before Konig’s reappointment, says the lawsuits “present an extraordinary number of challenges against a decision of any EU agency or institution.”
It goes on, “We believe that the committee should be deeply concerned about the legality of the current appointment process as well as of the prospect of the (apparent automatic) re-appointment of the current chair of the SRB, whose stewardship of that agency and ultimate responsibility for the resolution decision must give rise to serious scrutiny.
“While we support the SRB and its aims, the conduct of the current Chair in her professional capacity in the lead up to, the resolution of Banco Popular, and subsequent decisions have been characterised by fundamental breaches of the single resolution mechanism and a single resolution fund and serious misjudgements.”
The bondholders have called for “alternative candidates to be considered for the role of Chair of the SRB.”
In the letter they say that failure to do so could be “very damaging to the SRB and EU governance.”
Popular’s rescue was hailed by the Spanish government and EU bodies as a successful first test of a tougher European regime to deal with troubled lenders, after it was hit by a bank run.
But investors hurt by the intervention argued that Popular was not necessarily on the verge of collapse, sparking the flurry of lawsuits against the SRB.
The SRB has also been criticised for declaring two failing Italian banks too small to be resolved under European rules, allowing the Italian government to provide state aid with laxer conditions.
EU auditors said last month that the SRB may not be fully prepared to deal with a new banking crisis.
The SRB is intended to minimise the cost to taxpayers and depositors when failing banks are wound down, forcing the losses on their shareholders and bondholders instead.
Elke Koenig was not immediately available for comment.