A Single Rulebook for the resolution of banks and large investment firms.
A comprehensive and effective resolution regime in the EU ensures the stability of financial and banking services, ends counterproductive incentives for too-big-to-fail institutions, and supports the functioning of the Single Market in financial services and the Banking Union. To this end, several initiatives have been undertaken, both at international and European Union level.
In particular, in October 2011, the Financial Stability Board (FSB), published The Key Attributes of Effective Resolution Regimes for Financial Institutions (the ‘Key Attributes'), which laid out the core elements that a resolution framework should have in order to allow authorities to resolve financial institutions across the EU in an orderly manner. This means maintaining continuity of institutions' vital economic functions to avoid taxpayers from bearing the costs of resolution with public funds.
In the European Union, legislators and supervisors have invested considerable efforts in ensuring that EU banks are better capitalised and supervised. Legislative activities in the EU aimed at protecting market discipline through orderly resolution processes. The resulting EU legislative framework ensures that failing banks do not endanger financial stability and losses are borne by shareholders and creditors, instead of reverting to taxpayers' money. This is what is prescribed by the regulatory regime of the Bank Recovery and Resolution Directive (BRRD), which introduces a harmonised set of rules for managing the resolution of credit institutions and investment firms in a consistent manner across all 28 EU member states. The introduction of the BRRD is also complemented by the review of the Deposit Guarantee Scheme Directive (DGSD).
In particular, the BRRD broadens the powers of national authorities to intervene and prevent banks from failing, while it requires banks themselves to prepare recovery plans aimed at overcoming situations in which they may fail. If failure cannot be avoided, authorities will be equipped with comprehensive powers and tools to restructure banks, allocating losses to shareholders and creditors, following a clearly defined hierarchy and set of protections for property rights. They will have the powers to implement plans to resolve failed banks in a way that preserves their most critical functions and avoids taxpayers having to bail banks out. Additionally, within the Banking Union, the resolution of significant and cross-border groups will be managed by a Single Resolution Board (SRB).
The EBA plays a key role in rulemaking by developing Technical Standards and Guidelines to further specify the provisions of the BRRD and DGSD. The EBA will also prepare reports and technical advice to assist the Commission and co-legislators in considering delegated acts under these directives and any need for future changes to the legislative framework.
The EBA's work will also strengthen cooperation, effectiveness and consistency in the resolution of cross-border banks. To this end, the Authority will conduct peer reviews and benchmarking exercises and act as mediator between resolution colleges. This work will facilitate exchanging information, reaching joint decisions on recovery and resolution plans, executing them in a coordinated fashion across borders, and mediating between Competent Authorities. Finally, the EBA will act as a point of contact and coordinator between the EU and third countries with regard to resolution arrangements. These roles will ensure that there is a consistent set of rules and they are consistently applied, both within the Banking Union and in the EU as a whole.