The EBA launched today a consultation on its draft Guidelines specifying the type of tests, review or exercises that may lead to extraordinary public support measures for institutions. These Guidelines are part of the EBA’s work to promote the consistent and coherent approach to bank resolution across the European Union. The consultation runs until 9 August 2014.
One of the overarching objectives of the Bank Recovery and Resolution Directive (BRRD) is to avoid, as far as possible, resorting to taxpayers’ funds when dealing with unsound or failing credit institutions and investment firms. With this in mind, the BRRD sets out a harmonised regulatory framework for resolving institutions at EU level and establishes that resolution should be primarily and almost exclusively financed by private resources.
The need for extraordinary public support is identified by the BRRD as an indicator that an institution is failing or likely to fail. However, such support would not necessarily trigger resolution in exceptional cases where a specific list of elements and conditions set in the BRRD is met. Among these elements and conditions, the BRRD refers to public injections of own funds or purchase of capital instruments to address a capital shortfall resulting from a test, review or exercise. The proposed Guidelines specify the types of tests, reviews and exercises and provide details of the main features of such measures. These features include a timeline, a scope, a time horizon and reference date, a quality review process, a common methodology and, where relevant, a macro-economic scenario and hurdle rates, and a timeframe to address the shortfall.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 9 August 2014.
All contributions received will be published following the close of the consultation, unless requested otherwise.
Legal basis and next steps
The draft Guidelines have been developed in accordance with Article 32(4)(d)(iii) of Directive 2014/59/EU (BRRD), which mandates the EBA to specify the type of tests, reviews or exercises which may lead to a precautionary recapitalisation of an institution, under certain conditions.