The Commission has published its proposals for a Directive to ensure that Member States use compatible recovery and resolution measures (“living wills”) when dealing with failing financial institutions. The objective is to facilitate home-host cooperation arrangements in cross-border crises. The proposals are divided into:
- prevention;
- early intervention; and
- resolution.
The Commission wants to ensure crises are averted if at all possible, but that if a wind-down of a bank’s operations is necessary it can be done in an orderly manner. Under the proposals:
- banks must prepare recovery plans;
- authorities must prepare resolution plans for banks;
- authorities must assess banks’ plans and require changes where appropriate; and
- banks will be allowed to propose intra-group arrangements for support.
Supervisors will be able to implement early intervention measures when they think a bank will not be able to meet its capital resource requirements and can also appoint a “special manager” to a bank for a limited period. Where all else fails and the supervisor decides resolution is essential, the main regulatory tools comprise:
- business sale;
- bridging institution;
- asset separation; and
- bail-in.
The proposals also deal with the possibility of requiring resolution funding, whereby banks may have to fund a proportion of the costs of resolution. (Source: EU Framework for Bank Recovery and Resolution (June 2012))
