The Banking Recovery and Resolution Directive (BRRD), published in the Official Journal on 12 June 2014, establishes a framework to deal with the failure of financial institutions. Member States are required to implement the BRRD by 31 December 2014 – except the bail-in tool which needs to be implemented by 1 January 2016. The German BRRD-Transposition Act (Gesetz zur Umsetzung der Richtlinie 2014/59/EU zur Festlegung eines Rahmens für die Sanierung und Abwicklung von Kreditinstituten und Wertpapierfirmen – "BRRD-Umsetzungsgesetz") was adopted by the German Bundestag on 6 November 2014 and enters into force on 1 January 2015 – including the bail-in tool.
A key element of the BRRD-Transposition Act is the introduction of a Resolution and Recovery Act (Sanierungs- und Abwicklungsgesetz (SAG)), bringing together existing rules laid down in the Banking Act (Kreditwesengesetz (KWG)) and new rules established by the BRRD. In contrast to the current legal situation, under the new Resolution and Recovery Act the requirement to establish resolution plans is not restricted to systemically relevant institutions. Nonetheless, institutions which are neither globally nor nationally systemically relevant can be exempted from this requirement.
The competent national resolution authority is the Financial Market Stabilisation Authority (FMSA – Bundesanstalt für Finanzmarktstabilisierung)), which will be integrated with BaFin at a later date. Should the bank in distress continue to fail, FMSA is authorised to intervene, having the power to sell or merge the business with another bank, to set up a temporary bridge bank to operate critical functions, to separate the good assets from the bad and to convert to shares or write down the debt of failing banks (bail-in).
Further, the existing banking levy will be replaced by a new levy and will be collected for the benefit of the EU Restructuring Fund. In case that a bank deteriorates beyond repair, the restructuring fund will provide the necessary resources to ensure that the business can continue operating while the bank is being restructured.