On December 8, 2014, the Board of Governors of the European Stability Mechanism (“ESM”) announced that it adopted the Direct Recapitalization Instrument (“DRI”) applicable to Eurozone banks, following the formation of the Banking Union (which consists of the Single Supervisory Mechanism (“SSM”), the Single Resolution Mechanism as well as funding arrangements which include the DRI). Previously, the ESM was only able to recapitalize financial institutions indirectly. The DRI now allows the ESM to recapitalize systemic and viable financial institutions directly, as a last resort measure and under certain specific circumstances, by providing a loan to the government of the relevant member state, who will then in turn recapitalize the bank.

For further details on the SSM, you may want to read our client note at:

http://www.shearman.com/~/media/Files/NewsInsights/Publications/2014/11/Ban king-Supervision-Within-the-Eurozone-The-Single-Supervisory-Mechanism-FIAFR-111714.pdf.

The press release and FAQs are available at:

http://www.esm.europa.eu/press/releases/esm-direct-bank-recapitalisation-instrument-adopted.htm

and

http://www.esm.europa.eu/pdf/2014-12-08%20FAQ%20DRI.pdf.