A directive (the "Directive") that will broaden the powers of national governments to prevent crisis situations at banks and which will allow them to take certain actions if financial problems occur, has been proposed by the European Commission. The proposed tools are divided into powers of "prevention", "early intervention" and "resolution". The proposed directive is expected to come into effect early 2015.
The proposed Directive provides that banks draw up and maintain a recovery plan providing for the restoration of their financial situation following significant deterioration. The authorities responsible for "resolving" banks will be required to prepare resolution plans. A resolution plan will set out options for resolving the institution in a range of scenarios, including systemic crisis. Such plans should include details on the application of resolution tools and ways to ensure the continuity of critical functions.
If a bank's capital reserves fall below a certain level, the authorities could require the institution to implement any measures set out in the recovery plan. The authorities could force it to change its legal or operational structures. In addition, supervisors will have the power to appoint a special manager, whose primary duty is to restore the financial situation of the bank and the sound and prudent management of its business.
If the preventive and early intervention measures fail to redress the situation from deteriorating to the point where the bank is failing or likely to fail, the national government can take over. It will also have the power to sell all or part of the bank and to hive off critical functions or toxic assets.