Inside this Topic Guide
The EU Bank Recovery and Resolution Directive (BRRD) aims to harmonise Member States' resolution frameworks for banks and investment firms. The BRRD was adopted in June 2014 with a national implementation deadline of January 2015 (other than bail-in provisions, for which Member States were able to defer implementation until January 2016, although some Member States, including the UK, implemented bail-in provisions along with the rest of the Directive in January 2015).
In November 2016, the Commission published legislative proposals for a range of reforms of the BRRD (BRRD II), including changes relating to resolution authorities' moratoria powers, contractual recognition of bail-in and proposed amendments to the rules on minimum requirements for own funds and eligible liabilities (MREL) to bring these in line with the Financial Stability Board's (FSB) total loss absorbing capacity (TLAC) standard.
Provisions on the ranking of unsecured debt instruments in insolvency hierarchy, including the creation of a new TLAC-eligible subordinated debt class, were fast-tracked and published in the Official Journal in December 2017. The remaining BRRD II proposals are being considered by the EU Parliament and EU Council under the ordinary legislative procedure and are expected to be agreed by mid-2018.
Key features of the BRRD
- EU banks
- Qualifying EU investment firms
- EU holding companies of EU banks and qualifying EU investment firms
- EU financial institution subsidiaries of the above
- EU branches of non-EU banks and investment firms
- Individual institutions and groups required to prepare recovery plans and to take steps to improve resolvability
- Resolution authorities to prepare resolution plans and to conduct resolvability assessments of institutions
- Powers for regulators to intervene pre-resolution to require institutions to take remedial steps (e.g. change management, restructure debt, effect legal and operational changes) to avert need for resolution
Crisis management – resolution
- Regulatory intervention threshold that permits resolution action before balance sheet or cash flow insolvency
- Key resolution tools: sale of business, bridge institution, asset separation and bail-in
- Main resolution objectives: protect financial stability, preserve critical functions, avoid taxpayer losses
- Key resolution principles: losses fall in line with ordinary insolvency hierarchy (shareholders and junior debt bear losses first)
- Measures for resolving groups and third country entities
- National resolution funds, financed via ex ante industry contributions
- Limits on use of resolution funds to absorb losses
- Depositor preference reduces risk to Deposit Guarantee Scheme
- 'No creditor worse off' principle limits application of resolution tools ex ante and sets ex post benchmark for creditor compensation
|Status:||BRRD published in the Official Journal 12 June 2014 and entered into force 2 July 2014. The national implementation deadline was 31 December 2014, with implementing laws and regulations to apply from 1 January 2015. By way of exception, Member States could delay application of provisions relating to the bail-until 1 January 2016.
On 23 November 2016, the European Commission published proposals to amend BRRD (BRRD II). Provisions on the ranking of unsecured debt instruments in insolvency hierarchy were fast-tracked and published in the Official Journal in December 2017. The remaining BRRD II proposals are being considered under the ordinary legislative procedure and are expected to be agreed by mid-2018.
|Next:||The EU Parliament and EU Council will continue to consider the proposed amendment to BRRD as regards loss-absorbing and recapitalisation capacity of credit institutions and investment firms.|
|Implementation:||All provisions except those related to the bail-in tool were to be implemented by 31 December 2014 and applied from 1 January 2015.
The implementation deadline for bail-in, including the minimum requirement for own funds and eligible liabilities (MREL) was 1 January 2016.
Member States have until 29 December 2018 to transpose the Directive on the ranking of unsecured debt instruments in insolvency hierarchy into national law, with new rules to apply from 1 January 2019.
In relation to the remaining BRRD II provisions, the Commission has proposed a 12 month transposition period, with most amended rules to apply from 6 months after that.
|Chris Bates (London)||José Guardo (Madrid)|
|Marc Benzler (Frankfurt)||Steve Jacoby (Luxembourg)|
|Lucio Bonavitacola (Milan)||Frédérick Lacroix (Paris)|
|José Manuel Cuenca (Madrid)||Caroline Meinertz (London)|
|Caroline Dawson (London)||Simon Sinclair (London)|
|Maria de Elizalde (London)||Rodrigo Uría (Madrid)|
|Simon Gleeson (London)||Iñigo Villoria (Madrid)|
|Frank Graaf (Amsterdam)|