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 June 2019, a Directive amending BRRD (BRRD 2) was published in the Official Journal. BRRD 2 will introduce a range of reforms of the BRRD, 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 published in the Official Journal in December 2017.
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
BRRD was published in the Official Journal on 12 June 2014 and entered into force on 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.
BRRD 2 was published in the Official Journal on 7 June 2019. The national implementation deadline is 28 December 2020.
Member States have until 28 December 2020 to implement BRRD 2. Changes to MREL target levels will be phased in, with intermediate target levels to apply from 1 January 2022 and full application from 1 January 2024 (subject to resolution authority discretion to set a longer transitional period in certain cases).
European Banking Authority (EBA) to submit various draft technical standards under BRRD 2 to the Commission by 28 December 2019 or 28 June 2020.
Deadlines for national implementation of BRRD and the Directive on the ranking of unsecured debt instruments in insolvency hierarchy have passed.
Member States have until 28 December 2020 to implement BRRD 2 into national law.
|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)|