06 June 2012

European Commission: FAQs on bank recovery and resolution proposal

The Commission gives detailed answers to 34 questions on the framework for bank recovery and resolution, which it says is crucial for ensuring long-term financial stability and for reducing the potential public cost of possible future financial crises.

The Commission provides answers to the following questions:

1. Why is the Commission proposing a framework for bank recovery and resolution?
2. Why is this framework needed?
3. What is the relationship between today's proposal and the Commission's announcement of 30 May 2012 on moving towards a banking union?
4. Why are normal insolvency proceedings unsuitable for banks?
5. Why didn't the EU have this framework in place before the crisis? Why is action at EU level needed?
6.  How does the draft proposal relate to work undertaken at international level?
7. Is the EU the first jurisdiction that is proposing a crisis management framework for the banking sector? What are other countries doing on crisis management?
8. What are the main differences between what the EU is proposing and the US approach?
9. What are the key elements of today's proposal?
10. What will the role of the European Banking Authority (EBA) be?
11. What are the objectives of resolution and the conditions to trigger it?
12. What resolution tools will be needed?
13. What kinds of financial institutions would be covered by the EU regime?
14. How will the regime apply to the failure of a cross-border group?
15. How would financial support within groups work?
16. How will the cost of bank resolution be financed?
17. What purpose should resolution funds serve?
18. Should there be a single European resolution fund?
19. What is the proposal to write down creditors ('bail-in') and how would it work?
20. What instruments would bail-in apply to and in what order?
21. Are you proposing to require institutions to maintain a minimum level of liabilities that is subject to write down?
22. Would the bail-in tool apply immediately to all outstanding debt or only after a transitional period?
23. How much would bail-in cost banks, and ultimately the real economy?
24. How does the Commission propose to strengthen cross-border supervision and resolution in the future?
25. What is the purpose of appointing a special manger and wouldn't this appointment lead to loss of confidence in and consequent runs on the firm in question?
26. Resolution measures may interfere with the rights of shareholders and creditors. How does the Commission propose to deal with this?
27. Would "living wills" help authorities to manage a cross-border banking crisis?
28. How does the EU framework square with the resolution regime adopted in some Member States?
29. How does the EU Framework square with the EU State Aid rules?
30. How does this proposal relate to the Capital Requirements Directive IV (CRD IV) proposal tabled in summer 2011?
31. What link is there between resolution and deposit guarantee schemes (DGS)?
32. If we had had this proposal already in place, would this have saved banks like Dexia, Lehman Brothers, or BayernLB?
33. Is there a link to the plan for the recapitalisation of banks?
34. What is the link between this proposal and the work of the High-level Expert Group on structural aspects of the EU banking sector?

Full FAQ

© European Commission