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Directive (BRRD) and Regulation (SRR)

In a long waited development, albeit to some extent disappointing in its final format and content, the Council and the European Parliament have adopted a Directive (BRRD) and a Regulation (SRR) establishing EU rules for banking resolution.

Following the key political developments of March 2014 concerning political agreement between the European Parliament and the Council on Banking Resolution, the EU has finally in place a (i) Directive establishing a framework for the recovery and resolution of credit institutions and investment firms, extensively amending and supplementing previous normative texts (Directive 2014/59/EU of the European Parliament and of the Council, of 15 May 2014 - OJ L 173/190, of 12.6.2014 – ‘BRRD’) and a (ii) Regulation establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (Regulation (EU) nº 806/2014, of the European Parliament and of the Council, of 15 July 2014 – OJ L 225/1, of 30.7.2014 – ‘SRR’).

On the whole – as stated in previous news on the developments leading to the adoption of BRRD and SRR – these normative instruments establish uniform rules for the resolution of banks. As regards EU Member States participating in the Single Supervisory Mechanism (SSM – leading to supervision by the ECB by the end of 2014), these new rules will be applied within the SRM (Single Resolution Mechanism) which will be supported by a Single Resolution Fund (although to be operational only after a rather long transitional period). The BRRD and the SRR contain rules for the bail-in of shareholders and creditors, either on a stand-alone basis or as a part of the resolution procedure. However, the adoption under the BRRD or the SRR of a banking resolution scheme involving state aid or resort to the Single Resolution Fund (SRF) is made conditional on the approval of the public support by the European Commission under state aid rules (which may lead to problems of coordination between, on the one hand, these new sets of rules to be applied to banking resolution procedures and, on the other hand, the sets of rules determining the pre-conditions and the scope of burden-sharing by creditors under state aid control).

It is indisputable, on the one hand, that the BRRD and the SRR pave the way towards a future in which the resolution of insolvent banking institutions may be conducted at European level and, hopefully, in a manner that may minimise recourse to public funding. However, on the other hand, the pooling of sovereignty and the step towards effective integration is here much more limited that the ones concerning the establishment of the SSM in 2013 (which, in turn, may lead to a rather unbalanced and unfinished European Banking Union if the limited developments in terms of mutualisation of deposit insurance is also taken into consideration). In fact, beside other severe limitations of the SRM, that may constrain its overall reach, the Single Resolution Board that it involves will ultimately have attached a (limited) degree of integration not fully coherent with its designation, since the rules that establish it contemplate a significant degree of lingering autonomy for national resolution authorities..

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