Overview of the New System for Bank Recovery and Resolution in the EU

Overview of the New System for Bank Recovery and Resolution in the EU

Bettina Katalin Bognár

PhD Student
Doctoral School of Law
University of Pécs, Hungary

b.k.bognar@student.reading.ac.uk

© 2013 Bettina Katalin Bognár
First published in the Web Journal of Current Legal Issues
Citation: Bognár, 'Overview of the New System for Bank Recovery and Resolution in the EU', (2013) 19(2) Web JCLI

Summary

The current financial crisis showed us that the legislative framework applicable in the European Union was not able to respond properly to the financial difficulties. After 2009 the European Union started to adopt reforms relating to the financial sector and although important changes have already been made, many reforms and new legislative proposals are still pending. One of these pending reforms is the legislative proposal initiated by the European Commission in June 2012, which focuses on the recovery and resolution of credit institutions. This proposal would be a major step towards a banking union by introducing strong powers for certain authorities.

Considering that the general overview of this initiative, according to my knowledge(1), has not been discussed yet, I would like to fill the gap by this paper. The objective of this paper is therefore to give an overview of the possibly coming new system of bank recovery and resolution in such a manner that in the first part of this article, we need to outline shortly the causes of the eurozone crisis together with the most important reforms adopted in order to understand the legal context in which the legislative proposal was adopted; then in the second part thereof, we need to present the key points of the directive proposal by introducing the system of the new directive with special regard to the powers established under the ‘three pillars’. In the third part of this article we are to analyse the special resolution tools established under the third pillar in more detail before concluding our findings.

Contents

1 Introduction

1.1 Institutional Fundamentals and Deficiencies of the EU

1.2  The Regulatory Response of the EU to the Crisis

1.3  Background of the EU Directive Initiative on Bank Resolution

2  Key Points of the RRD

2.1 First Pillar

2.2 Second Pillar

2.3 Third Pillar

3  Resolution Tools under the Third Pillar

3.1 Sale of Business Tool

3.2 Bridge Institution Tool

3.3 Asset Separation Tool

3.4 Bail-In Tool

3.4.1 Liabilities Eligible for the Bail-In Tool

3.4.2 Implementation and Hierarchy of Claims

3.4.3  Business Reorganisation Plans

3.4.4  Legal Effect of the Bail-In Tool and Procedural Requirements

4 Conclusion

5 Bibliography

1  Introduction(2)

Although the European Union (“EU”) and the euro as a common currency seemed to function well for decades, the eurozone crisis revealed certain deficiencies within the economic, financial structures of the EU institutions that might have been prevented.(3)

The eurozone crisis was developed as a result of the global financial crisis started in 2007 coming from the United States of America (“US”) through the banking sector and especially through the so-called toxic securities traded thereby.(4) In 2007 the crisis was only deemed to be a liquidity shortage (or credit crunch), but after the collapse of Lehman Brothers in September 2008, it became clear that the crisis had systemic and cross-border transmission effects.(5) Like in the US, first only a credit crunch was felt in the EU, however it soon spread towards the sovereign debt sector. We need to mention that there are more views as to how many ‘eurozone crises’ exist. According to some scholars, the term ‘eurozone crisis’ refers to the sovereign debt crisis where the Member States of the EU (“MS”) cannot or hardly can repay their debt obligations.(6) Other views make a distinction among three interconnected crises, namely among the banking crisis where financial institutions have difficulties to deal with liquidity shortages; sovereign debt crisis as referred above which started with the Greek default of 2008; and the macroeconomic crisis which has a detrimental effect on the economic performance of the MS.(7) Furthermore, certain studies add a fourth crisis to the former three: the political crisis of the EU.(8)

1.1  Institutional Fundamentals and Deficiencies of the EU

In order to understand the regulatory responses of the EU to the crisis, we need to outline the basic deficiencies the reforms seek to address, which, among others, derive from the institutional fundamentals of the EU as follows.

The Maastrict Treaty(9) established the Economic and Monetary Union of the EU (“EMU”), however as from 1 December 2009, the so-called Lisbon Treaty or TFEU governs the objectives and activities thereof.(10) As set forth in Title VIII of the TFEU, the MS shall only coordinate their economic policies (consequently the economic policies remained decentralised) while the monetary policy is centralised through the single monetary and exchange-rate policy within the eurozone with the primary objective of maintaining price stability.(11) The main actor of the single monetary policy is the European Central Bank (“ECB”) that is responsible for the definition and implementation of the monetary policy.(12)

At the first place we need to emphasise two fundamental issues regarding monetary and fiscal policy. On one hand, the monetary and fiscal policy both together and individually shall be on a sustainable course; and on the other hand, these two policies have a different time frame as monetary policy can adjust shortly to the circumstances but fiscal policy takes more time to adjust thereto.(13) In order to achieve sustainable economic growth in terms of price stability and viable external accounts, it is inevitable that the decision makers from the monetary and fiscal policy sectors highly cooperate.(14) The lax cooperation may lead to financial instability, high interest and exchange rates and also has disadvantageous effects on the economic growth.(15) The cooperation is required also for the reason that these policies have impact on each other, i.e. the weak fiscal policy may imply a tighter monetary policy.(16)

In the European field, the EMU is a monetary union but not a fiscal union under the TFEU, however a monetary union should ‘theoretically’ be based upon common pillars for monetary, fiscal and financial policies as referred above.(17) Contrary to these considerations, only the common monetary policy was established by the EMU therefore the eurozone lacked the tools, financial mechanisms and powers for dealing with intra-eurozone imbalances. The fiscal policies of the MS are coordinated in such a manner that the Stability and Growth Pact(18) on the stability and maintenance of the EMU(19) described what a MS shall not do in order to create stable conditions for the euro.(20) Even in 2002, former president of the European Commission (“Commission”) Romano Prodi criticized the approach: “I know very well that the Stability Pact is stupid, like all rules that are rigid”.(21) According to the Stability and Growth Pact, the MS are obliged to avoid excessive government deficit, but these requirements were only partly respected. The enforcement of the fiscal rules through the ‘peer pressure mechanism’ turned out to be weak since “the procedures for addressing non-compliance lacked automaticity and thus left too much room for discretion. Financial sanctions have, in fact, never been imposed.”(22)

Taking into account that the thorough examination of the eurozone crisis and its causes are falling out of the scope of this paper, we need to shortly mention that not only the fiscal union- monetary union framework contributed to the crisis but also many other factors, including inter alia, the economic imbalances among the MS which did not appear in reality contrary to the convergence criteria set forth by the Maastrict Treaty; the lax emergency management powers of the EU including the non-bailout system provided by Articles 123 (1) and 125 (1) of the TFEU; the risk management, credit rating agencies, corporate governance and regulatory failures(23) as well as misguided fiscal policies.(24)

Based on the above, we may come to the conclusion that the institutional framework of the EU was too weak to manage and mitigate the effects of the crisis.

1.2  The Regulatory Response of the EU to the Crisis

As a response to the ongoing crisis, the EU adopted certain legislations and measures in order to manage the depression. Some of these measures are likely to improve (or already has improved) the economic situation of the MS, however, political willingness and compromise are always needed for the proper implementation. Among others, the EU in May 2010 decided to establish an emergency mechanism by Council Regulation (EU) No 407/2010 based on Article 122 (2) of the TFEU, namely the European Financial Stabilisation Mechanism (“EFSM”), under which the Commission is entitled to borrow up to a total of €60 billion in financial markets on behalf of the EU with an EU budgetary guarantee(25) and then to lend it forward to the beneficiary MS. The other European financial assistance mechanism, the European Financial Stability Facility (“EFSF”)(26) was established outside the EU legal framework, by an intergovernmental agreement between the MS in 2010 as a fund incorporated in Luxemburg.(27) The main purpose of the EFSF is to “safeguard the financial stability of the euro area as a whole and of its Member States”(28). The EFSF was established as an interim, temporary(29) mechanism with limited powers, therefore although it was authorized to grant loans, it could not intervene in securities markets.(30) Only after 1 year from its establishment, further powers were granted to EFSF in order that it could intervene in primary and/or secondary markets for sovereign bonds, but only on the basis of prior analysis to be obtained from the ECB.(31)

On top of these measures, a few years later, the Treaty on the establishment of the European Stability Mechanism (“ESM”) entered into force in October 2012.(32) It was originally intended to replace the EFSM and EFSF (however these mechanisms are still operating)(33) as well as to be the primary support for eurozone MS. The ESM is designed to issue bonds and other debt instruments in order to raise capital for assisting the MS.(34) The EMS has a registered capital of €700 billion provided by eurozone MS.(35)

We need to note that not only financial assistance mechanisms were established, but the EU addressed some of the supervisory deficiencies. Based on the recommendations made by the Larosière Report of 2009, the EU established(36) a new framework of the European System of Financial Supervisors (“ESFS”) as from January 2011 under which the European Systemic Risk Board (“ESRB”) was set up primarily for monitoring and assessing the macroeconomic systemic risks in normal times for the purpose of mitigating the exposure of the system to the risk of failure of systemic components and enhancing the financial system’s resilience to shocks.(37) The ESRB therefore acts as a macro-prudential supervisor. The ESRB shall, among others, determine, collect and analyse all relevant and necessary information for the purposes of achieving its objective; identify and prioritise systemic risks; issue warnings; issue recommendations for remedial action as well as monitor the follow-up thereof; determine if an emergency situation has arisen; and cooperate with other institutions within the ESFS.(38) Furthermore, the EU decided on 19 March 2013 to set up a single supervisory mechanism in order to “strengthen the EMU”, which is clearly to be interpreted as a first step towards a banking union.(39)

Although these steps are significant on their own, we need to note that after long negotiations, it became clear for many experts that the only way the EU can get out of and leave behind the crisis is to proceed towards a more advanced integration. The leaders of the EU are currently negotiating possible reforms relating to the stabilisation of the financial system and the establishment of a banking union, which includes, inter alia, the adoption of a framework for bank resolution to be discussed below.(40)

1.3  Background of the EU Directive Initiative on Bank Resolution

Just before the crisis hit, the ECB observed that those segments of the financial industry are more integrated which are “closer to the single monetary policy, especially the money market”, including the unsecured money market, the repo market, the market for large-value payment systems, government bond markets and the corporate bond market.(41) As far as the banking sector is concerned, 43 banking groups held 70 % of the EU banking assets who largely carried out cross-border activities, but we need to note that such a high level of “integration increases contagion risks, and thereby jeopardises financial stability”,(42) in other words, a systemic crisis may easily occur in case the problems and difficulties of one bank spill over and have disadvantageous effects on the other.

The single market in the EU made it possible for credit institutions to become “too-big-to-fail”, however, even the failure of smaller banks may cause a cross-border systemic damage.(43) The too-big-to-fail problem, in this context, generally refers to a situation when authorities are willing to do everything in their power to save an institution at the taxpayers’ expense since due the interconnected nature of its services the failure of the institution would have a systemic effect and would facilitate the failure of other institutions as well.(44) As the Commission observed, these too-big-to-fail institutions should be ‘allowed to fail’ “in accordance with normal insolvency proceedings without jeopardising financial stability”.(45) The too-big-to-fail problem is further amplified taking into account that there are differences in the legislations and institutional tools among the MS which cause serious hindrances before the efficient management of a cross-border banking crisis considering that different authorities, under different procedural rules and with different objectives may act at different points of time.(46) In this respect, we need to note that there are three main variations as to how the MS regulate bank insolvency procedures. One of these variations is that there are no specific rules for banks; consequently banks are subject to general and ordinary insolvency rules, such as it was the case in the United Kingdom prior 2009.(47) The second method is followed by for instance Germany, in accordance with which the general insolvency provisions should be applicable to banks but only with certain modifications.(48) And finally the third solution is to establish a separate set of rules for handling the insolvency situation of banks that was adopted “in the US where commercial banks (deposit taking banks) are exempt from the Bankruptcy Code and governed by a special regime instead” or which is the approach now in the United Kingdom since the 2009 when the Banking Act of 2009 was adopted.(49)

The Commission also considered that ordinary insolvency procedures do not provide sufficient methods and tools for the management of a bank failure(50) since they do not pay proper attention to the possible disruptions to the financial stability, the maintenance and continuance of essential services or to the protection of depositors and taxpayers; furthermore they are lengthy procedures(51) furthermore national banking systems can be seriously weakened by bank runs which may further damage the financial situation of the MS.(52)

The Commission emphasised that financial stability is dependent upon the ability of the authorities to “pre-empt (early intervention) or manage the crisis situations (resolution) of banks”.(53) Therefore, they need to play an important role in the maintenance of the financial stability, the protection of the deposits and the continuance of the payment systems.(54)

Based on the above considerations, we may come to the conclusion that there are certain vulnerabilities in the banking sector affecting the sovereign debt crisis disadvantageously therefore the establishment of a banking union in order to restore confidence in banks and the euro would be necessary;(55) especially taking into account that contrary to the international nature of the provision of financial services, the crisis management competences remained at national level within the EU.(56) Therefore financial institutions and markets shall become “more stable, more competitive and more resilient”(57) by adopting further steps to address the specific risks in the eurozone. In this regard, the Commission proposed in the middle of 2012 a banking union “covering the single rulebook and the single supervisory mechanism [as referred to above and already established], as well as the next steps involving a single bank resolution mechanism”(58) and a common system for deposit protection.(59)  

Within this framework and in order to remedy the lack of common rules within the EU for the resolution of credit institutions and managing their insolvency situation in an orderly manner, the Commission adopted its legislative proposal in June 2012 on the establishment of a framework for the recovery and resolution of credit institutions and investment firms and the amendment of Council Directives 77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No 1093/2010 (“RRD”) with the aim of establishing an effective regulatory framework to “address banking crisis pre-emptively, safeguarding financial stability and minimising taxpayers’ exposure to losses”.(60) This single bank resolution mechanism, as part of the ‘banking union package’ would be “more efficient than a network of national resolution authorities, in particular in the case of cross-border failures, given the need for speed and credibility in addressing banking crises” as well as it is intended to complement the already established (but not yet applicable) single supervisory mechanism.(61)

The legislative proposal is in the form of a directive, which is the instrument for harmonising but not for unifying the rules within the EU(62) with the consequence that the national insolvency systems shall be reviewed and adjusted to the new requirements. The RRD will be discussed before the European Parliament in October 2013(63) and would be adopted by the European Parliament and the Council of the European Union under an ordinary legislative procedure.(64) If the RRD will be adopted indeed, MS shall apply the provisions as from 1 January 2015, but in case of the bail-in tool, only as from 1 January 2018.(65)

We need to emphasise that the RRD, at the time of writing this article, is only a proposal. Therefore, when a reference is made to the RRD, we need to understand the RRD published as a legislative proposal by the Commission and although certain modifications can be expected to the final text before its adoption, it is likely that only minor modifications will be made thereto.

2  Key Points of the RRD

The RRD aims to achieve its objectives (as cited above) in such a manner that it establishes special crisis management tools and powers for resolution authorities based on a three-pillar structure. The first pillar is the so-called preparatory and preventive powers, which include mechanisms and tools for minimising the risk of a possible crisis. The second pillar covers the early intervention powers which aims to avoid an insolvency situation and provides powers for the competent authorities to act as quickly as possible(66) in order to restore the financial stability of the institutions; while the third pillar includes the resolution powers of the authorities to be exercised when the reorganisation of a bank or its winding down becomes inevitable.(67) These three pillars complement each other and constitute the framework for both the recovery and the resolution of credit institutions.(68)

The main focus of the RRD is on these three pillars, however it also covers special provisions with respect to procedural requirements in order that the resolution authorities could exercise their powers without procedural difficulties.(69) The RRD in addition to the three pillars also lays down rules for the judicial review of the decisions adopted by the resolution authorities,(70) to the resolution of groups and to relations with third countries.(71) The RRD furthermore establishes a European System of Financial Arrangements, which consists of national financial arrangements to be concluded by the MS for the effective application of resolution tools and powers.(72) The RRD finally amends certain EU legislations in order to provide compliance among their provisions.(73)

Before the short examination of the three pillars, we need to define some basic terms provided by the RRD, namely what the term ’resolution’ means, what the scope of the RRD is and which authorities the resolution authorities may be.

Resolution, in the sense of the RRD is an “alternative to normal insolvency procedures”.(74) It has similar consequences as the ordinary insolvency procedures, however, it safeguards financial stability, protects the taxpayers from losses, as well as provides for legal certainty, transparency and predictability(75) by restructuring the institution with the aim of ensuring the continuity of its essential functions and restoring the viability of all or part of that institution.(76)

As far as the scope of the RRD is concerned, it covers all credit institutions and investment firms; financial institutions that are subsidiaries of credit institutions if supervised by the parent institutions; certain financial holding companies and even certain branches of institutions. We need to note that such definition of scope is identical to the scope of other EU directives on credit institutions,(77) and the RRD in several articles refers to these other legislations.

The RRD provides that the MS shall designate the authorities responsible for the special resolution actions. The MS, within their sole discretion, may decide to designate one or even more authorities for this purpose, which might be the same as the supervision authority for the purposes of Directives 2006/48/EC and 2006/49/EC provided that the possible conflicts of interest are avoided between the supervision and resolution powers.(78)

2.1  First Pillar

The first pillar, i.e. the pillar for the prevention of possible crisis includes rules for recovery and resolution planning, as well as special rules for intragroup financial support. 

According to the proposed provisions, each institution shall prepare and maintain a so-called recovery plan according to which the management shall apply measures for the restoration of the financial stability of the institution, in case significant deterioration occurs thereto.(79) The institutions are required to update the recovery plans at least annually or after any change is made to their legal, organisational structure or to their business, financial situation.(80) However, the institutions shall update their recovery plans anytime upon the competent authorities’ requests. It is important to note that the institutions shall submit the recovery plans to the competent authorities for review. In case the competent authorities find some deficiencies or impediments in the recovery plan, they shall notify the institutions thereon who shall, within three months, submit a revised plan.(81) The RRD pays attention to that the group of institutions should be treated differently than the single institutions; therefore the groups shall draw up and submit a so-called group recovery plan covering the group as a whole as well as the single institutions participating therein.(82)

Although the drawing up of a recovery plan is the task of the institutions, the resolution planning is left for the competent authorities. Resolution plans are special instruments whereby the authorities lay down the actions to be taken when the institution is deemed to be resolvable, i.e. meets the conditions for resolution.(83) We need to add that in case of group of institutions, the authorities shall prepare a resolution plan for the parent undertaking and other separate plans for the subsidiary institutions belonging to that group.(84)

Resolution plans are of essential importance mainly because they serve a basis for the assessment as to whether the institution is resolvable or not. An institution or group is resolvable “if it is feasible and credible for the resolution authority to either liquidate it under normal insolvency proceedings or to resolve it by applying the different tools and powers to the institution and group without giving rise to significant adverse consequences for the financial systems”.(85)

2.2  Second Pillar

The second pillar of crisis management covers provisions for the early intervention measures including the appointment of a special manager as defined under Title III of the RRD.

In case an institution either breaches or is likely to breach the requirements set forth by Directive 2006/48/EC, the resolution authorities shall have the power to apply certain measures on top of the measures provided by Directive 2006/48/EC.(86) The list of measures provided by the RRD is not exhaustive; therefore MS may grant further powers to the resolution authorities. These measures include, inter alia, that the resolution authorities may require the management of the institution to implement one or more measures laid down by the recovery plan; require the management of the institution to examine the situation and draw up an action programme to solve the problems within a certain period of time; require the management to convene and propose an agenda for the meeting including decisions to be adopted; require that one or more board members or board of directors be removed and replaced; require for a plan on debt restructuring; contact potential purchasers in case the institution is to be resolved.(87)

The purpose of these strong powers is to entitle the resolution authorities to intervene more efficiently at an early stage when the financial situation of an institution is declining,(88) which powers supplement the measures, which the supervisors are provided with by Directive 2006/48/EC.

Another important tool falling within the scope of the second pillar is the possibility to appoint a special manager by the replacement of the institution’s management temporarily, for a maximum period of one year (which period may be exceptionally renewed). The special manager shall be qualified and shall bear the knowledge to take over and carry out the duties of the management.(89) The special manager has the same competences and powers as the management; however, in certain respects he may exercise some of his powers only with the prior consent of the resolution authority. The main purpose for the appointment of a special manager is to facilitate that the financial stability and the prudent management of the institution could be restored within the shortest time possible. The special manager may, among others, even increase the capital or reorganise the ownership structure.

2.3  Third Pillar

The third pillar of crisis management covers the resolution powers and tools of the resolution authorities. The provisions for this pillar are the longest and the most detailed part of the RRD. The RRD sets forth objectives and general principles that shall be complied with when the authorities apply the special tools as will be discussed later. The objectives are of equal importance and intend to protect the financial stability, while the principles lay down a special order for the allocation of losses. Among the most important principles we may mention the declaration that the shareholders (the owners) of the institution bear the first losses instead of the taxpayers.(90)

A resolution action shall only be taken by the authorities if the institution is failing or is likely to fail; there is no reasonable prospect that the failure could be prevented by any other means and the action is necessary for the protection of public interest.(91) The RRD also sets forth the circumstances determining when an institution is failing, thereby providing guidance for the authorities. However, before any action is taken, the assets and liabilities of the institution shall be valued according to the ‘market value’ principle.(92)

3  Resolution Tools under the Third Pillar

The resolution authorities have the strongest powers when applying the tools falling within the scope of the third pillar, providing tools for them to influence the resolvable institutions. Therefore we need to examine these powers and tools in more detail below.

The RRD establishes four resolution tools under the third pillar as a minimum set of tools to be applied by the resolution authorities.(93) These are the following: sale of business tool; bridge institution tool; asset separation tool and bail-in tool. They can be applied either on their own or in conjunction with each other except for the asset separation tool that shall in every case be applied in conjunction with another.(94) The MS may decide to establish other supplementary tools in addition to these ones provided that they are in conformity with the principles, objectives of the RRD and do not jeopardise the effectiveness of other resolution tools.(95)

We need to note that although the special resolution tools shall primarily be applied to the resolvable credit institutions, some place still remains for the application of the ordinary insolvency rules. In case the resolution authority applies the sale of business tool, bridge institution tool, asset separation tool only partially, the remaining part of the institution shall be wound up under the ordinary insolvency proceedings.(96)

In order that the resolution authorities could apply the resolution tools properly, Chapter V of the RRD establishes special powers for them. The powers listed in the RRD are not exhaustive and covers the following main authorisations. The resolution authorities, in the sense of Article 56 of the RRD are entitled, inter alia to require any person to provide any kind of information in order that they could decide on the possible resolution actions to be taken; take control of the institution including the power to exercise the rights of the shareholders; transfer shares, debt instruments and specified rights, assets or liabilities to another person; write down or convert the eligible liabilities as will be defined below into shares; remove or replace the senior management of the institution. These powers enable the resolution authorities to strongly intervene in the financial decisions of the institutions, and in certain cases, take control over them. On top of all of these strong powers, the resolution authorities do not need to comply with certain legal requirements imposed by national law since they are not required to ask for approvals or consents from any person or notify any person in advance when applying their resolution powers, even not when the action to be taken is the transfer of financial instruments, rights, assets or liabilities.(97)

3.1  Sale of Business Tool

When applying the sale of business tool, the resolution authorities have the power to sell the institution under resolution, hence they may sell any of its shares or other instruments representing ownership, any of its assets, rights and liabilities or any combination thereof without the consent of the shareholders and without the need to comply with the otherwise applicable procedural requirements.(98) However, the authorities shall act in a reasonable way to obtain a market value for the sale, in other words, the resolution authority, when intending to apply the sale of business tool, shall market the instruments to be transferred in accordance with the market value principles laid down by the RRD. In case the resolution authority intends to market pool of assets, rights and liabilities, it may even do so separately. The RRD provides for that the marketing shall be transparent; free from any conflict of interest; take account the necessity for a rapid action; aim at maximising the sale price and shall not discriminate between potential purchasers or confer any unfair advantage on a potential purchaser.(99) However, the resolution authorities are required to comply with these principles only as long as they do not jeopardise the resolution objectives.

In case the transfer is only partial, i.e. not the whole business only a part of it is sold, the remaining institution shall be entitled to the proceeds.(100) It logically follows from that, in case the whole business is sold, the proceeds shall be transferred to the shareholders instead of the institution. It is important to mention that the authorities can exercise the sale of business tool more than once in the course of resolution, furthermore, they may, with the prior consent of the purchaser, transfer the property back to the institution. The purchaser can only be a person who is entitled to carry out the activities or services of the institution and thereby, shall be regarded as legal successor of the institution under resolution; but it shall not be a bridge institution to be defined below.(101)

3.2  Bridge Institution Tool

The bridge institution tool means the right of the resolution authorities to transfer, without the consent of the institutions’ shareholders or any third party and without regard to the otherwise applicable statutory requirements, the assets, rights and liabilities of the institution to the bridge institution (even more times in the course of the resolution) and transfer these instruments back from the bridge institution to the institution under resolution if certain conditions are met; or alternatively transfer them from the bridge institution to a third party.(102) However, when transferring the instruments to the bridge institution, certain restrictions apply as to the total value of liabilities shall not exceed the amount of assets and rights which aims to avoid the creation of a bridge institution with unsustainable liabilities.

In order to properly understand the legal nature of this tool, the RRD provides for a definition of the bridge institution as follows: bridge institution is a “legal entity that is wholly owned by one or more public authorities (which may include the resolution authority) and that is created for the purpose of receiving some or all of the assets, rights and liabilities of an institution…with a view to carrying out some or all of its services and activities”.(103) A bridge institution is therefore a publicly owned legal entity specially established for taking over the assets, rights and liabilities of an institution under resolution and shall be regarded as legal successor thereof.(104) The resolution authorities have a great influence on the operation of a bridge institution considering that they pass resolutions on the content of its constitutional documents, they appoint the board of directors; they decide on the salaries and determine their liabilities.

The main purpose of the bridge institution is to sell the assets, rights and liabilities of the institution to private parties, based on open and transparent marketing and on commercial terms, within a short period of time. The bridge institution may operate only for two years following the date when the last transfer was made, however, this period may be extended three times with one-year periods.(105) After the expiry of this period, the operation of the bridge institution shall be terminated by liquidation. Otherwise, the operation shall also be terminated if the bridge institution merges with another; a third party acquires the majority of its capital or if another person assumes all or substantially all of its assets, rights or liabilities.(106)

3.3  Asset Separation Tool

As far as the asset separation tool is concerned, the main purpose thereof is to separate the distressed, problematic assets of the institution from the others and to manage them in such a way so as to maximise their value.(107)

The resolution authorities shall use the asset separation tool only in conjunction with another tool, as referred above. The resolution authorities therefore have the right to transfer the assets, rights or liabilities of an institution to an asset management vehicle at the market value or, under certain conditions, transfer them back to the institution.(108) Under the RRD, asset management vehicle is a legal entity owned by public authorities, which may also include the resolution authorities.(109) The resolution authorities, similarly to the bridge institution tool, have an influence on the operation of the asset management vehicle, as they appoint the asset managers who shall either maximise the value of the instruments through sale or wind down the business in an orderly manner.(110)

We also need to see that the application of this tool is subject to the evaluation of possible effects of ordinary insolvency proceedings on the financial market, i.e. the transfer may only be made if the liquidation of the business under ordinary insolvency rules could have an adverse effect on the financial market.(111)

3.4  Bail-In Tool

When applying the bail-in tool, the resolution authorities are entitled to write-down and convert the liabilities of the institution. The first purpose of this tool is to recapitalise the institution in order to make the institution able to carry out its activities properly.(112) We need to mention that the authorities may apply the bail-on tool for this purpose only if there is a realistic prospect that the financial stability and long-term viability of the institution can be restored.(113) The second purpose of the application of the bail-in tool is to convert the liabilities to equity or reduce the principal amount thereof.(114)

3.4.1  Liabilities Eligible for the Bail-In Tool

As a general principle, the bail-in tool may be applied to all liabilities of an institution. The RRD, however, provides for a list of exceptions, which liabilities shall be excluded from the application as follows: deposits guaranteed under Directive 94/19/EC; secured liabilities; liabilities arising out of the fact that the institution holds assets belonging to an other person; liabilities with less than one-month maturity; liabilities to an employee, to a commercial or trade creditor or to tax and social security authorities.(115) We need to note that MS may, under certain conditions, deviate from the above exceptions as well as MS may also add more exceptions to the list as the exclusion of derivatives with more than one-month maturity is possible if such exclusion is necessary and appropriate.(116)

The RRD sets forth minimum requirements for the eligible liabilities, i.e. which may be subject to write-down and conversion.(117) In order that the bail-in tool can be applied by the resolution authorities properly, the MS shall ensure that the institutions have a “sufficient amount of own funds and eligible liabilities expressed as a percentage of the total liabilities of the institution that do not qualify as own funds…”(118) In case of group of companies, those liabilities which are held by other undertakings belonging to the same group shall be excluded from the aggregate amount.(119) As far as the subordinated debts and loans are concerned, they might be included in this aggregate amount of liabilities, but only if the instruments are issued and fully paid up; the instruments are not purchased by the institution or its subsidiaries or by an undertaking in which the institution has 20 percent or more of the voting rights or capital; the purchase of instruments is not funded by the institution; the instruments are not secured or guaranteed by an undertaking participating in the same group as the institution or the instruments’ maturity is at least one year.(120) These rules clearly intend to ensure that the debt instruments are not controlled or influenced by the institution.

The “sufficient amount of own funds and liabilities” is to be required, calculated, determined, and verified by the resolution authorities based on the guidelines laid down by the RRD. According to these guidelines, the minimum aggregate amount shall be determined in such a way so as to ensure that the institution can be resolved in accordance with the resolution objectives; the institution has sufficient liabilities for restoring its capital ratio. Furthermore the authorities shall take into account the size, business model and risk profile of the institution; the possible contributions given by the Deposit Guarantee Scheme or the possible adverse effect that may be caused by the failure of the institution to the financial stability.(121) Resolution authorities are entitled to apply the requirement of minimum aggregate amount to group of undertakings belonging to consolidated supervision under special conditions.(122)

3.4.2  Implementation and Hierarchy of Claims

By applying the bail-in tool, resolution authorities shall, based on the principles of valuation, assess the aggregate amount by which the liabilities must be reduced or converted into capital.(123) When the application of the bail-in tool is for the purpose of recapitalisation, the authorities shall take into consideration the amount necessary for complying with the capital requirements and sustaining the sufficient market confidence.(124)

The RRD provides for a hierarchy of claims, different from the hierarchy as established by the national insolvency laws, which shall be respected by the resolution authorities. According to this hierarchy, first the own capital instruments (that is the equity capital in so far as it has been paid up, plus share premium accounts but excluding cumulative preferential shares) shall be written down and cancelled in proportion to the losses and up to their capacity.(125) If the writing down is less than the aggregate amount, then the principal amount of own funds for general banking risks that are qualified as eligible liabilities as well as the capital instruments falling within the category of Tier 2 shall be reduced to zero. If the writing down is still less than the aggregate amount, the authorities shall reduce the amount of subordinated debt instruments in order that the aggregate amount could be produced. However, there might be some circumstances where, even after having applied this strict order of writing down, the total reduction of liabilities is less than the aggregate amount, in which case, the authorities shall reduce the principal amount of other eligible liabilities. When the authorities need to reduce the principal amount of either the subordinated debt or other eligible liabilities, they shall allocate the losses proportionally within the liabilities of the same rank.(126)

Concluding the above, the hierarchy of claims establishes an order whereby the claims of the shareholders shall be exhausted at the first place, and the claims of the creditors may only be reduced thereafter. However, the RRD, under special circumstances provides for that when the institution has some residual capital, the authorities shall apply their write-down and conversion powers to this residual amount by converting subordinated liabilities into capital.(127)

As far as the conversation rate is concerned, the resolution authorities when converting eligible liabilities into shares or other instruments of ownership shall apply two main principles. One of the principles is that the conversion rate shall represent an appropriate compensation to the creditor affected by the write down; and the other one is that the conversion rate with respect to senior liabilities shall be higher than the one for subordinated liabilities.(128) Consequently, there may be different conversation rates relating to different classes of liabilities.

3.4.3  Business Reorganisation Plans

In case the resolution authorities apply the bail-in tool, business reorganisation plans shall be drawn up and implemented. An administrator appointed specially for this purpose shall draw up and submit the business reorganisation plan to the resolution authority, the Commission and the European Banking Authority within one month after the application of the bail-in tool.(129) The aim of the business reorganisation plan is to restore the long-term viability of the institution by laying down measures to be taken within no longer than two years, based on realistic assumptions. The RRD sets forth those circumstances, which the business reorganisation plan should take into account, like the current state and future prospects of the financial markets.(130) Furthermore, the business reorganisation plan shall include a detailed diagnosis of the factors and problems as well as the circumstances causing the financial problems of the institution; a description of measures in order that the long-term viability of the institution be restored; and a timetable for the implementation of the measures.(131) The RRD gives some examples as to what kind of measures may be adopted, however, this list is not exhaustive. Therefore, measures may include the reorganisation of the activities, the withdrawal of loss-making activities; the restructuring of existing activities and the sale of assets.(132) There are strict procedures rules for the adoption of the business reorganisation plan.

3.4.4  Legal Effect of the Bail-In Tool and Procedural Requirements

When the resolution authorities apply the bail-in tool, the actions shall be immediately binding on the institution and the affected creditors.(133) In order to ensure that the interests of the market and its participants are respected, the MS shall establish administrative and procedural mechanisms for the amendment of the registers, the delisting or removal from trading of shares and the listing or admission to trading of new shares.(134) In case the principal amount of liabilities is reduced to zero, the liability and obligations not accrued at the time of bail-in shall be regarded as discharged and shall be not called upon in any proceedings initiated later. Contrary to this rule, if the principal amount of liabilities is not reduced totally, the liability shall be discharged to the extent of the amount reduced, furthermore the relevant agreement underlying the liability shall apply with respect to the residual part of the liability.(135)

The MS are also required to establish procedural rules for ensuring that the resolution authorities can apply the bail-in tool properly. Among others, the institutions shall have and maintain appropriate amount of share capital, which enables them to issue new shares or instruments representing ownership in case their liabilities need to be converted into capital.(136) The procedural obstacles before the conversion of liabilities into shares shall be removed, including the possible modification of corporate documents and pre-emption rights.(137) The institutions shall be further required to include a contractual term into their contracts governed by third county jurisdictions for recognising that the liability may be subject to write-down and may be converted into capital; however, the failure to do so does not prevent the authorities from exercising their bail-in powers.(138)

4  Conclusion

The Commission’s legislative initiative as presented shortly above establishes strong powers for the resolution authorities in order that the proper functioning of the internal market within the EU could be ensured.(139) The current, deep financial crisis clearly catalyzed the process of strengthening the cooperation(140) between the MS through the adoption of detailed rules relating to the financial industry. The RRD is a result of this process, along with the adoption of the Single Supervisory Mechanism and the possible future establishment of a banking union.

As we discussed, the RRD basically covers three, complimentary pillars of crisis management, i.e. the preparatory and preventive powers, the early intervention powers and the resolution powers accompanied by their ancillary provisions; while it also empowers the Commission and the European Banking Authority to adopt guidelines and technical standards for the unified implementation of the provisions. Therefore, the RRD is to be regarded as a framework of rules to be filled in and detailed by these bodies.

The pillars represent certain levels and seriousness of financial problems. The preparatory and preventive powers serve only for preventive purposes. However, the Commission assessed well when it included these powers into the RRD taking into account that good and right preventive measures can prevent a greater crisis from its happening. The early intervention powers are stronger than the powers under the first pillar, which is deriving from that the financial situation of the institution at this stage is worse therefore stronger intervention is needed. Although the early intervention powers are limited comparing to the powers of the third pillar, they may provide a timely remedy for the financial problems.(141) As far as the third pillar is concerned, it enables the institution, which cannot be saved any more, to be resolved in an orderly manner before it would become insolvent and by that means, it protects the interests of other market participants and taxpayers. It is important to remember that ordinary insolvency procedures cannot be applied when a decision is made on the resolution of the credit institution.(142)

However, we need to note that the powers established by the RRD are, as argued, too strong and their adoption would require a huge compromise of the MS. Among others, the rights of shareholders are affected and reduced enormously. General company law protects shareholder rights, which include four basic categories namely the property rights; the control-governance rights; the procedural rights and minority rights.(143) Although these rights shall be respected, the interference therewith in the course of recovery and resolution may be justified on the basis of public interest (including the protection of taxpayers) and the protection of financial stability.(144) It is important to note that without restrictive provisions on shareholder rights, the shareholders may be entitled to endanger the effectiveness of recovery and resolution by delaying the adoption of measures.(145) Therefore, the RRD establishes at the recovery stage that although the shareholders retain their rights, part of them are suspended taking into account, among others, that a special manager can be appointed with significant powers(146) consequently the governance-control rights are affected in the first place<(147) while certain procedural rights are also limited by allowing the resolution authorities to convene the shareholder meetings.(148) Contrary to this approach, at the resolution phase, the RRD provides for stronger intervention by terminating the shareholders’ rights and allowing the resolution authorities to take control over the institution.(149) We need to note that the resolution authorities might affect all categories of shareholder rights, however, certain safeguards, such as the fair compensation is not provided in every cases when the shareholder rights (especially the property rights) are terminated.(150) Furthermore, the right to challenge the decisions adopted by the resolution authorities is limited considering that the judicial review does not suspend or postpone the implementation of such decision.(151) Consequently, although the new system of resolution and recovery is a huge achievement, we need to understand that the RRD is a controversial proposal at the same time, taking into account, inter alia, the circumstances explained shortly above.

Although the Economic and Social Committee of the European Union welcomed the RRD, it also expressed and proposed certain modifications by its opinion dated 12 December 2012(152) as well as the phase before the Council of the European Union also resulted in certain amendment proposals.(153) Therefore, it will be interesting to observe the further evaluation of the RRD in the course of the autumn sessions of the European Parliament, but major changes might not be expected before its final adoption.

Finally, for the sake of completeness we need to add that further legislative proposals may be expected from the Commission’s side considering that it initiated a public consultation relating to a similar issue. The consultation is about a possible framework for the recovery and resolution of financial institutions other than banks,(154) by which the Commission intends to complement the RRD and propose a full common legislative framework for recovery and resolution, which, if succeeded would largely contribute to the common framework of crisis management.

5  Bibliography

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Consolidated version of the Treaty on the Functioning of the European Union [2010] OJ C83/47

EFSF Framework Agreement

Regulation (EU) No 1092/2010 of the European Parliament and the European Council of 24  November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board [2010] OJ L331/1

Regulation (EU) No 1092/2010 of the European Parliament and the European Council of 24  November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board [2010] OJ L331/1

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Vletter-van Dort HM, ‘Some Challenges Facing European Central Banks as Supervising Authority’ (2012) 9 European Company and Financial Law Review 131

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--, ‘New crisis management measures to avoid future bank bail-outs’ (Europa Press Room, IP/12/570, 2012) <http://europa.eu/rapid/press-release_IP-12-570_en.htm?locale=en#PR_metaPressRelease_bottom> accessed 16 January 2013

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Yannos Papantoniou, ‘The Lessons of the Eurozone crisis that should shape the EU's G20 stance’ (UCL, 2011) <http://www.ucl.ac.uk/european-institute/highlights-view/Report.pdf> accessed 13 May 2013


(1) I have carried out a research on the literature published relating to this issue; however, it was limited to certain databases.

(2) The introductory section of this article is partly based on my essay submitted to the University of Reading, School of Law in order to meet the requirements for the programme LL.M. in International Corporate Finance. I am grateful to Prof. Jorge M. Guira who guided me and provided me with continuous and invaluable support through my research.

(3) In 1992 Peter Cullen noted that the German observed that the stability of the EMU “may be endangered by the fact that economic policy is…to remain…with the member states”: Peter Cullen, ‘The Treaty on European Union- Maastricht and beyond?’ (1992) 37 Journal of the Law Society of Scotland 383, 385

(4) Fabrizio Saccomanni, ‘The European Union and the global crisis - 

the implications for banks, finance and economic policy’ (Bank for International Settlements, 2011)  <http://www.bis.org/review/r110214d.pdf?frames=0> accessed 13 May 2013, 1

(5) European Commission, ‘Economic Crisis in Europe: Causes, Consequences and Responses’ European Economy 2009 (7) <http://ec.europa.eu/economy_finance/publications/publication15887_en.pdf> accessed 13 May 2013, 1

(6) This view is supported by Prof. Scott-Quinn as expressed in his lecture at the University of Reading, ICMA Centre; see also: Brian Scott-Quinn, Commercial and Investment Banking & the International Credit and Capital Markets (1 edn, Palgrave Macmillan 2012), 249-250

(7) Jay C. Shambaugh, ‘The Euro's Three Crises’ (Brookings Papers on Economic Activity, 2012)  <http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_shambaugh.pdf> accessed 13 May 2013, 1-2

(8) Slaughter and May, ‘Client Seminar: End game in the Eurozone?’ (Slaughter and May, 2012)  <http://www.slaughterandmay.com/media/1900962/end-game-in-the-eurozone.pdf> accessed 13 May 2013, 1

(9) Consolidated version of the Treaty on the Functioning of the European Union [2010] OJ C83/47

(10) Consolidated version of the Treaty on European Union [2010] OJ C83/13, Article 3 (4)

(11) TFEU, Article 119

(12) Hélène M. Vletter-van Dort, ‘Some Challenges Facing European Central Banks as Supervising Authority’ (2012) 9 European Company and Financial Law Review 131, 147

(13) Bernard Laurens and Enrique G. de la Piedra, ‘Coordination of Monetary and Fiscal Policies’ (International Monetary Fund, 1998)  <http://www.imf.org/external/pubs/ft/wp/wp9825.pdf> accessed 13 May 2013, 4

(14)Ibid, 5

(15)Ibid, 5

(16)Ibid, 5

(17) Yannos Papantoniou, ‘The Lessons of the Eurozone crisis that should shape the EU's G20 stance’ (UCL, 2011) <http://www.ucl.ac.uk/european-institute/highlights-view/Report.pdf> accessed 13 May 2013, 69

(18)The Fiscal Compact (the quasi successor of the Stability and Growth Pact) signed on 2 March 2012 has not entered into force yet

(19) Agreed in 1997

(20)Papantoniou, 69

(21) Andrew Osborn, ‘Prodi disowns ‘stupid’ stability pact’ (The Guardian, 18 October 2002) <http://www.guardian.co.uk/business/2002/oct/18/theeuro.europeanunion> accessed 13 May 2013

(22) European Central Bank, ‘A Fiscal Compact for a Stronger Economic and Monetary Union’ (European Central Bank, May 2012)  <http://www.ecb.int/pub/pdf/other/art1_mb201205en_pp79-94en.pdf> accessed 13 May 2013, 81

(23) The High-Level Group of Financial Supervision in the EU, ‘Report’ (European Commission, 2009)  <http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf> accessed 13 May 2013, 13-68

(24) European Central Bank, ‘Contribution from Mario Draghi, President of the ECB, Published in "Die Zeit", 29 August 2012’ (European Central Bank, 2012)  <http://www.ecb.int/press/key/date/2012/html/sp120829.en.html> accessed 13 May 2013

(25) European Commission, ‘European Financial Stabilisation Mechanism (EFSM)’ (European Commission)  <http://ec.europa.eu/economy_finance/eu_borrower/efsm/index_en.htm> accessed 13 May 2013

(26)European Commission, ‘European financial stability support’ (European Commission, 2012)  <http://ec.europa.eu/economy_finance/european_stabilisation_actions/index_en.htm> accessed 13 May 2013

(27) EFSF Framework Agreement; [27] Peter Sester, ‘The ECB's Controversial Securities Market Programme (SMP) and its role in relation to the modified EFSF and the future ESM’ (2012) 9 European Company and Financial Law Review 156, 161

(28) EFSF Framework Agreement, Article 1

(29) TB/WTE, ‘The Euro crisis: Storm, meet structure’ (2011) 7 European Constitutional Law Review 349, 351

(30) Sester, 160

(31) Ibid, 161

(32) Treaty Establishing the European Stability Mechanism

(33) Charlemagne, ‘The lingering limbo’ (The Economist, 8 October 2012)  <http://www.economist.com/blogs/charlemagne/2012/10/euro-crisis> accessed 13 May 2013

(34)European Commission, ‘European Stability Mechanism’ (European Commission)  <http://ec.europa.eu/economy_finance/european_stabilisation_actions/esm/index_en.htm> accessed 13 May 2013

(35) Ibid

(36) Based on: Council of the European Union, ‘Council conclusions on Strenghtening EU financial supervision’ (Council of the European Union, 9 June 2009)  <http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/108389.pdf> accessed 13 May 2013

(37) Gerard Hertig and Ruben Lee, ‘Empowering the ECB to Supervise Banks: A Choice-Based Approach’ (2010) 7 European Company and Financial Law Review 171, 173; Regulation (EU) No 1092/2010 of the European Parliament and the European Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board [2010] OJ L331/1

(38) Regulation (EU) No 1092/2010 of the European Parliament and the European Council of 24  November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board [2010] OJ L331/1, Article 3

(39) Europa Press, ‘An important step towards a real banking union in Europe: Statement by Commissioner Michel Barnier following the trilogue agreement on the creation of the Single Supervisory Mechanism for the eurozone’ (Europa Press Room, 2013) <http://europa.eu/rapid/press-release_MEMO-13-251_en.htm?locale=en> accessed 13 May 2013; European Commission, ‘The EU Single Market, Financial Supervision’ (European Commission)  <http://ec.europa.eu/internal_market/finances/committees/index_en.htm> accessed 13 May 2013; see also: Europa Press Room, ‘Commission proposes new ECB powers for banking supervision as part of a banking union’ (Europa Press Room, 2012)  <http://ec.europa.eu/internal_market/finances/committees/index_en.htm> accessed 13 May 2013; European Parliament, ‘EU bank supervision system must be strong, accountable and inclusive’ (European Parliament, 29 November 2012)  <http://www.europarl.europa.eu/news/en/pressroom/content/20121126IPR56418/html/EU-bank-supervision-system-must-be-strong-accountable-and-inclusive> accessed 13 May 2013; Rebecca Christie and Jim Brunsden, ‘EU Aims for Euro-Area Bank Supervision to Start in 2013’ (Bloomberg, 19 October 2012)  <http://www.bloomberg.com/news/2012-10-18/eu-leaders-commit-to-bank-supervisor-design-by-year-end.html> accessed 13 May 2013; Jana Randow and Elisa Martinuzzi, ‘Constancio Says 2014 Start of ECB Supervision Would Be Easier’ (Bloomberg, 10 October 2012)  <http://www.bloomberg.com/news/2012-10-10/constancio-says-2014-start-of-ecb-supervision-would-be-easier.html> accessed 13 May 2013

(40) European Central Bank, ‘Establishment of the Single Supervisory Mechanism; the first pillar of the Banking Union’ (European Central Bank Press, 31 January 2013) <http://www.ecb.int/press/key/date/2013/html/sp130131.en.html> accessed 1 February 2013

(41) European Central Bank, ‘Financial Integration in Europe’ (ECB) <http://www.ecb.int/pub/pdf/other/financialintegrationineurope200703en.pdf> accessed 13 May 2013, 6

(42) Papantoniou, 73

(43) European Commission, ‘Communication from the Commission to the European Parliament and the Council- A Roadmap towards a Banking Union’ (European Commission) <http://ec.europa.eu/internal_market/finances/docs/committees/reform/20120912-com-2012-510_en.pdf> accessed 13 May 2013, 9

(44) Michael Schillig, ‘Bank Resolution Regimes in Europe I- Recovery and Resolution Planning, Early Intervention’ (SSRN) < http://ssrn.com/abstract=2136101> accessed 13 May 2013, 6-7

(45) Ibid, 6-7

(46) European Commission, ‘Commission Staff Working Document, Summary of the Impact Assessment, Accompanying document the to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the European Court of Justice and the European Central Bank on an EU Framework for Cross-Border Crisis Management in the Banking Sector’ (European Commission, 2009) <http://ec.europa.eu/internal_market/bank/docs/crisis-management/091020_impact_summary_en.pdf> accessed 13 January 2013, 2

(47) Schillig, 2

(48) Ibid, 2

(49) Ibid, 2

(50) Europa Press Room, ‘New crisis management measures to avoid future bank bail-outs’ (Europa Press Room, IP/12/570, 2012) <http://europa.eu/rapid/press-release_IP-12-570_en.htm?locale=en#PR_metaPressRelease_bottom> accessed 16 January 2013; Europa Press Room, ‘Bank recovery and resolution proposal: Frequently Asked Questions’ (Europa Press Room, MEMO/12/416, 2012) <http://europa.eu/rapid/press-release_MEMO-12-416_en.htm> accessed 16 January 2013

(51) European Commission, ‘Explanatory Memorandum to the Proposal for a Directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directives 77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No 1093/2010’ (European Commission, COM(2012) 280 final) <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0280:FIN:EN:PDF> accessed 3 January 2013, 5

(52) European Commission, ‘Communication from the Commission to the European Parliament and the Council- A Roadmap towards a Banking Union’ , 9

(53) European Commission, ‘Commission Staff Working Document, Summary of the Impact Assessment, Accompanying document the to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the European Court of Justice and the European Central Bank on an EU Framework for Cross-Border Crisis Management in the Banking Sector’, 2

(54) Ibid

(55) European Commission, ‘Communication from the Commission to the European Parliament and the Council- A Roadmap towards a Banking Union’, 9

(56) European Commission, ‘Commission Staff Working Document, Summary of the Impact Assessment’ 2

(57) European Commission, ‘Communication from the Commission to the European Parliament and the Council- A Roadmap towards a Banking Union’, 3

(58) Europa, ‘Commission proposes a package for banking supervision in the Eurozone – frequently asked questions’ (Europa Press Room, 12 September 2012)  <http://europa.eu/rapid/press-release_MEMO-12-662_en.htm?locale=en> accessed 13 May 2013

(59) European Commission, ‘Communication from the Commission to the European Parliament and the Council- A Roadmap towards a Banking Union’, 3

(60) European Commission, ‘Explanatory Memorandum’ 4; European Commission, ‘Proposal for a Directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directives 77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No 1093/2010’ (European Commission, COM(2012) 280 final) <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0280:FIN:EN:PDF> accessed 3 January 2013

(61) European Commission, ‘Communication from the Commission to the European Parliament and the Council- A Roadmap towards a Banking Union’, 9

(62) TFEU, Article 114

(63) European Parliament, ‘Legislative Observatory, Procedure File 2012/0150 (COD)’ (European Parliament, 2013) <http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?lang=en&reference=2012/0150(COD)> accessed 20 May 2013

(64) Ibid

(65) RRD, Article 115

(66) RRD, Preamble 4

(67) European Commission, ‘Explanatory Memorandum’ 4-5

(68) Ibid, 5

(69) RRD, Chapter VII

(70) RRD, Chapter VIII

(71) RRD, Title VI

(72) RRD, Articles 90-91

(73) Amendments relating to Directives 77/91/EEC, 82/891/EEC, 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU and to Regulation (EU) No 1093/2010

(74) European Commission, ‘Explanatory Memorandum’ 5

(75) Ibid, 5

(76) RRD, Article 2

(77) See for example Directive 2006/48/EC; Directive 2006/49/EC

(78) RRD, Article 3

(79) RRD, Article 5

(80) RRD, Article 5

(81) RRD, Article 6

(82) RRD, Article 7

(83) RRD, Article 9

(84) RRD, Article 11

(85) RRD, Article 13

(86) RRD, Article 23

(87) RRD, Article 23

(88) European Commission, ‘Explanatory Memorandum’ 10

(89) RRD, Article 24

(90) RRD, Article 29

(91) RRD, Article 27

(92) European Commission, ‘Explanatory Memorandum’ 12

(93) RRD, Article 31; European Commission, ‘Explanatory Memorandum’ 12

(94) RRD, Article 31

(95) RRD, Article 31

(96) RRD, Article 31

(97) RRD, Article 56

(98) RRD, Article 32

(99) RRD, Article 33

(100) RRD, Article 32

(101) RRD, Article 32

(102) RRD, Article 34 (4)

(103) RRD, Article 2 (52)

(104) RRD, Article 34 (8)

(105) RRD, Article 35 (5)

(106) RRD, Article 35

(107) European Commission, ‘Explanatory Memorandum’ 13

(108) RRD, Article 36

(109) RRD, Article 36

(110) RRD, Article 36

(111) RRD, Article 36 (4)

(112) RRD, Article 37 (2)

(113) RRD, Article 37 (3)

(114) RRD, Article 37 (2)

(115) RRD, Article 38 (2)

(116) RRD, Article 38 (3)

(117) RRD, Article 39

(118) RRD, Article 39 (1)

(119) RRD, Article 39 (4)

(120) RRD, Article 39 (2)

(121) RRD, Article 39 (3)

(122) RRD, Article 40

(123) RRD, Article 41

(124) RRD, Article 41

(125) RRD, Article 43 (1)

(126) RRD, Article 43 (2)

(127) RRD, Article 43; European Commission, ‘Explanatory Memorandum’ 14

(128) RRD, Article 45

(129) RRD, Article 47

(130) RRD, Article 47 (2)

(131) RRD, Article 47 (3)

(132) RRD, Article 47 (4)

(133) RRD, Article 48 (1)

(134) RRD, Article 48 (2)

(135) RRD, Article 48 (4)

(136) RRD, Article 49 (1)

(137) RRD, Article 49 (3)

(138) RRD, Article 50

(139) RRD, Preamble 6

(140) Drudi F, Durré A and Mongelli FP, ‘The Interplay of Economic Reforms and Monetary Policy - The Case of the Euro Area’ (European Central Bank, 2012) <http://www.ecb.int/pub/pdf/scpwps/ecbwp1467.pdf> accessed 18 January 2013, 2

(141) RRD, Preamble 23

(142) RRD, Preamble 26

(143) Valia SG Babis, ‘Bank Recovery and Resolution: What About Shareholder Rights?’ (Legal Studies Research Paper Series, Paper No. 23/2012, University of Cambridge) <http://ssrn.com/abstract=2144753> accessed 13 May 2013, 3-5; see also: De Vauplane H, ‘Procedural aspects of the bail-in mechanism: conflict between public and private interest’ (2012) 9 Journal of International Banking & Finance Law 572

(144) Ibid, 6

(145) Ibid, 8

(146) Ibid, 13

(147) Ibid, 16

(148) Ibid, 18

(149) Ibid, 14

(150) Ibid, 28

(151) Ibid, 29

(152) European Economic and Social Committee, ‘Opinion of the European Economic and Social Committee on the Proposal for a Directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directives 77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No 1093/2010 
COM(2012) 280 final - 2012/0150 (COD)’ (European Economic and Social Committee, 2012) <http://eescopinions.eesc.europa.eu/eescopiniondocument.aspx?language=EN&docnr=1533&year=2012> accessed 13 January 2013

(153) European Parliament, ‘Legislative Observatory, Procedure File 2012/0150 (COD)’

(154) European Commission, ‘Crisis Management’ (European Commission, 26 November 2012) <http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm> accessed 1 February 2013