EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 20.10.2009 
SEC(2009) 1390 final 
  
COMMISSION STAFF WORKING DOCUMENT 
  
SUMMARY OF THE IMPACT ASSESSMENT  
Accompanying document to the  
 
COMMUNICATION FROM THE CO MMISSION 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 
  
{COM(2009) 561 final} 
{SEC(2009) 1389} {SEC(2009) 1407} 
 
EN 2   EN 1. WHAT IS THE PROBLEM , WHO IS MOST AFFECTED , WHY IS PUBLIC INTERVENTION 
NECESSARY ? 
Over the course of this financial crisis, the ability of authorities to manage crises both 
domestically and in cross-border situations has been severely tested. Financial markets within 
the EU have become integrated to such an exte nt that the effects on credit institutions of 
problems occurring in one Member State cannot  always be contained and isolated and 
domestic shocks may be rapidly transmitted to firms and markets in other Member States.  
While the operation of cross border banks has b ecome highly integrated, (with the result that 
business lines and internal se rvices are deeply interconnect ed and cannot be  efficiently 
separated along geographical bord ers of Member States), cris is management of banks has 
remained national. As a consequence, in the event of a cross border bank failure, financial 
supervisors and other (resolution) authoritie s will only concentrate on the operations located 
in their respective territories. This may co mplicate cross border cooperation and lead to 
inefficient and possibly competing resolution appr oaches and suboptimal results at EU level. 
One of the most important issues  concerning actions to maintain financial stability is the 
ability of authorities to pre-empt ( early intervention1) or manage the crisis situations 
(resolution2) of banks. The involvement of authorities may be crucial to maintaining the 
stability of the whole financial system, to prot ecting the deposits of people and companies and 
to maintaining the continuity of the paymen t systems and other basic financial services. 
Although a number of European supervisors have  tools available to in tervene in a banking 
crisis, the tools which exist may be different between Member States, or in some cases may 
not exist at all. These differences and gaps, including legislative differences between Member 
States and/or a lack of a legislative/institutiona l basis in some countries, have the potential to 
complicate and even hinder the efficient cross-bo rder handling of a banking crisis. If different 
authorities intervene at different  points in time, pursue different  objectives a nd use different 
tools and measures with differe nt criteria conditioning their ap plication according to their own 
understanding of the problem, the resu lts are likely to be suboptimal. 
There is no legislation at EU level governi ng bank resolution. Beyond introducing a minimum 
set of powers for supervisory authorities aimed at restoring a situation in a bank3, coupled 
with some recent changes to the CRD (rules on alerting other authorities in emergency 
situations, coordination of supe rvisory activities and exchange of information in emergency 
situations) and establishing arrangements fo r the winding-up and reorganisation of credit 
institutions with branches in  other Member States, no EU fr amework exists which sets out 
how and under which conditions au thorities should act in the ev ent of a crisis arising in a 
cross-border bank. The management of crises is almost entirely governed by national laws.  
                                                 
1 Early intervention: early remedial actions of banking supervisors (e.g. raising private capital, 
modification of business lines, divestiture of assets) which aim at correcting irregularities at banks and 
hence helping banks returning to normal course of business and avoiding that banks enter in a resolution stage. 
2 Bank resolution: reorganisation of ailing banks (in either an administrative or judicial process) that aims 
at maintaining financial stability, the continuity of banking services and the revitalisation of the bank. In 
addition to traditional reorganisation techniques, bank  resolution uses specific tools (e.g. bridge banks, 
forced merger, assisted acquisition, partial sale of assets) to reach the above objectives. The process is 
managed by a resolution authority, which can be diff erent in Member States (national bank, financial 
supervisor, deposit guarantee scheme, mini stry of finance, special authority). 
3 In Article 136 of the Capital Requirements Directive 2006/48/EC.  
 
EN 3   EN The diverging approaches and tools, and conflic ting interests between authorities is likely to 
lead to inefficient crisis prevention and resolution and deliver sub optimal results at EU level. This in turn can produce more costly outcomes fo r EU citizens and tax-pa yers, as the bail-out 
of systemically important cross border banks can be extremely costly compared to the cost of a timely and effective resolution
4. According to the latest IMF5 estimates, crisis related write-
downs on assets originated globally will reach $ 4.1trillion by 2010, with global banking 
industry expected to bear about two thirds of the lossess, half  of which (or $ 1.4 trillion, 
equivalent to 9% of the EU's GDP) is  now attributable to  European Banks. 
Due to their broad impact on the financial sect or and the whole economy, a crisis in a large 
international bank will affect a very wide ra nge of stakeholders throughout the EU, i.e.: 
• Financial institutions facing difficulties, in cluding their shareholders and employees; 
• Healthy financial institutions which are reliant on financial stability; 
• Users of financial services, including deposito rs, investors, pensi oners, and non-financial 
companies, SMEs; 
• Public authorities, including supervisor s, central banks and finance ministries; 
• Taxpayers. 
The Communication on "A Bank Resolution Fr amework for the EU", that this impact 
assessment accompanies, presents an overview of the problems, the areas under examination related to early interv ention measures and bank resolution. It proposes policy objectives and 
an overall approach. It does not  propose specific detailed polic y solutions at this stage. 
Consequently, this impact assessment focuse s primarily on the problem definition and the 
need for and objectives of EU level action in this area. In view of the consultative nature of the Communication, policy options  are only considered in the broadest of terms. Any 
subsequent policy proposals to emer ge as a result of this consulta tion will be subject to further 
and more thorough impact assessment at the appropriate stage.  
2. I
S EU ACTION JUSTIFIED ON GROUNDS OF SUBSIDIARITY ?  
Action at European level is required in this fiel d in light of the high degree of integration of 
the banking market within the EU. Systems to deal  with crises within banks remain nationally 
based and-ill adapted to deal wi th cross-border situations. Coor dination in such  circumstances 
is likely to be complicated and the objectives  pursued by each authority may differ. As a 
consequence, the legal framework cannot ensure  that critical problem s arising in a cross-
border banking group will be solved fairly, effectively and expediently through robust 
cooperation arrangements. 
Underpinning a new framework with the introduc tion of incentives necessary to induce cross-
border cooperation is a task whic h can most effectively be undert aken at European level (this 
is particularly true with respect to addres sing differences between national resolution and 
insolvency frameworks as well as  arrangements for burden sharing). 
                                                 
4 Effective cross border arrangements  should ensure a result that is optimal at EU level, taking into 
account the interests of stakeholders in all Member States, and thus minimising the overall cost all. 
5 IMF, Responding to the Financial Crisis and M easuring Systemic Risk (Global Financial Stability 
Report), April 2009. 
 
EN 4   EN 3. OBJECTIVES  
Viewed from an EU perspective, the general obj ectives of action at EU  level could be to:  
• Maintain financial stability and confidence in banks, avoid contagion of problems; 
• Minimise losses for society as a whole and especially for taxpayers; 
• Strengthen the internal market for banking services. 
In the context of early interventi on, specific objectives could be to: 
• Develop tools and triggers to detect problems in banks and intervene at an early stage 
• Ensure efficient cooperation between national fina ncial supervisors re sponsible for cross 
border banks in crisis situations. 
For bank resolution, specific  objectives could be to: 
• Develop tools and triggers to ensure reorganisation and resolu tion of cross border banks in 
a timely and robust manner; 
• Improve cooperation of national resolution author ities to deliver optimal solutions at EU 
level; 
• Create certainty and predictability aro und bank resolutions for all stakeholders; 
• Ensure continuity of basic banki ng services during resolution. 
4. POLICY OPTIONS  
For the purposes of this impact assessment, the an alysis of options is re stricted to a general 
assessment about the introduction of a new framew ork and the alternatives. A number of areas 
which might be dealt with under a new framework are also cons idered - but without favouring 
or proposing any concrete measures. The list of policy options is not closed and should further 
options come to light as a re sult of the stakeholde r consultation, these ma y be assessed at a 
later stage when the Commission makes firm proposals.  
General Considerations about the need  for a new bank resolution framework 
The starting point for the Communi cation is that a framework for bank resolution is needed at 
EU level. It should address the shortcomings whic h have been extensively identified as part of 
the problem definition, and it should be design ed in such a way as to fulfil a commonly 
agreed set of objectives about how to deal with  ailing banks. This optio n is compared against 
two alternative options. The first is the baseline  scenario, which would mean that cross-border 
cooperation for bank resolution would depend on voluntary arrangements set out in the 2008 
Memorandum of Understanding (MoU) coupled w ith newly introduced rules in the Capital 
Requirements Directive which establish college s for cross-border banking groups, new alert 
and information exchange oblig ations and provisi ons on joint decision -taking. The second 
alternative would be to scale back cross-border banking groups in order to manage crises 
more efficiently under current na tional regimes. The advantages and disadvantages of this 
latter option are assessed, with particular stress on the fact that  such an option would require a 
Treaty change and drive up th e cost of banking services. 
Early Intervention 
Options relating to three broad policy areas are considered: op tions to address differences 
between the way supervisory acti ons are triggered, options to a ddress differences in tools and 
 
EN 5   EN options to address the misalignment between nati onal responsibilities and the global nature of 
banking business. 
With respect to the triggers for supervisory actions , two alternatives to the baseline scenario 
are considered. One would entail  harmonising a minimum set of early warning indicators and 
developing a framework for common assessment as a means of facilitating cooperation in 
such a way as to enable joint responses but ma intaining a sufficient degree of flexibility and 
discretion. The second would involve developing a set of hard automatic triggers which 
determine the point at which supervisory action would need to occur – in order to provide a 
clear (but non-discretionary)  framework under which coordina ted supervisory actions would 
take place.  
With respect to the differences between early intervention tools , beyond the baseline scenario 
consideration two possible opti ons are considered. One would supplement the tools listed in 
Article 136 of the CRD with additio nal tools that are not currentl y available to authorities in 
all Member States - such as powers to require submission of a restoration plan, wind down plans as a precaution against possible failure of  a banking group or enhanced powers towards 
the banks management. The alternative considered  is the agreement of a single set of fully 
harmonised early intervention tools. This se cond option has the adva ntage that such an 
approach would eliminate differences between au thorities, but the disadvantage that it might 
be very difficult to implement given the gene ral differences between supervisory and legal 
systems. 
With respect to the misalignment between nationa l responsibilities and the global nature of 
banking business , the baseline scenario would entail reliance on the 2008 MoU, although the 
planned changes to supervisory architecture would bring a more active role for the soon to be 
created European Banking Authority. An alternative option would be to build on the recent changes, but also to develop rules which would require supervisors to take joint decisions on 
the basis of a common assessment and a common restoration plan submitted by the parent company for the group as a whole.  
Bank resolution  
Options to address identified problems in  the following five broad policy areas are 
considered: bank resolution tools and trigge rs, misalignment between responsibility of 
national authorities and the global nature of banking business, broader obstacles (company, 
insolvency law) to bank resolution, the financin g of cross-border resolution and continuity of 
banking services. 
With respect to bank resolution tools and triggers
, consideration is given to the development 
of a minimum set of tools (pow ers to arrange acquisition by a private sector purchaser, to 
transfer assets and liab ilities to a bridge bank or good bank/ba d bank, assisted sale of part of 
the business to a private sector purchaser, or nationalisation) designed to enable fast and effective intervention by resolution authorities.  Such tools could either supplement existing 
national tools (which woul d be an easier course of action but would leave 
differences/discrepancies between national toolk its in place), or altern atively a set of common 
tools could be developed for all national au thorities and used under the same conditions 
(meaning that extensive changes to nationa l laws on resolution w ould be necessary). 
With respect to the misalignment between nationa l responsibilities and the global nature of 
banking business , consideration is given to devel oping cooperation arrangements between 
resolution authorities (on the basis of a set of legally binding obligations), as well as between 
judicial authorities (courts a nd insolvency practitioners). Th is could entail a coordination 
framework for cooperation and exchange of info rmation (backed by new EU rules), or (more 
 
EN 6   EN ambitiously) a more directed coordination of na tional proceedings in relation to group entities 
by a lead administrator or liquidator. Consid eration is also given to the possibility and 
challenges of tasking an EU body (possibly the new European Banking Authority) with a role 
in the resolution of a cross-border institution. 
With respect to options to  address broader obstacles , consideration is given to whether 
company law needs to be amended in order to allow resolution authorities to override certain 
shareholder rights (but subject to appropriate compensation a nd redress mechanisms) and to 
whether insolvency laws might also be amended so as to allow resolution of an ailing bank 
under a special procedure, or to be able to cat er with the resolution of the group as a whole. 
Consideration is also given to whether a separate and se lf-contained insolvency regime for 
cross-border banking groups, replacing national regi mes is necessary to enable an integrated 
reorganisation or winding up of a cross-border group. This approach too would pose 
considerable challenges. 
With respect to options to support fi nancing of cross- border resolution , a number of possible 
and not mutually exclusive options are consid ered, including the support of private sector 
financing solutions through adjustments to company and insolvency law, introducing a 
framework to facilitate intra-group asset tr ansferability after th e commencement of an 
insolvency procedure, exploring the feasibi lity of using DGS beyond their traditional paybox 
function and developing public funding arrangements through an agreement of clear burden sharing arrangements. 
Finally, with respect to policies to support continuity of banking services
, possible measures 
to support the application of certain reso lution tools are consid ered. These include 
modifications to company and insolvency la w to ensure continue d provision of support 
services in the event a bank is split (as a result of resolution involving a bridge bank or partial 
sale of assets); restriction of termination rights for a short peri od in order to allow time for the 
resolution authority to transfer parts of busine ss to another entity (such as a bridge bank) and 
a coordinated imposition of a moratorium across a banking group. 
This impact assessment supports a Commissi on Communication which is consultative in 
nature and open as regards the possible options  which could be pursued. Further and more 
assessment will be necessary should the Commissi on decide to come fo rward with concrete 
policy proposals.