EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 20.10.2009 
SEC(2009) 1407 final 
  
COMMISSION STAFF WORKING DOCUMENT 
 
Accompanying 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 
 
An EU Framework for Cross-border Crisis  Management in the Banking Sector 
  
{COM(2009) 561} 
{SEC(2009) 1389} {SEC(2009) 1390} 
 
EN 1-2   EN TABLE OF CONTENTS 
1. Chapter 1 - Scope of an EU bank resolution regime.................................................... 4 
2. Chapter 2 - Early intervention – supervisory tools ...................................................... 9 3. Chapter 3 - Asset transfers ......................................................................................... 18 4. Chapter 4 - Resolution tools....................................................................................... 24 5. Chapter 5 – Threshold c onditions for resolution ....................................................... 33 
6. Chapter 6 - Ancillary measur es to support resolution................................................ 37 
7. Chapter 7 - Company law a nd shareholders' rights.................................................... 40 
8. Chapter 8 - Coordination v/integrat ion of resolution and insolvency........................ 46 
 
 
EN 3   EN Purpose of the Commission Staff Working Paper 
This Commission Staff Working Paper accomp anies the Commission Communication entitled 
"An EU Framework for Cross-Border Crisis Ma nagement in the Banki ng Sector". Its purpose 
is to provide further clarification of specific issues raised in the Communication, and to 
articulate a number of question to which th e Commission services are seeking answers.  
 
EN 4   EN 1. CHAPTER 1 - SCOPE OF AN EU BANK RESOLUTION REGIME  
Section 1 - The Issue  
The Communication focuses on the need for, and nature of, a regime for reorganising and 
resolving cross-border banking groups under a coordinated or integrated resolution 
framework.  However, this Chapter discusses whethe r the EU resolution framework should 
also include credit institutions with cross- border branches, because experience has shown 
that those banks can also present a real risk to  financial stability in Me mber States where the 
branches carry on significant am ounts of deposit-taking busine ss. Furthermore, as banking 
groups often include entities that carry on inves tment activities and other financial services, it 
would make sense for a harmonised EU reso lution regime extend to  investment firms and 
possibly to insurers.  
Section 2 – Which financial institutions? 
Focus on deposit-taking banks 
1. A specific regime for deposit-taking banks is only justified if it is accepted that 
banks are 'special' - that is, different from other regulate d financial sector 
entities – and that there are particular risks associated with the failure of a bank 
that cannot be adequately managed in  all cases by ordinary insolvency 
procedures that would apply to other financial institutions (or commercial 
enterprises generally). 
2. There are strong reasons to assert that banks are indeed different. They play a 
unique market and economic role, perf orming financial services that are 
fundamental to the functioning of the economy: the taking of deposits, 
extension of credit, processing of payments and provision of financial 
infrastructure services more broadly. Th ey are a direct source of credit and 
liquidity, through loans and guarant ees, for financial and non-financial 
enterprises, and are the channel through which monetary policy is given effect 
in the real economy. While it  is true that other fina ncial institutions perform 
some of these functions, no entities other than credit institutions perform all of 
them. In particular, non-bank institutions  do not offer immediately available 
liabilities to the public at large in the form of bank deposits, and do not provide 
payment services.  
3. Furthermore, deposit-taking banks are p eculiarly vulnerable to loss of public 
confidence. Retail depositors are genera lly not in a position to monitor and 
assess the financial position of a bank. Howe ver, this inequality of information 
and reliance on trust means that the s lightest rumour that a bank's financial 
position is precarious is likely to trigger a bank run, as depositors seek to protect 
their individual interests by withdrawi ng their money as quickly as possible. 
Any reaction of this kind, whet her or not it is in fact  reasonable, will almost 
certainly precipitate rapid worsening of  the bank's situation by making it more 
difficult and costly for the bank to obtain market funding.  
 
EN 5   EN 4. Moreover, in highly inter-connected financ ial markets, the failure of one bank 
can be contagious. Such "negative ex ternalities", arising from inter-bank 
exposures, fire sales of a ssets and a possible drying up of liquidity mean that 
bank failures carry the risk of wider sy stemic consequences that threaten 
financial stability and the integrity of the payment system.  
Risks posed by failure of other financial institutions 
5. Nevertheless, there are arguments that th e failure of other kinds of financial 
institution may also pose systemic risks to  the financial system that may justify 
conferring specific powers for authorities to manage the impact of such a failure. For example, investment firms (and in particular broker-dealers) differ 
from many other financial institutions in that they hold securities and cash on 
behalf of their clients. They may also be highly connected to other market 
participants through the volume of their trading and positions in derivatives. 
Market stability concerns also arise from the exercise of close out rights 
immediately insolvency is triggered. Si multaneous market activity of thousands 
of counterparties can cause the price of affected assets to collapse. Moreover, 
counterparties may be required to use the asset values determined in closing out 
such contracts to establish market prices  for similar assets subject to contracts 
with third parties, so transmitting the instability of the debtor beyond its 
counterparties.  
6. The market impact of the collapse of the Lehman group supports the view that 
an investment bank can be systemically important. Uncertainty about the status and location of client assets and collatera l, and the status of its open trades and 
derivative positions caused substantia l difficulties for its clients and 
counterparties. Moreover, the impact wa s much broader: several money market 
funds had significant exposures to Lehman  and concerns about the stability of 
money market funds caused investors to withdraw funds, furt her exacerbating 
instability in the financial system. Sim ilarly, the provision of financial support 
by the US government to AIG was motivated  by the need to avert the risks to 
the global financial system of disorderly failure of a complex entity in a fragile 
market environment. The "inter-connectedne ss" of AIG as a result of its credit 
default swaps business meant that the mark et impact of its failure would have 
been too great.  
7. In the US, the need for additional tool s to address systemically significant 
financial institutions that fall outside the existing resolution regime under the 
FDIC has been extensively discussed in the wake of the Government funding of 
AIG and the bankruptcy of Lehman Brothers. The UK has also recently consulted on the development of effective resolution arrangements for investment banks.
1 
8. However, the resolution measures that are appropriate for deposit-taking banks 
may not necessarily be appropriate for other kinds of fina ncial institution. For 
example, the power to transfer assets and liabilities to a 'bridge bank' may be 
suitable for deposit-taking banks because of  the nature of their activities and the 
                                                 
1 http://www.hm-treasury.gov.uk /consult_investment_banks.htm 
 
EN 6   EN objectives of the resolution, but less re levant for investment banks, where the 
focus of a resolution regime may be to  address problems and uncertainties in 
respect of trading, clearing and settlem ent, collateral and custody of client 
assets.    
Section 3 – What type of credit institutions? 
Application to cross-border credit institu tions (branches) and cross-border groups 
(subsidiaries)  
9. Under the Credit Institutions Winding-Up and Reorganisation Directive 
("CIWUD"),2 cross-border branches  of credit institutions are treated as part of 
the credit institution, and are therefore included in the insolvency proceedings for that institution under the applicable regime of the home Member State. This 
is an important principle underpinni ng the internal market. However the 
Directive does not harmonise substantiv e insolvency law provisions (including 
reorganisation or resolution measures). In the event of the failure of a bank, the 
treatment of depositors with branches in other Member States will depend on 
the resolution measures taken by the home Member State. If poorly-managed, the failure of a credit institution may have a negative impact on foreign 
depositors. Events during this crisis have  shown that in extreme circumstances 
the financial stability of the host Member State can be affected.  
10. However, CIWUD does not cover groups (with subsidiaries  in other Member 
States).  As a result, each subsidiary is subject to the insolvency regime of the State where it is established. If the sc ope of a bank resolution framework is 
limited to cross-border banking groups , the question remains whether the 
resolution of group entities should take place as coordinated national 
proceedings, or whether a framework for 'integrated' resolution is needed.  
11. Under a framework based on coordination, resolution would ta ke place at the 
level of each legal entity w ithin a group, and be subject to the insolvency law of 
the country of origin under CIWUD. As  banking groups often consist of both 
deposit taking and non-deposit taking entiti es, a resolution regime might need to 
be extended to investment firms,
3 financial institutions, and possibly even 
insurance companies. Integration of ma rket and of activities means it is 
increasingly difficult to reso lve deposit-takers in isolation. By c ontrast, under an 
integrated EU resolution framework a ll group entities under resolution would be 
dealt with under a single procedure, and would necessarily include non-deposit 
takers that are part of a group. This  is discussed further in Chapter 8. 
'Systemically important' banks/groups 
12. The application of an EU resolution fram ework might be further restricted to 
'systemically important' cross-border ba nks or banking groups. The potential 
problems associated with systemically  important banks and the appropriate 
                                                 
2 Directive 2001/24/EC 
3 Currently investment firms are covered neither by the Winding-Up and Reorganisation Directive nor by 
the Insolvency Regulation.  
 
EN 7   EN policy and legislative responses are curren tly being discussed in the context of 
the G20 and the Basel Committee for Banking Supervision.  
13. Any restriction of the regime to system ically important institutions or groups 
would require a clear definition of this  concept or the identification of the 
institutions that fall into this category.   
14. This might be done by identifying in advan ce the characteristics of systemically 
important institutions. Possible factors include: 
• size – an institution that is "too big to fail" – measured by one or more of market 
capitalisation, total gross a ssets, total exposure (as meas ured by a leve rage ratio), 
total risk weighted assets, share of EU or national in sured deposits, and proportion 
of its EU or national market share;  
• inter-connectedness  – the likely impact that the failure would have on 
counterparties and other market particip ants – measured by one or more of 
proportion of capital flows, size or dist ribution of counterparty risk capital 
requirement, share of trades on cleari ng houses or exchanges, provision of 
services to other financial institutio ns (for example fund management, custody 
and reinsurance), or level of involvement in OTC markets for derivatives or credit 
default swaps;  
• complexity – which may be correlated with the likely level of difficulty of 
managing the wind-down in the event of fa ilure – measured by one or more of 
legal structure, business model, nature an d level of intra-group exposures, use of 
unregulated entities and level of  activity in complex products;  
• the role of the institution in payment system s or other essential services.  
The definition is clearly critical and pot entially very complex.  A more simple 
definition carries the risk that it would not cover all necessary cases. Specifically, experience has shown that banks which would not meet most standard definitions of 
systemic importance can pose real risks to fi nancial stability in Member States where 
they carry on cross-border  business through branches.  A more complex definition 
would, on the other hand, offer a more comp rehensive coverage of risk, but would 
also be harder to implement.   
15. Alternatively, the identification of system ic importance could be linked to the 
process of preparing "wind-down plans" or  "living wills" that is discussed in 
Chapter 2. The application of a bank re solution regime would be determined 
only after a thorough examination about how best to resolve the specific 
institution. However, if any regulator y requirement for "living wills" only 
applied to systemically important institutions, some kind of ex ante definition would have to be formulated and applied.   
16. In any event, transparency and legal certa inty would be crucia l. There should be 
no scope for any ambiguity as to whethe r a resolution regime for 'systemically 
important' institutions applies in any particular case.  
 
EN 8   EN 17. The existence of a resolution regime for systemically important banks could 
help address the widely discussed risks of 'moral hazard' associated with the 
perception that a bank is 't oo big – or too inter-connected – to fail'. The creation 
of framework under which it is possible to  manage the failure of a systemically 
important institution and to minimise its impact would clearly increase the likelihood that such a bank would be allowed to fail. This is turn should improve market discipline since debt  holders would no longer consider 
themselves to be insulated from losses.  
18. The question, therefore, is whether an EU resolution regime should be 
developed specifically, and exclusively, for systemically important cross-border 
banks, or whether this would be too rest rictive. If the concept of systemic 
importance is useful in this context,  the Commission would welcome views on 
how this concept should be defined and how the relevant institutions should be identified. 
Implications for the design of a Resolution framework 
19. If a bank is not systemically signifi cant, executing an orderly restructuring 
under the normal processes of insolvency law, or a winding up process that 
promptly reimburses insured depositors, maximises the proceeds for creditors 
and quickly transfers viable operations to other banks may well be the best 
solution. But if a failing cross-border bank is systemically significant, the principal priority of a resolution is lik ely to be the maintenance of critical 
functions performed by that bank, which in turn will mean that different tools – 
such as the use of a bridge bank or transf er of business to another private sector 
entity - will almost certainly be more appropriate. The larger and more complex 
the failing bank, the more likely that a br idge bank structure may be required in 
cases of urgency where private sector purchasers are unable to carry out the necessary due diligence within the short timeframe available.  
Section 4 –Questions 
(1) Should an EU regime focus exclusively on deposit-taking banks (as opposed to any 
other regulated financ ial institution)?  
(2) Should an EU regime apply exclusively to  cross-border banking groups, or should it 
also encompass single entities which only ope rate cross-border (if at all) through 
branches? 
(3) Should an EU regime apply exclusively to, 's ystemically important' institutions? If so, 
how should this concept be defined and how should the relevant institutions be 
identified? 
 
EN 9   EN 2. CHAPTER 2 - EARLY INTERVENTION – SUPERVISORY TOOLS  
Section 1 - The Issue  
Some elements of a framework for early inte rvention by superviso rs already exist under 
Article 136 of the Capital Requirements Directi ve. However, significant gaps remain. There is 
clear evidence from recent events that the supe rvisory framework has not been sufficiently 
robust to support efficient coordi nation of supervisory measures  aimed at restoring a cross-
border group.  
Section 2 – Current legal framework 
EU legal framework 
20. Remedial intervention by supervisors is only effective if taken at an early stage 
of financial difficulty when the firm, although at risk, is still a going concern. 
This includes the measures that can be  imposed under Article 136 of the Capital 
Requirements Directive ('CRD'),4 for example, a requirement to increase the 
institution's own funds above the minimu m level specified in  the Directive; a 
strengthening of internal organisa tion and governance arrangements; a 
requirement that the institution should apply a specific provisioning policy; a restriction on the business or operations of the credit institution; or a 
requirement that the institution reduce the risk inherent in its  activities, products 
or systems. Such measures leave control of the institution in the hands of the 
management
5 and do not represent a significant interference with the rights of 
shareholders or creditors.  
21. Recently agreed changes to the Capita l Requirements Directive will require 
consolidating supervisors to plan and coordinate joint assessments in emergency situations, exceptional measures, the im plementation of contingency plans and 
communication to the public.
6 In addition, the Committee of European Banking 
Supervisors ('CEBS') (or in due cour se the European Ba nking Authority) is 
required to develop guidelines on the joint conduct of the Pillar 2 review 
(including the supervisory risk assessment7).  However, these changes may not 
go far enough in ensuring that supervisor s have adequate powers and tools to 
support an effective early intervention regime. 
 
  
                                                
 
4  Directive 2006/48/EC relating to the taking up and pursuit of the bu siness of credit institutions (recast). 
5 Nevertheless, some countries, e.g. France have the power to replace the management of a bank by 
nominating a special administrator. 
6 Article 129(1)(c) of Directive 2006/48/EC as re-casted in 2009 (Publication in the Official Journal is 
still pending) 
7 Article 129(3) of  "CRD 2", see text of Commission proposal:  
http://eur-lex.europa.eu/Lex UriServ/LexUriServ.do?ur i=CELEX:52008PC0602:EN:NOT 
 
EN 10   EN National frameworks 
22. Powers and tools available to supervisor y authorities in emergency situations 
differ significantly across Member States. A survey conducted by CEBS8 shows 
that even where limited EU harmonisation exists (Article 13 6 CRD), powers are 
not uniform. The differences are even great er with respect to powers related to 
the management body, to the shareholde rs and capital-related measures.  
23. While many supervisors have powers over the composition of the bank 
management  (to oppose nomination or requir e replacement), only some are 
empowered to appoint a special representative or administrator in an institution that is solvent and a going concern. In It aly, for example, the Minister for the 
Economy and Finance can appoint a provisional administrator on a proposal from the Banca d'Italia . In France the Commission bancaire  has independent 
powers to appoint a provisional admini strator to a bank. The powers of the 
administrator also differ. In some Me mber States (for example, France and 
Italy) the administrator can  replace completely the management of the bank, 
while in others (for example, Austri a and Luxembourg) the administrator only 
supervises the management and c ontrols decisions which go beyond the 
ordinary course of business. Powers do not generally extend beyond that of a 
CEO. Reorganisation measures (such as me rgers or the sale of business) cannot 
generally be imposed without  the consent of th e shareholders. In France, when a 
provisional administrator or a li quidator has been appointed, the Commission 
bancaire , having obtained the opinion of th e deposit insurance fund, may apply 
to court for permission to order the transf er of the shares held by one or more 
executives of that institution. In Italy, special administrators operate under an 
oversight committee which exercises c ontrol over the measures and gives 
opinions.  
Chart 1: Competent authorities' power over the management body of a bank (source: CEBS) 
24
21
20
101
5
3
12
1
4
160%
10%
20%
30%
40%50%60%70%
80%
90%
100%
Oppose the nomination of a board member or
managing director
Replace or require a bank to replace a director or
manager
Appoint a person / body with general or specific
powers 
Limit compensation to directors and senior
executive officers72 73 74 75
Yes
 Not Fully
 No  
                                                 
8 CEBS, Mapping of supervisory objectives and powers, including early intervention measures and 
sanctioning powers, March 2009 
 
EN 11   EN 24. Measures directed at the shareholders  are outlined in Chart 2 below. They can 
only be exercised at severely distress ed institutions, and with a view to 
achieving wider public policy objectives, such  as maintaining financial stability 
or protecting depositors' interests.  
Chart 2: measures directed at  shareholders (Source: CEBS) 
22
11
10
22
152
5
8
3
43
11
9
2
80%
10%
20%
30%
40%
50%60%70%
80%
90%
100%
Suspend the voting rights / shares held by a
specific/all shareholder(s)
Require the transfer of the shares held by a
specific shareholder
Require a change in ownership
Prohibit/limit the distribution of profits to
shareholders
Require actions from shareholders to support the
institution 76 77 78 79 80
Yes
 Not Fully
 No  
25. In terms of capital related measures , only a minority of competent authorities 
have the power to require a bank to c onvert its subordinated debt into equity, 
whereas the majority of authorities have  the power to limit or prohibit certain 
capital payments.  
Chart 3 – Capital related measures (Source: CEBS) 
17
7
162
4
58
15
60%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Prohibit/ limit
principal or interest
payments on
subordinated debt
Require conversion
of subord. debt into
preferential or new
equity
Limit/ prohibit any
major capital
expenditure81 82 83
Yes
 Not Fully
 No  
26. Powers also differ in relation to 'restora tion plans'. Only 16 authorities have the 
powers to coordinate a rescue plan before  insolvency is declared. The powers to 
fully implement emergency measures (for example, coordination of a private sector take-over, setting up of a bridge bank) also vary from one country to 
another.  
 
 
EN 12   EN Section 3 – Adequacy of  the current framework 
Supervisory tools 
27. Discrepancies between supervisors' t ools and powers have the potential to 
compromise the effectiveness of a coordinated response to emergency situations. In particular, as indicated a bove, not all national supervisors have the 
power to require the individual enti ties that they supervise to submit a 
'restoration plan'. Nor is there any clear framework to do this at the level of a cross-border group. 
28. The effectiveness of some measures ha s also been called into question. In 
particular, CEBS emphasised that the exercise of powers directed at the shareholders may raise legal issues - as  borne out by the Fortis case. As the 
conditions under which supervisors may ex ercise these powers can differ, CEBS 
has recommended that further clarity be  sought on the ways in which these 
powers can be activated and how they re late to the relevant EU Company Law 
Directives and provisions of national company law.  
Joint assessment 
29. While the CRD requires joint assessment in both going concern and emergency 
situations, the Directive does not specify the condi tions that trigger the 
application of specific supervisory power s, nor how joint assessment should be 
conducted. If national law or  national supervisors in terpret and apply those 
conditions differently, coor dinated action by supervis ors of different group 
entities might be difficult. CEBS has also  noted the absence of a common set of 
indicators and agreed te rminology between EU supervisors which would clearly 
define how indicators should be interpreted and applied.
9 CEBS has already 
identified indicators for liquidity risk and is working on other indicators to capture other risks in the context of a joint risk assessment system.  
Contingency 
30. The crisis has shown that some group st ructures may be simply too complex to 
manage in a crisis. In the context of contingency plans that will be required under recent changes to the CRD,
10 it may be useful to explore whether large 
banks should be obliged to prepare and submit to aut horities plans which detail 
the arrangements for winding down the ins titution should it fail. Such plans 
could in particular look at cross-bord er dependencies of the institution, the 
implications of legal separateness in cas e of resolution and the possible exercise 
of resolution powers.  This is discussed in more de tail in paragraphs 42 to 47 
below. 
 
                                                 
9 CEBS, Mapping of supervisory objectives and powers including early in tervention measures and 
sanctioning powers, January 2009 
10 Article 129(1)(c) of "CRD 2" 
 
EN 13   EN Supervision of branches  
31. The supervision of the cross-border branches of a credit institution is, for most 
purposes, the responsibility of the regulator of the bank's home Member State. This is subject to very limited exceptions : most importantly, the regulator of the 
'host' State where the branch is esta blished shares responsibility for the 
supervision of liquidity in relation to the branch with the home supervisor. This 
principle of home State control is intend ed to facilitate passporting and is 
fundamental to the freedom of es tablishment under the EC Treaty.  
32. It follows from this principle that the pow ers of the host supervisor to intervene 
directly in the business of a branch shoul d be limited to those that are strictly 
necessary to protect depositors and inve stors in the host State. Currently, those 
powers are restricted to a power to take 'precautionary measures' in 'emergencies'.
11 The nature and scope of such precautionary measures is not 
specified, and there is di vergent interpretation and implementation of the 
circumstances and way in which the power  can be exercised by Member States. 
33. One of the manifestations of the current financial crisis in some Member States 
arose from the activities of branches. For example, branches of Icelandic banks 
offering aggressively attractive rates of interest accepted huge numbers of retail 
deposits in several Member States, the total of which far exceeded the ability of the Icelandic deposit insurance scheme and the Icelandic state to meet the 
liability to host State depositors.  
34. In the wake of these events, it is sugges ted by some that home State supervision 
of branches is fundamentally  unsound as a regulatory sy stem, that the powers of 
host country supervisors should be extended, or even that the right for banks to 
passport through a branch should be curt ailed. The Commission Services take 
the clear view that restrictions of this kind would be incons istent with the EC 
Treaty, which confers on undertakings a right to exercise the freedom of establishment. Nevertheless, the pr oblems caused by the Icelandic banking 
crisis were extremely serious, and it is  appropriate to examine whether the 
current framework is adequate to pre-em pt and address problems developing in 
a bank that might have a seriously dama ging effect on the banking sector of a 
host member State.  
 
  
                                                
 
11 The power for the host supervisor of a branch to take direct measur es in 'emergency situations' is 
conferred by Article 33 CRD. However, as it is curre ntly drafted it is unclear whether the powers are 
excercisable only in those areas where competence is specifically conferred by the CRD: that is, 
liquidity requirements (in cooperation with the ho me supervisor); conduct of business rules under 
MiFID; measures relating to the implementation of national monetary policy; disclosure requirements 
for the purposes of statistical reporting; and non-pr udential requirements under, for example, national 
fiscal, social security and co nsumer protection legislation. 
 
EN 14   EN Section 4 – Possible ways forward 
Supervisory tools and coordination 
35. CEBS has recommended further conve rgence of early in tervention tools 
available to supervisors, in particular, w ith respect to measures directed at the 
shareholders. Conditions for the exercise  of those powers need to be further 
explored and addressed in  connection with existing Company law Directives 
(see Chapter 7).  
36. A more intrusive measure available to so me supervisors is the power to change 
the management of the bank by nominating a special representative (an 'administrator' or 'manager') with th e objective of restoring the financial 
situation of the institution. In some Member States the range of powers of a 
special representative - and in particular its impact on the powers of the general 
meeting – is not entirely clear. If the appoi ntment of a special representative is 
considered to be an effective supervisory tool, which might be used in conjunction with a common group restoratio n plan, such details would need to 
be specified.  For actions of special re presentatives to be coordinated in a 
banking group, issues such as their powers,  their responsibility  to shareholders 
and supervisors and the c onfidentiality of the measure would need to be 
addressed in a consistent way across Member States. Pa rticular care would also 
be needed when assessing whether the appointment of a special representative 
might exacerbate the financial deteriorat ion of the institution by causing market 
counterparties to withdraw credit lines. 
37. The framework for joint and coordinated action by the various supervisors of a 
banking group could also be enhanced. For example, supervisors could be required to reach a joint decision on th e basis of a common assessment and a 
restoration plan
12 submitted by the parent company for the group as a whole.  
38. Under the new supervisory architecture that has recently been proposed by the 
Commission,13 the European Banking Authority would, inter alia, have powers 
in the context of the CRD to ensure the consistent application of Community rules, to take specific actions in emer gency situations and to settle certain 
disagreements between authorities including  within colleges of supervisors. To 
ensure that decisions by the European  Banking Authority, w ithout prejudice to 
the application of Community law, do not impinge on the fiscal responsibilities 
of the Member States, a safeguard clause is also proposed, in line with the Ecofin and European Council conclusions of June 2009.
14 
                                                 
12  That is, the basis for coordinating supervisory measures under the new Article 129(1) of 2006/48/EC. 
13 Proposal for a Regulation of the European Parliament and of the Council on a European Banking 
Authority, 23 September 2009. 
14  It may also be stressed that under the Commission Proposal, the powers of the European Banking 
Authority would not extend to bank resolution measures of the kind discussed in Chapter 4.  Moreover, 
matters covered by Directive 2001/24/EC on the Reorganisation and Winding Up of Credit Institutions are outside of its statutory co mpetence (as proposed by the Commi ssion).  However, the draft 
Regulation on a European Banking Authority may be amended during the process of adoption by 
Member States and the European Parliament.   
 
EN 15   EN Joint assessment and triggers 
39. In support of a joint assessment fram ework, the Commissi on is currently 
considering further amendments to the CRD to introduce complementary prudential measures designed to capture at least the effect s of leverage and 
liquidity risks.
15 These harmonised measures would usefully supplement the 
indicators that form part of an 'early warning system' to facilitate the joint assessment of emergency situations.  
40. When considering the issue of a 'tri gger' for supervisory actions, CEBS 
concluded that " no automatic triggers exis t and, consequently, early 
intervention measures are activated through on-going prudential supervision. 
Prudential supervision is based on both quantitative and qualitative analysis of the situation of credit institutions in orde r to determine its i ndividual risk profile 
and to identify and solve any (poten tial problems) at an early stage ". The 
respective merits of 'automatic' triggers  and supervisory discretion are further 
discussed in Chapter 5 on threshold c onditions in the context of resolution 
measures.  
Contingency planning for banks: 'Wind down plans' or 'living wills' 
41. The concept of wind-down plans or 'living wills' is currently attracting 
considerable political and regulatory inte rest as a means of facilitating a more 
rapid resolution or winding down of larg e and complex financial institutions 
The idea is that systemically important cross-border institutions should be required to produce contingency plans to  facilitate, in a period of severe 
financial stress or instability, the preser vation of the firm as a going concern, the 
continuity of its financial infrastructu re services, and the rapid resolution or 
winding down of the institution where necessary. Detailed plans may include, for example: the information that might be  required by authorities to manage a 
crisis (such as lists of counterparties and the location of inventory assets); 
details of client assets, the location of  custodians and arrangements for client 
asset protection, and relevant  legal restrictions; info rmation necessary for the 
settlement and netting of financial mark et contracts; details of information 
storage and IT systems, and back-up plans for record retention and data integrity; and group-wide contingency f unding plans, including which business 
lines could be sold to raise emergenc y funds, and plans to  reduce risks or 
stabilise funding.  
42. In addition to the obvious advantages for supervisors, resolution authorities and 
insolvency officials of having this information in a comprehensive and 
structured form in the event of a crisis , a requirement for 'w ind down plans' is 
attractive in that it is likely to bring about an ongoing dialogue between 
institutions and their supervisors whic h should ensure that supervisors better 
understand the complex structures they ha ve to supervise. Such plans are also 
likely to force managers to think mu ch more carefully about the complex 
financial structures that have been cr eated within their organisation and the 
extent to which contractual obligations (such as default swaps) place substantial 
                                                
 
15 See Commission's 4 March 2009 Communication 
 
EN 16   EN constraints on the choices facing authoriti es in the event that reorganisation 
measures need to be undertaken. 
43. However, more detailed thought needs to be given to a number of issues. For 
example, the discussion of wind down plan s in an international context, such as 
the FSB and the G20, tends to be coupled  with the assumption that an intended 
and beneficial effect of such plans would be to force a clarification and 
simplification of legal structures. This might include a reduction of complexity, 
a greater organisation of business in sta nd-alone subsidiaries that can be ring-
fenced and reorganised separately in  the event of a crisis, and stronger 
capitalisation and liquidity requirements  on individual subsidiaries. There is no 
doubt that greater simplification would facilitate crisis management and 
resolution, and the desirability of a move  towards less complex structures is an 
important element of the current debate on financial regulation. 
44. Nevertheless, any requirement for wi nd down plans as a part of the EU 
supervisory regime would have to be properly adapted to the specific legal 
context of the EU and the single market. In th is context, it is crucial that there is 
a clear understanding of th e potential impacts of any such requirement on the 
large cross-border banking gr oups that are active in the EU retail market, and in 
particular on any possible detrimental eff ects on their efficiency, as well as on 
the effectiveness of consolidated s upervision. Any measur es that risked 
undermining the single market principles  of the EU Treaty, and that might 
fundamentally affect that firm's busin ess models should only be adopted after 
careful assessment. If one effect of 'living wills' would be to force banks to re-consider the centralisation of key mana gement functions and their functioning 
across business lines, this may lead to in efficiencies and reverse the integration 
trend in the Internal Market. 
45. On the other hand, should an EU cro ss-border resolution framework be 
developed in which allows resolution at group level, the implementation and design of 'funeral plans' need not funda mentally affect the organisation of 
groups and supervision, since resolution m easures might be able to deal more 
easily with the group structure.  
46. A further issue to be asse ssed is the extent to which such plans would be 
feasible in practice. For example, to what extent would cross-border banking 
groups be able to provide own accurat e and comprehensive analysis of how 
different national insolvency laws woul d apply across the group? And given the 
potential detailed nature of the info rmation contained in the plans and the 
dynamic nature of banking business, to wh at extent would it  be realistic to 
expect that they could be kept up-to-dat e and relevant in a crisis situation? 
Section 4 –Questions 
(4) Do supervisors need additional tools and powers for early intervention, and if so, 
which?  
(5) Should the application of early  intervention measures only be  the result of supervisory 
(joint) assessment of emergency situati ons, or would there be any advantage in 
structured or automatic triggers for early intervention? 
 
EN 17   EN (6) Is any modification of the current framework for the supervision of  branches necessary 
or desirable? 
(7) The Commission Services invite  views on a requirement fo r 'wind down' plans. In 
particular: 
• Would 'wind down' plans provide useful in formation to managers and supervisory 
authorities?  
• What kinds of institution should be required to prepare them? 
• What should be the conten t of wind down plans?  
• Should the development of wind down plan s be closely linked to the design of a 
cross-border resolution framework?  
 
EN 18   EN 3. CHAPTER 3 - ASSET TRANSFERS  
Section 1 - The Issue  
The transfer of assets as a means of intra- group financial support could assist groups in 
managing liquidity positions and in some cases could help stabili se entities in  a developing 
crisis. There is currently no EU authorisation regime for asset transfers, and there are 
significant obstacles arising fr om company and insolvency law. 
47. The conclusions of the October 2007 ECOFIN Council requested the 
Commission " to perform a feasibi lity study on reducing barriers for cross-
border asset transferability while in troducing appropriate safeguards within 
banking, insolvency and company law, taki ng into account that the reallocation 
of assets in a crisis affects the ability of  stakeholders in different legal entities to 
pursue claims ".16 The overall objective was to re inforce the primacy of private 
solutions, avoid counter-productive ring-fencing of assets, and facilitate a smooth management of a crisis. Intra-gr oup asset transfers, if made at a 
sufficiently early stage, may help to pr event liquidity problems from developing 
in a group company. 
48. Addressing legal obstacles to asset transfers, which arise in the context of 
company and insolvency law, should not be viewed as a policy objective in itself. Most barriers in fact represent le gitimate protections for stakeholders, and 
there are sound policy reasons  for restricting intra-gr oup transfers in order to 
limit contagion risks.  
Section 2 – Current legal framework 
49. Asset transfers among entities within  a group are a common and every day 
transaction in the normal course of bus iness, provided that the legal entities 
involved meet their respec tive prudential requirements
17 and that transactions 
are carried out at arm's length.  
50. There is no EU authorisation regime  for asset transfer s (although in some 
Member States authorisation by su pervisory authorities is required18), and EU 
legislation does not provide a general framework of terms and conditions for 
transfers.19 However, in principle, in all Memb er States asset transfers must be 
made for fair consideration, irrespective of whether they are between affiliated 
                                                 
16 14 November 2008 Commission services report on asset transferability, see 
http://ec.europa.eu/internal_market/bank/docs/windingup/rep141108_en.pdf 
17 Prior authorisation by or notification of supervisors is only required in some countries (e.g. Portugal, 
Italy and Poland) 
18 For example, in Portugal the authorisation of a tr ansfer by the supervisory au thorities is required in 
crisis situations; in Italy transfers above a certain threshold must be au thorised by the Bank of Italy; and 
in Poland authorisation is required  when the transferee’s own funds constitute part of the assets being 
transferred.  
19 Recital 52 of Directive 2006/48/EC only specifies that the management of exposures should be carried 
out in a fully autonomous manner, in accordance with  the principles of sound banking management, 
without regard to any other considerations.  
 
EN 19   EN or unconnected entities. The way that th is principle is expressed and given 
effect varies according to the nationa l law. Some Member  States prohibit 
'disadvantageous' transactions or trans actions at an undervalue, while others 
impose the principle that transactions must  be made at 'arms length', on standard 
commercial terms.20 Moreover, while some requirements are set out in 
legislation, many have been de veloped through case law.  
51. In many cases, there are procedural requi rements such as authorisation by the 
General Assembly of the supervisor y board. Such requirements may be 
triggered by the size of the transfer,21 the fact that the transfer was not 
concluded in the ordinary course of business,22 or because the transfer is made 
between connected parties.23 Authorisation requirements are generally designed 
to ensure adequate protection for sharehol ders and creditors. For example, in the 
Czech Republic, the strict regulation of intra-group transfers of assets was adopted in reaction to a widespread practice of disadvant ageous intra-group 
transfers in the 1990s.  
52. While all supervisors have the power to restrict intra-group transfers
24 with a 
view to limiting contagion risks in stress situations, there is no framework 
permitting or facilitating the transfer of assets between affiliated entities and 
significant constraints under national co mpany, insolvency and criminal law 
which may impose procedural obstacles ev en to transfers th at are supposedly 
carried on commercial terms, and prevent transfers that are not made at arms' 
length.  
53. Executing transfers on pref erential terms runs the risk of challenges from 
minority shareholders or cr editors, and may expose dire ctors of the transferring 
company to civil or criminal liability. The difficulties and justified objections may be particularly pronounced where a transfer on preferential terms is made 
from a subsidiary to a parent, or between subsidiaries. While some Member States recognise and regulate the concept of a 'domination agreement' in national law,
25 this is an exception to the general rule.  
                                                 
20 In some jurisdictions, the concept of "group interest" may limit the arm's length principle. 
21 For example, in Austria, authorisation is required for an 'extraordinary transaction; in the Netherlands 
there is a quantitative trigger, an d in the Czech Republic any transf er of assets between companies 
within a group of a value exceeding 10% of the share capital requires an expert valuation of the assets to be transferred and the approval of the General meeting in certain cases.  
22 For example, in the Czech Republic, a transfer must be approved by the supervisory board if  the value 
of the assets transferred within  one accounting period exceeds a thir d of the company’s net assets. 
However, such authorisation is not required when the transfer is agreed in the normal course of 
business. There are also conditions on transfers that go beyond the ordinary course of business in 
Luxembourg, Poland and Estonia.  
23 In the Czech Republic, prior approval of the General meeting is required for transactions between 
companies that are inter-related at board level unless the transaction is made at arms length. In France, 
authorisation is required if a transfer is not entered into under normal terms and conditions. In Spain, 
the General assembly must authorise a transfer  of shares from a parent to a subsidiary. 
24 CEBS, Mapping of supervisory objectives and powers including early in tervention measures and 
sanctioning powers, January 2009. 
25 E.g. 'Control contract' in Hungary,  control agreement in Germany, 'd omination agreemen t' in the Czech 
Republic.  
 
EN 20   EN 54. The fact of substantive differences betw een national insolvency regimes may in 
itself be a disincentive to asset transfer. If assets are transf erred between entities 
in different jurisdictions – either in an attempt to fortify or rescue particular group entities or in the context of a gr oup restructuring - and the transferee is 
subsequently wound up, the administration of the transferre d assets will be 
carried out under the appli cable national framework. This may not provide the 
managers and stakeholders of the transfer or with sufficient confidence that the 
transferor's claims to the assets will be protected, and the lack of any formal 
framework for the coordination of the winding up of group companies tends 
towards conflict and litigation between  jurisdictions, as the insolvency 
authorities of the individua l entities assert the interests of their particular 
creditors.  
55. Insolvency law poses a further obstacle to any constructive use of intra-group 
asset transfer, for example to address shor t term liquidity problems of particular 
group entities, since a transf er that was carried out during the 'suspect' period 
preceding the commencement of winding up proceedings may be retroactively invalidated. If the transferor subsequently  enters insolvency proceedings, there 
is a risk that the transfer may be set aside or challenged if it was made at an 
undervalue or was detrimental to the tr ansferor or its creditors. Provisions 
conferring on administrators, liquidators or creditors the power to challenge a 
transaction exist in the insolvency law of  most Member States, and the 'suspect' 
period may be as long as five years (for example, Hungary). Similarly, a 
preference granted by the transferee to the transfer or with the objective of 
protecting the claim of the transferor might be subject to challenge by the 
insolvency officer or creditors in the event of the winding up of the transferee. 
Risks of this kind unde rmine the legal certainty of a transfer and may 
discourage the use of asset transfer as a means of reinforcing a group entity or stabilising a group.  
Section 3 – Adequacy of  the current framework 
56. The fragmented framework outlined above represents a significant obstacle to a 
coherent and coordinated approach towa rds different entities of a cross-border 
group in crisis situations.  
Company law 
57. While requirements under company law have the legitimate and necessary 
objective of protecting shareholders and cr editors, they also limit the ability to 
move assets rapidly around a group where th at may be needed in order to avert 
the deterioration of a group member. Ho wever a company is a distinct legal 
person and, with few exceptions, Member States' laws do not contain any legal 
concept of a group for the purposes of establishing company law rights and 
obligations. In the absence of a concept of 'group interest,
26 directors of a 
                                                 
26 A concept of 'group interest' exists in a number of Me mber States. A concept of 'g roup interest' exists in 
a number of Member States. For in stance, Italian law defines the concept of banking group and lays 
down the parent company's responsibility for the sound and prudent management of the group as a 
whole.  Germany and Portugal have introduced formal group law in their companies legislation, and the 
 
EN 21   EN company are neither responsible to othe r group entities, nor to the group as a 
whole, and should they act to promote the interests of the gro up in a way that is 
detrimental to their own company, they coul d be in breach of their duties and at 
risk of liability under nati onal company law. Where a transfer may be deemed 
detrimental to shareholders or creditors, di rectors are at risk of  civil or criminal 
liability under national law. This severely restricts any potential for using intra-group asset transfer as a t ool for averting or managi ng a developing liquidity 
crisis in a group entity. 
Insolvency law 
58. The core of the problem for cross-bor der resolution arrangements and intra-
group asset transfers to support entities w ith liquidity problems is the concern 
that creditors will be worse off as a result of the arrangements or transfer than they would have been if the arrangement s or transfer had not taken place and 
insolvent entities had simply been w ound up under the applicable national law. 
The powers to set aside transfers made dur ing the 'suspect' period is, of course, 
designed to protect creditors against pr ecisely this kind of concern, but can 
create uncertainty for gr oup entities wishing to engage in asset transfer.  
Section 4 – Possible ways forward 
Company law 
59. Introducing a concept of 'group interest ' for banking groups might be one way 
of underpinning transfers and addressing the risks of liabi lity for directors. Such 
a concept is currently developed in the national law of only a small minority of 
Member States
27 and varies between those States where it exists. However, this 
concept raises a number of challenges . For very good reasons, both company 
law and insolvency law remain focussed on the individual legal entity and the protection of its shareholde rs and creditors. Moreover,  directors of individual 
companies may not be able or willing to assess the group interest, and the benefits of modifying company law to ch ange the duties of directors to permit 
this are questionable.  
60. A more limited concept of the interdepe ndence and mutual interest of group 
companies has been developed in the 'Rozenblum' case law,
28 and may provide 
an alternative set of framing principles for financial support for a group entity prior to insolvency and outside resolutio n measures. Described as constituting " 
the clearest common denominator found in group law",
29 the Rozenblum 
                                                                                                                                                         
concept has been developed in case law in other jurisdictions. For example, the 'Rozenblum' doctrine 
developed by the French Cour de Cassation sets clear criteria about the circumstances in which assets 
may be transferred between group companies for the purposes of mutual support. That case law has 
been followed in Belgium. However, the development of a law on groups of companies in the 'Ninth 
Directive' was abandoned owing to strong opposition from a number of Member States 
27 This is provided in case law in e.g. BE and FR , or as part of national frameworks for groups of 
company (e.g. DE, CZ,HU) 
28 French Cass. Crim, 4 February 1985. Similar case law exists in Belgium.  
29 Eddy Wymeersch, " Conflicts of interest in financial services groups " (see CESR web site).  
 
EN 22   EN judgment ruled that transfer s may take place between le gal entities of the same 
group at agreed conditions (w ithout considerations on tr ansfer pricing) provided 
that the following conditions are met: 
– there must be a policy with regard to the group as a whole; 
– financial assistance should not occur without any return for the company 
providing the assistance nor should it disrupt the balan ce of mutual obligations; 
– the financial assistance should not ex ceed the capacity of the company that 
supports the burden. 
61. The judgment permits mutual support provided that "it does not take place on a 
unilateral basis, but that there is a sufficient quid pr o quo to avoid one of the 
partners to be always on the losing side", and "that support does not exceed what can reasonably be expected from the supporting partner".
30 Significantly, 
"this rule would forbid support being given in the light of insolvency or without 
necessary guarantees if th e support could exceed the capacity of the creditor".31 
Any framework based on the conditions developed in this case law could only facilitate transfers made while the comp any receiving support was still solvent.  
62. The Rozenblum judgment also specifi es that financial support should be 
provided in accordance with conditions agreed by shareholders on a case-by-
case basis. Alternatively, it may be suffi cient to require th at financial support 
may take place only in accordance with a general agreement whose terms, policies and procedures would be agreed ex ante  by shareholders of all legal 
entities within a banking group.  
63. If pursued, the concept of 'banking gr oup' would have to be developed in 
conjunction with a framework for coor dinated or integrated treatment of 
banking groups under insolvency, as outlined in Chapter 8.  
Insolvency law 
64. If a facilitating regime for financial support were to be  based on these or similar 
principles, further thought would need to be given to protections for creditors of 
the company providing the support. This might entail, for ex ample, a priority 
ranking for that company under the appli cable national insolvency law in the 
event of the insolvency  of the transferee.  
65. This Chapter has focussed on the transf er of assets between solvent group 
entities. Financial support to an entity under resolution or 'intra-group' financing 
to support the reorganisation of a group as  a whole, would need to be addressed 
in the context of insolvency law. In tra-group financing is recognised by 
UNCITRAL as a key component of gr oup insolvency law, and raises 
fundamental questions about whether, in the circumstances of a resolution, 
authorities should be able to override stakeholders' ri ghts on financial stability 
                                                
 
30 Eddy Wymeersch, ibid., p.5. 
31 Eddy Wymeersch, ibid., p.6.  
 
EN 23   EN grounds, or whether any decision on intr a-group financing should always be 
subject to the consent of the creditors of the transferor.  
Section 5 –Questions 
(8) The Commission Services invite views on the advantages, if any, of designing a 
framework for asset transfers along the lines outlined above. 
(9)  What are the appropriate safeguards for creditors? 
(10) Is the concept of 'banking group'  worth exploring further?  
 
EN 24   EN 4. CHAPTER 4 - RESOLUTION TOOLS  
Section 1 - The Issue  
National approaches to bank reso lution fall broadly into two ca tegories: those that operate 
under general corporate insolvency law, incl uding administration and those that have a 
special regime for banks. In both cases, the rules are limited to na tional banking operations. 
They do not, and cannot, apply on a cross-border basis. An effectiv e range of tools must give 
authorities options other than publ ic financial support and liquida tion to address problems in 
an ailing bank.  
Section 2 – The current legal framework 
Member States' legal frameworks to deal with bank crisis differ  
66. There is no harmonisation at EU level of the national laws governing bank 
resolution. Beyond introducing a minimum set of powers for supervisory authorities aimed at restor ing the situation of a bank,
32 and establishing 
arrangements for the winding-up and reorga nisation of credit institutions with 
branches in other Member States,33 no EU framework exists which sets out how 
and under which conditions authorities should act in the event of  a crisis arising 
in a bank.  
67. The management of crises is almost en tirely governed by na tional laws. A study 
carried out on behalf of  the Commission services34 provides evidence about the 
extent to which Member States' arrangeme nts differ: they are based on different 
approaches, pursue different goals and have  been designed to fit with the wider 
legal system of each country (for ex ample, provisions governing commercial 
and contract law, ownership law, labour law, netting and set-off, tax law). The 
powers to manage bank crises are split be tween different domestic authorities, 
ranging from supervisory authorities, to central banks, to government ministries, 
judicial authorities and in some case s deposit guarantee schemes. Finally the 
extent of powers and the conditions gove rning their use also differ according to 
each national system.  
 
                                                 
32 These powers are described in Chapter 2. 
33 The EU Directive on reorganisation and winding up  of credit institutions (CIWUD) sets out how credit 
institutions with cross-border branches may be reorganised or wound up (under the home state 
insolvency proceedings). However th e Directive does not extend to cr oss-border subsidiaries and was 
never intended to harmonise insolvency proceedings, as national laws were at the time believed to be 
sufficient.  
34 In 2008, the Commission engaged consultants DBB Law to carry out a survey in the context of the 
study on "Study on the feasibility of reducing obstacles to the transfer of assets within a cross border 
banking group during a financial crisis and of establishing a legal framework for the reorganisation and winding-up of cross border banking groups". The survey covered the following EU Member States: 
Austria, Belgium, Czech Republic, Denmark, Estoni a, France, Germany, Hunga ry, Italy, Luxembourg, 
Poland, Portugal, Romania, Spain, Sweden, the Netherla nds and the United Kingdom. 
 
EN 25   EN Bank-specific regimes vs. corporate insolvency law 
68. The first major difference is in the basi c design adopted by Member States for 
their bank resolution frameworks. Th e International Monetary Fund has 
identified two possible broad approaches:35  
• Bank specific  regimes, which treat banks which ar e insolvent or likely to become 
insolvent differently from other commerc ial entities (including other kinds of 
financial institution); 
• General corporate insolvency regimes, where no specific framework applicable to 
banks exists. 
69. However in practice the situation in EU Member States is more nuanced: certain 
bank specific regimes are in fact larg ely based on or refer to corporate 
insolvency law for all aspects not regulated by the specific regime,36 while most 
corporate insolvency laws contain provisi ons which are adapted to the particular 
problems of a bank insolvency.37  
70. The distinction is nonetheless significant in one important respect. The choice 
of regime under which to carry out a reorganisation of a bank may affect the 
outcome if the objectives pursued are not the same: 
• Bank specific regimes generally seek to  achieve broader social objectives 
including the preservation of financial stability, continuity  of key banking 
services, protection of insured depositors  and the minimisation of costs to the 
public;  
• In the case of corporate insolvency law,  by contrast, objectives pursued are aimed 
at achieving fair and predictable treatmen t of creditors and maximisation of asset 
value in the interest of creditors. 
Judicial vs. administrative proceedings  
71. A further important distinction between systems is whether they are managed as 
part of court-based procedures (“ judicial”) , or whether they are initiated and 
conducted by administrative authoriti es without judicial involvement 
(“administrative” ). 
                                                 
35 See "Overview of the Legal, Institutional, and Regulatory Frameworks for Bank Insolvency", 2009, 
International Monetary Fund. 
36 For instance, Article 80 (6) of the Italian Banking Law, governing the proceedings of 'compulsory 
administrative liquidation' for banks, refers to the Italian bankruptcy law as regards all the aspects not 
covered by these specific proceedings.  
37 for instance banking supervisors may play a role in insolvency proceed ings e.g. the supervisor may be 
the initiator of proceedings, to the exclusion of debtors and credito rs (e.g. in the case of German law), 
or the supervisor may make a proposal to the Court concerning the appointment of an administrator 
(e.g. HU), or the supervisor's approval may be required for certain decisions in order to ensure 
compliance with banking regulations (e.g. in Sweden the only exception to corporate insolvency law is that the financial supervisory authority appoints a general representative in the proceeding to participate 
in the management of the bankruptcy estate togeth er with the receiver appo inted under the bankruptcy 
code)..  
 
EN 26   EN • General corporate insolvency proceedings are invariably initiated and overseen by 
the courts and carried out by court-appointed officials;  
• Bank-specific regimes can on the othe r hand be either court based or 
administrative. In certain cases the ad ministration is conducted by administrative 
authorities, although this may be subject to  judicial oversight, and the liquidation 
proceedings remain under the contro l of the judicial authorities.38  
72. As bank resolution may require authorities to be in a position to act quickly and 
decisively in order to safeguard financ ial stability, a system which relies on 
court procedures may, unless special procedures exist, be insufficiently 
responsive in urgent situations and ma y not be able to take account of the 
particular characteristics of banks and of bank insolvency. On the other hand, a 
system which relies on the powers of admi nistrative authorities may be less well 
adapted to ensuring legal certainty and adequate protection of stakeholders.  
73. Given the different national approaches, any new EU framework will need to 
carefully consider the correct balance between the potentially conflicting outcomes delivered by different systems. 
A graduated approach to reorganisa tion, resolution and liquidation 
74. Regardless of whether the regime is ba nk specific or based on general corporate 
insolvency, most national systems offer the options of re-organisation or, where there is no reasonable prospect of restor ing the business, an orderly liquidation. 
In some Member States, an institution may be placed under “special administration”
39 where an official authority takes control of the bank and 
decides on the extent to which it can be re-structured or liquidated. The extent 
of this control varies: in some Member States (for example, France and Italy) 
the administrator can replace the manage ment of the bank entirely, while in 
others (for example, Austria and Luxem bourg) the administrator only supervises 
the management and controls decisions which go beyond the ordinary course of 
business.  
75. Official administration only lasts for a limited period (Italy, Romania, Austria: 
one year, Estonia: six months) after wh ich, if not successful, the bank is wound 
up. In certain countries the official administration must necessarily precede 
liquidation, while in others (for example, It aly) it is not a pre-requisite. In some 
Member States, the offici al administration also i nvolves a "moratorium" or 
suspension of payments. Depending on the system, th e moratorium may simply 
entail a stay of the enforcement actions by creditors, a partial suspension of the 
payment of debts, or a total suspen sion of all the paym ent and collection 
                                                 
38 For example, Estonia has 2 type s of proceedings: one administra tive (moratorium) aimed at the 
recovery of the bank and one judicial (ordinary bankruptcy proceedings adapted to banks).  
39 This general form of proceedings has been iden tified by the IMF in its ""Overview of the Legal, 
Institutional, and Regulatory Frameworks for Bank Insolv ency", 2009 (see p. 26 and following), on the 
basis of certain common characteristics. However, th e IMF notes that the terminology varies widely 
from country to country. In the EU panorama, exam ples of this form of pr oceedings are the special 
administration ( amministrazione straordinaria ) in Italy, rehabilitation proceedings ( postępowanie 
naprawcze) in Poland, receivership ( Geschäftsaufsich ) in Austria. 
 
EN 27   EN activities of the bank. In some countrie s (for example, Lu xembourg, Estonia), 
the moratorium is automatic, while in others it is at the discretion of the authorities (for example, Italy).  
76. In certain systems (for example, Italy) liquidation proceedings may also be used 
to sell the business as a going concern, and leaving only a residual non viable part of the bank with the origin al legal entity for liquidation.  
77. The common trait of such frameworks is that they provide for a graduated 
approach to intervention, first seeking a resolution with the agreement of stakeholders, and involving more intrusiv e powers to authorities only in the 
context of a liquidation. The Italian appro ach to resolution is presented in more 
detail below. Importantly, a 'graduated approach' does not mean that resolution 
always needs to follow pre-determined stages, but, in appropriate circumstances, the consent of shareholders  may help the restructuration process.  
The Italian approach to resolution 
In Italy, banks can be reorganised under a "special administration" system which can be ordered by the 
Minister for the Economy and Finance, acting on a proposal from the Banca d'Italia . The procedure 
can last up to one year. Conditions for special administration include: 
i) there must be serious administrative irregularities or serious violations of  laws governing the bank's 
activities; 
ii) serious capital losses or illiquidity which can aff ect the stability of the whole financial system are 
expected.  
The Banca d'Italia  appoints one or more special administ rators and an oversight committee. The 
special administrator exercises the administrative power s of the bank and is entrusted with eliminating 
irregularities and promoting solutions that protect the interests of the depositors. This may include 
proposing a restructuring plan for the bank which ma y entail a merger, acquisition, or partial sale of 
assets. Under the special administration the shareholde rs are deprived of certain rights, although they 
maintain the right to decide on any restructuring oper ation that is normally subject to their approval.  
Subject to the authorisation of the Banca d'Italia , the administrator(s) may suspend payment of the 
bank's liabilities of whatever kind and the restitution to customers of financial instruments connected 
with the provision of investment services for a period of up to one month. The suspension does not 
constitute insolvency. 
The Ministry of Economy and Finance, on a proposal from the Bank of Italy, can withdraw the licence 
of a bank and commence its liquidation (Compulsory Administrative Liquidation) if the administrative 
irregularities or violations of la ws, regulations or bylaws or th e losses are exceptionally serious. 
Liquidators can take any decision concerning the restructuring of the bank without the need for the 
shareholder approval. The law allows the liquidato r to sell all or part of the assets. The Deposit 
Guarantee Scheme may decide on the basis of th e "least cost solution" whether to pay out the 
depositors or finance the sale of the business. 
78. Spain has recently reformed its legal framework for dealing with stressed 
banks40 and has introduced a graduated appr oach. Restructurin g of banks takes 
                                                 
40 Royal Decree of 27 June relating to the Fund for Orderly Bank Restructuring 
 
EN 28   EN place in three stages. Under the first stage, a purely private sector solution is 
sought without the intervention of the Deposit Guarantee Scheme ('DGS'). The 
second stage entails the adoption of restructuring measures with the 
participation of the DGS. The third stage entails the restructuring process with the intervention of the Fund for Orderly Bank Restructuring. When a bank is in 
the third stage, the Bank of Spain will replace its managers by those appointed by the Fund. The Fund will report on the financial institution and will submit a 
restructuring plan to the Bank of Spain.  
Immediate pre-emptive resolution 
79. A significantly different approach is adopted in the context of the recently 
adopted UK special resolution regime.
41  
80. The UK special resolution regime prioriti ses the objectives of the protection and 
enhancement of the stability of the financ ial system and of public confidence in 
the banking system, the protection of depositors and of public funds, and 
facilitates rapid and intrusive action by the administrative authorities. The 
relevant UK authorities may sell all or part  of the business or of the shares of 
the bank to a private purchaser, or to tr ansfer all or part of the business to a 
publicly owned 'bridge bank', or to take the bank into temporary public 
ownership. Importantly, these actions can be taken by the authorities without the 
consent of the shareholders and the creditors. These arrangements allow for a splitting of the viable part of the busi ness which is transferred to a private 
purchaser or to a new lega l entity from the non-viable part of the business which 
is left with the original legal entity. The original legal entity may be kept functioning for some time under administra tion if it needs to provide essential 
services to the transferred business. Eventually, the original legal entity is put into liquidation.  
Tools for dealing with bank crisis  
81. National crisis management frameworks also differ as rega rds the tools that 
authorities may employ to take control of  a bank and to remedy the situation, or 
at least to manage its failure. 
82. In most Member States, general insolv ency frameworks include reorganisation 
tools which can also be app lied to banks. These include: 
– the arrangement of mergers or acquisitions (by transfer of  shares to a third party); 
– agreements with creditors concerning re duction of debt, debt restructuring, debt-
equity conversion; 
– asset sales; 
– closure of non-viable parts of the business. 
                                                
 
41 See: http://www.bankofengland.co.uk/financi alstability/role/risk_reduction/srr/index.htm 
 
EN 29   EN 83. In certain Member States, more specific techniques for bank restructuring may 
also be available:  
– purchase-and-assumption transactions (transfe r of some or all of  the bank's assets 
and liabilities to a purchaser); 
– the creation of “good” and  ”bad” banks a nd bridge banks (that is, the sale of non-
performing loans and other substandard assets for collection to an asset management vehicle, or the transfer of viab le assets to a bank established for that 
purpose and generally owned, at le ast in part, by the State); 
– nationalisation. 
84. In the EU, only the UK Banking Act 2009 confers dedicated bank restructuring 
tools which can be applied by the au thorities without the consent of the 
stakeholders. However, in other Memb er States, specific restructuring 
techniques, although not detailed in a sp ecial regime for bank resolution, may 
be available under either administrative or judicial proceedings applied to 
banks.  
– In Italy, for example, the law does not specify which techniques the appointed 
special administrator may use, but the pow ers are set more broadly with the law 
stipulating that the administrator must promote helpful solutions in the interest of 
depositors . Wide interpreted, su ch ‘solutions’ may incl ude a merger, acquisition 
or partial sales of assets. However an important difference compared to the UK system is that shareholders retain th e right of approval for any reorganisation 
measure. 
– In France, the provisional administrator nominated by the banking supervisor may 
conclude transactions in the ordinary  course of business. However a more 
intrusive intervention entailing a transfer of shares without the shareholders’ authorisation requires the ad ministrator to obtain a court order. Settlements with 
creditors may be achieved through various type s of proceedings at the initiative of 
the debtor.
42 Specific bank re-structuring techni ques may only be used under an 
insolvency proceeding.  
– In Germany, the legal framework does not provide a bank specific administrative 
reorganisation, however under the corporat e insolvency law certain techniques 
(e.g. asset sales) are possible subject to the approval of creditors.  
85. There are significant differences and ga ps in the tools provided under the 
current legal framework in Member Stat es. Voluntary reorga nisation, involving 
the consent of shareholde rs or creditors, may not always produce the desired 
results: indeed, there have been seve ral cases during the recent crisis where 
shareholders have obstructed or challe nged action proposed or taken by national 
authorities.43 Furthermore, while generally framed laws may offer greater 
                                                 
42 For instance, France has three types of proceedings provided by the commercial code and applicable to 
banks, aimed at a settlement with creditors: the " ad hoc mandate" , the composition procedure and 
safeguard procedure.  
43 For example in the cases of restruct uring Northern Rock, Fortis and HRE. 
 
EN 30   EN flexibility to take the requisite measures , a legal framework that confers specific 
measures and sets out clearly the c onditions for their use would minimise 
problems of legal uncer tainty and the risk of challenge. Finally, the lack of 
adequate re-structuring tools may mean th at authorities resort more quickly and 
more frequently to financial support w ith public funds, and may result in more 
costly crisis resolution. 
Section 3 – Adequacy of  the current framework 
How national regimes meet the obj ectives of a resolution framework 
86. Recent experience has highlighted a number  of gaps and deficiencies in national 
systems for bank resolution. Certain types of procedure are not well-adapted to 
the specific nature of the banking sect or and the imperatives of preserving 
financial stability and confidence in th e banking system. The crisis has shown 
that fast, effective, and legally sound stabilisation or resolution is essential. 
However, under some systems emergenc y measures can be  frustrated by 
shareholder protections, while other system s quite simply lack the possibility to 
re-organise a bank on a non-voluntary basis.  
87. Ordinary insolvency proceedings may be  too slow or too costly to fulfil 
financial stability objectives. There are compelling reasons for enhancing 
national regimes to adapt them better to the specific problems and objectives of bank resolution:  
• Unless authorities are equipped with adequa te stabilisation tools, they may be 
forced into bailing out banks;  
• With appropriate tools, losses can be more  easily directed onto shareholders and 
creditors rather than tax-payers; 
• When ordinary bankruptcy is viewed as to o costly or to pose too great a risk to 
financial stability, bankruptcy ceases to be a credible threat. This undermines 
market discipline and creates moral hazard;  
• Continuity of services is key to financial stability. 
The inconsistency of national t ools for effecti ve coordination  
88. The scope for effective cross-border re solution is severely limited where 
national authorities do not sh are a common set of tools. As a basic example, if 
one national authority has the power to tran sfer assets to a third party purchaser 
by executive order, while another cannot do so other than by judicial 
proceedings, a rapid and coordinated intervention by those two authorities to deal with affiliated banks in their respective jurisdictions might be difficult. The problem is, of course, exacerbated if one  of the national authorities involved 
does not have the necessa ry power at all. This  would prevent national 
authorities from acting rapidly in a coor dinated way to stab ilise a cross-border 
group and to ensure business continuity. 
 
EN 31   EN 89. The reorganisation of a banking group is likely to be more difficult if a one 
member is subject to a moratorium or suspension of payments and stops 
functioning as a going concern while othe r entities continue their business. 
While the suspension of certain creditors ' claims may be appropriate for an 
ordered resolution, an automatic and comp lete moratorium for an inflexible 
period specified by law would result in a loss of value of the bank, prevent the 
continuity of services and undermine de positor confidence. Only a discretionary 
moratorium, limited to the time and scope strictly necessary, would be 
compatible with the objectives of conti nuity of services, financial stability and 
cost minimization.  
Speed of intervention 
90. The point at which resolution measures can  be imposed is also crucial. Not all 
Member State authorities have the power to intervene to stabilise and reorganise an ailing bank at an early stage before th e formal point of insolvency (as defined 
in national law) is reached. The lack  of harmonised threshold conditions – 
which when crossed permit a national author ity to intervene and take control of 
a troubled institution in specified ways – may prevent coordinated action in 
relation to a cross-border group. This is further discussed in Chapter 5. 
91. Procedural differences can also have an impact on the timing of coordinated 
measures. Where the necessary measures re quire judicial approval or have to be 
taken with in the framework of court-di rected insolvency proceedings, they may 
not necessarily lend themselves to a timel y and fast crisis intervention. While a 
graduated approach may be preferable where developing problems are identified 
at a sufficiently early stage, a legal regime that is based on a graduated intervention may not deal effectively w ith cases where serious problems emerge 
quickly and decline is rapid. 
Reorganisation measures cannot  be applied at group level 
92. Reorganisation measures under insolvency law only cater for national entities. 
This means that the national conditions fo r reorganisation would have to be met 
for each relevant group entity and that the relevant authorities in Member States 
where legal entities of the group are in corporated will have  to cooperate in 
applying such measures to each legal entity.  
Section 4 – Possible ways forward 
93. While it may be appropriate to preserve a wide range of possi bilities in Member 
States' national toolkits, the following resolution t ools may be necessary to 
deliver the objectives of an EU bank resolution framework:
44  
– The power to arrange acquisition by a private sector purchaser: this will 
frequently be the best way to achieve the objectives of business continuity, 
                                                 
44 See IMF working paper "The Need for Special Resolution Regimes for Financial Institutions—The 
Case of the European Union", Martin Čihák and Erlend Nier, 
http://www.imf.org/external/pubs/ft/wp/2009/wp09200.pdf 
 
EN 32   EN financial stability and minimising the cost to the public purse. It also effectively 
protects the interests of creditors and counterparties, whose exposures to the 
failing institution are replaced by claims  on a stronger institution. National 
authorities need to have the power to transfer the institution to a private sector purchaser without seeking or obtaining th e consent of the existing shareholders. 
– The power to transfer assets and liabilitie s to a bridge bank: a 'bridge bank' is a 
temporary licensed banking institution cr eated, and generally owned by or on 
behalf of, the national author ity to take over the viable business of the failing 
institution and preserve it as a going con cern while the authority seeks to arrange 
a permanent resolution, such as to a suitabl e private sector purchaser. The residual 
failing institution can then be wound up, on ce its services are no longer required, 
in an orderly manner.  
– The power to partially transfer assets to a 'bad bank': authorities should also have 
the power to separate good from bad a ssets by selling non-performing loans and 
'toxic' or difficult-to-value assets to a separate asset management vehicle (often 
referred to as a 'bad bank'). The aim is to sanitise the balance sheet of the failing 
bank in order to restore it to viability or w ith a view to facilitating a private sector 
solution.  
94. The resolution tools prescribed under an EU  regime could be exercised either by 
national resolution authorities or by special administrato rs appointed under 
national law. That is, a bank resolutio n regime could be combined with a 
national system of "special administrati on" provided the special administrators 
have the power to take the necessary m easures quickly and without procedural 
hurdles that would impede  their effectiveness. In this respect, the IMF 
recommends that "the law should make cl ear that the official administrator is 
authorised not merely to take normal mana gerial decisions, but also to decide on 
and implement far-reaching corporate acti ons of the type that, in a normal 
situation, would require shareholders' appr oval (for example, the sale of all or 
parts of the bank's business), provided that  for some decisions the approval of 
the court or the relevant banki ng authorities may be required."
45  
Section 5 – Questions 
(11) Which objectives should bank resolution to ols seek to pursue? Which objectives 
should be prioritised? 
(12) What resolution measures are necessary? In  particular, would the resolution tools 
outlined in paragraph 92 be appropriate and sufficient for an EU regime?  
(13) Would administrative reorganisa tion (as described) be a viable option for financial 
institutions – or might there be a risk that  the appointment of an administrator could 
exacerbate liquidity problems due to loss of confidence?  
                                                 
45 IMF and World Bank, April 2009, An Overview of the Legal, Institutional, and Regulatory Framework 
for Bank Insolvency 
 
EN 33   EN 5. CHAPTER 5 – THRESHOLD CONDITIONS FOR RESOLUTION  
Section 1 - The Issue  
Clear "threshold conditions" that must be met be fore the powers of intervention are triggered 
are central to an EU resolution regime. They facilitate coordinated  action by national 
authorities, reduce the risk of challenge, and provide legal certainty for shareholders and 
creditors as to the circumstances in which ac tion might be taken. The threshold conditions for 
an EU regime should allow intervention at th e appropriate stage, while  being sufficiently 
rigorous to ensure that intervention which interferes  with the rights of st akeholders is justified 
by clear public interest in, for example, financial stability  and the continuity of banking 
services. 
Section 2 – Current legal framework 
95. Conditions which determine how and wh en authorities may intervene are a 
crucial component of a bank resoluti on regime. Depending on how conditions 
are set, they can either enhance or rest rain the ability of authorities to take 
preventative or remedial action. The ability  to take measures to intervene in a 
timely manner, which may be before the bank is technically insolvent, may be 
crucial for the objectives of ensuring con tinuity of services, preserving financial 
stability and minimising public costs.  
• Conditions for entering insolvency 
96. Although the terminology may be differe nt the relevant thresholds under 
insolvency law are generally based on one or both of two concepts:  
• the "illiquidity threshold", i.e. the debtor is unable to meets its obligations as they 
fall due;46 and  
• the "balance sheet threshold", i.e. the en tity's balance shows a negative net worth 
(the liabilities exceed the assets).  
97. Austrian law, for example, provides that when over-indebtedness  or illiquidity  
can be remedied, the credit institution or the supervisor may request an order for 
receivership from the court.47  The threshold for the commencement of winding 
up is only reached where the over-indebte dness or liquidity cannot be remedied.  
98. In some Member States the threshol d for intervention is the "imminent 
insolvency" of the debtor, that is, where th e debtor is likely to be unable to pay 
future obligations when they fall due . For example, as a modification to 
ordinary French corporate insolvency law, credit institutions are deemed to be insolvent if they are actually unable to meet their current liabilities or will be 
unable to do so in the near future. 
                                                
 
46 This threshold is defined as "general cessation of payments" in certain systems.  
47 Section 83, subsection 1 BWG. 
 
EN 34   EN • Conditions for pre-insolvent intervention 
99. Member States which permit bank interven tion at an early stage of financial 
distress also set the conditions for the ex ercise of powers. These thresholds are 
generally what the International M onetary Fund has termed "regulatory 
thresholds",48 that is, they are based on the breach of banking regulatory 
requirements rather than the thres hold conditions for general corporate 
insolvency. The conditions differ between sy stems: they may refer to the breach 
of either specific rules or of banking re gulations generally, a nd they may be of a 
qualitative or a quantitative nature (t hat is, focussed on capital requirements). 
Their aim is to allow authorities to intervene before insolvency - while the bank still has a positive net worth.  
100. In UK for example, under the new Banking Act, one of the threshold conditions 
for intervention is that the bank is failing,  or is likely to fail, to satisfy the 
conditions to permit it to carry on regulated activities. In Poland, 
“rehabilitation” proceedings should be app lied if the bank incurs a balance sheet 
loss, or if there appears to be a thr eat of a balance sheet loss or risk of 
insolvency. In Hungary, a list of detailed re gulatory conditions is set out by law, 
and these include both qualitative conditi ons and the failure to meet capital 
requirements. 
• Threat to financial st ability as a condition 
101. In many Member States a necessary condi tion for more intrusive forms of crisis 
intervention is the risk to the financial stability.  
• In the UK, the Treasury or the Bank of England may exercise the "private sector 
purchaser" and "bridge bank" options only on condition that the stability of the 
financial systems of the UK, or the maintenance of public confidence in the stability of the banking system is jeopardi zed or in order to protect depositors.  
• The Italian law also refers to the risk to the stability of the financial system as one 
of the possible conditions for the special administration.  
• In the Czech Republic, a bank may be pu t into administration if its continued 
operation endangers the stabil ity of the banking system. 
Section 3 – Adequacy of Threshold Conditions 
102. Any measures to stabilise a bank which limit the rights of stakeholders would 
need to be based on a clear demonstrati on that the action is proportionate to the 
seriousness of the problems in the institution in question and driven by the clear public interest in, for example, financial stability and the continuity of banking 
services.  
103. However, the public interest in ensuring the continuity of banking services and 
in an orderly resolution also means that  intervention should be possible at a 
                                                
 
48 See "Overview of the Legal, Institutional, and Regulatory Frameworks for Bank Insolvency", 2009, 
International Monetary Fund. 
 
EN 35   EN stage before the bank is “balance sheet” insolvent: that is, before the bank has 
reached the relevant threshold for the purposes of ordinary insolvency proceedings. If authorities cannot inte rvene before the bank is technically 
insolvent, this is likely to limit the c hoice of effective optio ns for stabilisation 
and resolution, or increase the amount of  public funds that will need to be 
committed in support of such an option. 
104. Broadly speaking, there are two appro aches to defining the appropriate 
conditions to trigger stabilisation and re solution measures. The first is based on 
hard solvency triggers which define wh en a bank is critically undercapitalised. 
If a bank falls below the solvency threshol d, authorities can be entitled, or even 
required, to take action. The US, for ex ample, applies a mandatory threshold 
based on leverage ratio.  
105. While providing an effective means of ensuring common and predictable 
supervisory responses, triggers based on the solvency  of an institution have 
proved irrelevant during the current cris is, in so far as the most relevant 
weakness facing institutions has been abse nce of liquidity. Because a bank is at 
risk of a run, an illiquidity problem can turn very rapidly into insolvency. The 
current crisis has clearly shown that capital ratios ca nnot capture all the possible 
material information which is necessary to  detect problems in a bank at an early 
stage.  
106. The second approach uses a soft regul atory threshold which involves a more 
nuanced supervisory judgment and may allow the relevant authority greater 
discretion as to whether to intervene. The UK Special Resolution Regime, for example, is triggered by such a soft  threshold based on the regulator's 
assessment of whether the bank is failing, or is likely to fail, to meet the 
conditions of authorisation (which include  an assessment of its capital and more 
generally the 'adequacy of the firms' resources')
49 and unlikely (without 
intervention) to be able to  remedy that failure, coupl ed with a public interest 
condition. Under an EU regime, a 'public in terest' test might include a European 
dimension, requiring national authorities to  take into account the impact of 
national measures on the financial st ability in other Member States.  
107. A clear framework for intervention will reduce the risk of challenge to actions 
taken by national authorities, and provide  legal certainty for shareholders and 
creditors about the circumstances in which action might be taken and the 
protections conferred upon them. In orde r to increase the legal certainty of 
resolution measures, it may be appropr iate to limit the grounds for judicial 
review. For example, legal challenges to measures taken under a statutory framework might be restricted to the revi ew of the legality of an authority’s 
action. That is, a review would determine whether the authority acted within its 
powers and whether measures were proportiona te to the public in terest at stake, 
but would not allow judicial authorities to reassess any exercise of discretion 
unless there was clear evidence of a manifest  error of fact, an abuse of power or 
bad faith.  This would not, or course, preclude challenge under the European 
Convention on Human Rights (see Chapter 7). 
                                                
 
49 Conditions for licensing a bank are harmonised under Directive 2006/48/EC. 
 
EN 36   EN Section 4 – Possible ways forward  
108. A regime which gives authorities the pow er to take exceptional action or to 
intervene in the management, structure or  activities of an u ndertaking needs to 
set clear conditions defining when that action can be taken. The conditions will 
reflect the nature of the intervention in question, the stage at which it is most useful or appropriate, and the degree of  interference with stakeholders' rights 
that the intervention entails. 
Section 5 – Questions 
(14) What threshold conditions would be appr opriate for the use of resolution tools?  
(15) Should different conditions be defined for the use of different tools,  and in particular 
in the case of a graduated approach to resolution?  
 
EN 37   EN 6. CHAPTER 6 - ANCILLARY MEASURES TO SUPPORT RESOLUTION  
Section 1 – The Issue 
Reorganisation measures that split a financial group, or transfer parts of the business to 
another institution may disrupt op erations and contractual arr angements or affect market 
counterparties. Safeguards may be necessary to ensure continuity  of services and financing as 
well as appropriate protection of the ri ghts of shareholders and creditors. 
Section 2 – Continuity of services 
109. Reorganisation measures need to be eff ected in such a way that they do not 
cause critical disruption to business ope rations. A resolution framework would 
need to ensure that both the residual co mpany (in the event of the transfer of 
business to a bridge bank or a partial sale  to a private sector entity) and other 
group entities, could be required to provi de the support needed to ensure the 
continuity of banking services by the bridge bank or purchaser. Such support 
might be necessary, for example, where ce rtain systems, contracts or services 
necessary to the operation of a bridge bank have not been transferred from the 
residual company, or where essential s upport services were formerly provided 
to former bank by another group enti ty. That requirement should apply 
irrespective of whether the entity providing the support is located in the same 
Member State as the bri dge bank or purchaser.  
110. It may also be necessary to restrict th e rights of third parties to terminate 
contracts in certain circumstances, for example where the contracts are 
transferred to a bridge bank, so that the continuity of banki ng services is not 
jeopardised. 
Section 3 - Partial property transfers   
111. Bank resolution measures may involve a partial property transfer, whereby 
national authorities transfer some of the assets of an ailing bank to another entity, leaving the remai nder in the residual company. The ability to make 
partial transfers is likely to increase the chances of smooth continuity for the viable parts of the business, and a succe ssful resolution using a bridge bank or a 
private sector purchaser. However, a partial property tran sfer also risks 
disadvantaging creditors of the resi dual company, and may also seriously 
disrupt commercial contracts.  
112. First, if the splitting into two entities results in an insolvent residual company, 
the creditors that remain in the residual company may be worse off than creditors of the same ranking that are transferred to the bridge bank.  This might 
be resolved if the residual company is given a certain and enforceable economic 
interest in the net proceeds of the resolution, for example the proceeds of any subsequent sale of the bridge bank to a private sector entity. However, there 
remains a risk that compensation determined in this way might not be sufficient to ensure that creditors that remain with  the insolvent residual bank are left no 
worse off than they would have been in  the event of a whole bank insolvency. 
 
EN 38   EN 113. Second, a partial property transfer can in terfere with widely used commercial 
structures such as set-off and netti ng arrangements, secu rity interests and 
structured finance. This could have serious consequences. For example, any 
undermining of legal certainty that financ ial contracts will be subject to set-off 
and netting could lead to increased re gulatory capital requirements for banks' 
counterparties, since they might be requi red to account for their credit exposure 
to an EU bank on a gross rather than a ne t basis. Similarly, if security interests 
could be disrupted by a partial transfer, c ounterparties that have lent to banks on 
a secured basis will not have legal certain ty that they can enforce against the 
collateral on which the loan is secured. Th is could have a negative effect on the 
cost of finance for EU banks that are potentially subject to resolution measures 
involving partial transfers, and could lead  to counterparties withdrawing credit 
at an earlier stage, precipitating the de terioration of an institution that is 
perceived to be at risk. This could also have very serious effects on the 
operation of clearing and sett lement systems (which are of systemic importance) 
and put strains on the conduct of moneta ry policy operations  by Central Banks 
to the extent that partial property transfers might affect collateral arrangements 
entered into in relation to the operation of such systems and to the policy of 
Central Banks.  
114. Safeguards would need to address th ese issues. The legal and commercial 
problems connected with partial property transfers, and appropriate safeguards, 
have been explored extensively by the UK government, respondents to the 
various public consultations , and the expert advisors  it appointed for this 
purposes, in the course of the preparation of the UK special resolution regime 
under the Banking Act 2009.50 That work provides a valuable resource for 
understanding the problems. However, a ny solutions developed at EU level 
would have to be compatible with the di fferent legal systems of the EU. Further 
detailed consideration therefore need s to be given both to appropriate 
compensation for creditors51 and safeguards for financial contracts and 
commercial arrangements that may be a ffected by partial property transfers . 
Section 4 – Changes required under insolvency law  
115. Modifications to insolvency law in suppor t of re-organisati on measures applied 
to cross-border groups may also be n ecessary. As a minimum, a moratorium 
should be possible to prevent the openi ng of other proceedings once a resolution 
measure has been applied. This would be n ecessary to maintain the continuity of 
services and to ensure an orderly resolution process. 
116. Work on an EU resolution regime might also consider how to facilitate the 
continuous operation of the business under reorganisation by securing access to 
funds. For example, finance after th e commencement of an insolvency 
procedure ("post-commencement financ e") may be obtained from other 
members of the group operating as a going concern. This raises the question of 
                                                 
50 http://www.hm-treasury. gov.uk/consult_special_resolution_regimes.htm 
51 Including mechanisms for ensuring that creditors whose claims remain with the residual bank are no 
worse off in the winding up of that residual bank than they would have been in the hypothetical event of 
a whole bank insolvency. 
 
EN 39   EN whether the entity financing the insolv ent group member should have a priority 
ranking. In the absence of en abling or clarifying treatment in insolvency law, 
the provision of finance in the period before commencement of the insolvency 
proceedings may also be subject to avoida nce and carry the risk of liability for 
both the lender and the debtor.52  
117. UNCITRAL53 supports the development of a system for “post commencement 
finance” between affiliated  entities. In order to enable group members to 
finance the affiliate under reorganisation, techniques need to be found to secure 
repayment of their claim. These might include a priority in a subsequent liquidation of the affiliate, a security  interest on unencumbered assets, or a 
junior security interest on already encumbered asse ts. Authorisation of post 
commencement finance and securing assets for repayment of the financing affiliate might also require the approval of creditors of the entity providing the funding or of the court to secure the protection of all affected parties. 
Section 5 – Questions 
(16) What kind of specific protec tion and support measures are needed in the context of 
partial transfers or the splitting of a gr oup, including measures for the protection of 
creditors? 
(17) What changes to insolvency law would be necessary to support bank resolution 
measures (e.g. moratorium, post commencement financing, etc.)? 
(18) What safeguards are needed for financial contracts and commercial arrangements that 
may be affected by part ial property transfers? 
                                                
 
52 Some insolvency laws provide that where a lender advances funds to an insolvent debtor in that period, 
it may be responsible for any increase in the liabilities of other creditors or the advance will be subject 
to avoidance in any ensuing insolv ency proceedings. In other exampl es, the insolvency representative 
who borrows money may face pers onal liability for repayment. 
53 Working Group V of UNCITRAL is considering recommendations on easing intra-group financing for 
entities under insolvency in relation to the treatment of corporate groups in insolvency. See: 
http://www.uncitral.org/uncitral/en/commi ssion/working_groups/5Insolvency.html 
 
EN 40   EN 7. CHAPTER 7 - COMPANY LAW AND SHAREHOLDERS ' RIGHTS  
Section 1 – The Issue 
While a robust framework of shareholders' rights is esse ntial for good corporate governance 
and for the free movement of capital, those rights must be balanced with the public interest in 
the ability of resolution authorit ies to intervene quickly and decisi vely to restructure a failing 
institution or group to minimise  contagion and ensure the stabili ty of the banking system in 
affected Member States. The question is how to recognise shareholders' rights and avoid 
challenges to cross-border re solution measures by sharehol ders whose rights under national 
company law or rights to property have been affected? 
Section 2 – Current legal framework 
Company law framework 
118. EU law contains a number of mandatory  requirements that confer rights on 
shareholders of public limited liability companies. The capital maintenance regime under the Second Company Law Directive
54 requires the approval of the 
shareholders' general meeting for a ny increase in capital and any reduction 
(except under a court order) in the subscr ibed capital, and confers pre-emption 
rights on existing shareholders . The Shareholders' Rights Directive55 - which 
had to be transposed by Member States  by August 2009 – sets out requirements 
relating to the general meeting of shar eholders of listed companies, and in 
particular specifies the convocation peri ods and the form of the convocation. As 
regards re-organisation measures applied to certain limited liability companies, 
rules in the Third Company Law Directive56 and the Directive on cross border 
mergers57 contain provisions on the role of the general meeting in the case of 
national mergers and cross-border merger s respectively, and the Sixth Company 
law Directive58 in the case of divisions.59 
119. The Second Company Law Directive applies to those types of public limited 
liability companies that are listed in Ar ticle 1 of the Directive. The Directive 
does not make special provision for th e situation where a company enters 
                                                 
54 Second Council Directive 77/91/EEC  of 13 December 1976 on coordina tion of safeguards which, for 
the protection of the interests of members and othe rs, are required by Member States of companies 
within the meaning of the second paragraph of Article  58 of the Treaty, in respect of the formation of 
public limited liability companies and the maintenance and alteration of their capital, with a view to 
making such safeguards equivalent, OJ L 26, 31.1.1977, p.1. 
55 Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies, OJ L 184, 
14.7.2007, p.17. 
56 Third Council Directive 78/855/EEC  of 9 October 1978 based on Article 54 (3) (g) of the Treaty 
concerning mergers of public limited liability companies, OJ L 378, 31.12.1982, p.47 
57 Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-
border mergers of limited liability companies 
58 Sixth Council Directive 82/891/EEC  of 17 December 1982 based on Ar ticle 54 (3) (g) of the Treaty, 
concerning the division of public limited liability companies   
59 Where the company to be acquired has entered insolvency or comparable proceedings, the Third and 
the Sixth Directives allow Member States to derogate from their requirements, see Article 1(3) 
Directive 78/855/EEC and Article 1(4) Directive 82/891/EEC. 
 
EN 41   EN insolvency. It can therefore be concl uded that the rules of the Directive - 
including the requirement  of a general meeting resolution for any capital 
increase and decrease - apply as long as a bank operates in one of the forms of a 
public limited liability company specified in Article 1. Furthermore, the Directive does not provide for any exemptions in crisis situations where a company undergoes serious financial di fficulties or a credit institution is 
reorganised.
60  
120. The Third and the Sixth Company law Dir ectives and the Cross-border mergers 
Directive do not contain specific rules in cases where a company gets into 
difficulties. However, according to the ru les of the directives, the requirement 
for the approval of the general meeting can be waived by Member States under 
specific circumstances.61 In all cases, however, a one  month publication period 
has to be respected for the publication of  the draft terms of merger or division.  
121. Furthermore, Member States are not requ ired to apply the Third or the Sixth 
Company Law Directives "where the company or companies which are being 
acquired or will cease to exist are the subject of bankruptcy proceedings, 
proceedings relating to the winding-up of insolvent companies, judicial 
arrangements, compositions and analogous proceedings".62 The Directive on 
cross-border mergers does not contain any similar derogation.  
122. In addition to these mandatory requirements in EU law, national company law, 
listing rules and the articles of associati on of banks may contain further rules on 
the right of shareholders in the context of restructuring meas ures. In particular 
the requirement that all material transact ions have to be approved by the general 
meeting applies in a number of Member States.63  
European Convention on Human Rights  
123. The European Convention on Human Right s ("ECHR") and its  First Protocol 
have been signed by all EU Member St ates. Its rules have been recognised by 
the European Court of Justice as genera l principles of EU law and have been 
reflected in the Treaty of Amsterda m which calls for respect for the 
fundamental rights guaranteed by the Convention. 
124. Under Article 1, Protocol 1 ("A1P1") to the ECHR, any transfer of ownership or 
assets of an ailing bank must comply with the shareholders ' right to property. 
This guarantees the peaceful enjoymen t of possessions, including shares.64 
                                                 
60 Joint Cases C-19/90 and C-20/90 Karella and Karellas v. Minister of Industry, Energy and Technology 
and organisations AE [1991] E.C.R I-2691, and C-441 /93 Panagis Pafitis and Others v. Trapeza ellados 
A.E. and Others [1996] ECR I-1347 
61 Article 8 Directive 78/855/EEC, Article 6 Directive 82/891 EEC; Art. 9(3) Directive 2005/56/EC. 
62 Article 1(3) Directive 78/855/EEC; Article 1(4) Directive 82/891/EEC 
63 A similar rule in the Corporat e Governance Statement of the bank  formed the basis of the Court 
decision in the case "Fortis". 
64 Article 1 of Protocol 1 of the European Convention on Human rights states: 
"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived 
of his possessions except in the public interest and subject to the conditions provided for by law and by 
the general principles of international law.  
 
EN 42   EN Shareholders have the right not to be deprived of th eir shares, or to suffer a 
diminution in their value, unless the interference is justified in the public interest and in accordance with conditions  provided in law, and in accordance 
with international law.  
125. Any interference with the peaceful enjoym ent of possessions must strike a “fair 
balance” between “the demands of the general interest of the community and 
the requirement of the pr otection of the individual's fundamental rights”.
65 A 
deprivation of property without payment of  an amount that is reasonably related 
to its value will normally constitute a disproportionate inte rference that is 
unjustified. However, there is no right to  full compensation since “legitimate 
objectives of public interest, such as [are] pursued in measures of economic 
reform or measures designed to ensure gr eater social justice, may call for less 
than reimbursement of the full market value”.66  
126. Furthermore, Articles 6 and 13 ECHR provi de for the shareholders' right to due 
process ("fair and public hearing") a nd to a legal remedy against unlawful 
interference with their rights. 
National frameworks for bank resolution  
127. As far as creditors' rights are concer ned, where national frameworks for bank 
resolution are based on insolvency law th ey include the principle of the equal 
treatment of creditors who enjoy the sa me ranking. As a consequence, creditors 
are involved in various ways in the pr oceedings and their consent is usually 
required for any decisions which may aff ect their rights and entitlements, such 
as sale of assets outside the ordinary c ourse of business, the continuation of the 
business, consideration a nd approval of a reorganisation plan. However, the 
current national frameworks for bank resolution differ in the way they deal with the rights of stakeholders, and there are in  particular differences with regard to 
the rights of the shareholders. 
128. In most systems, placing a bank into pr ovisional official administration implies 
only a partial reduction of shareholders rights. For instance, shareholders may 
be deprived of the right to call the gene ral meeting and draft the agenda or the 
right to take certain decisions which w ould normally be reserved for the general 
meeting (such as the appointment of the management or liability actions against 
previous managers). However, in genera l shareholders retain their right to 
approve the more far reaching bank rest ructuring measures which affect their 
ownership rights (for instance this is the case in Italy, Romania, Poland and 
Austria). Only in certain Member States  can these decisions be taken without 
the shareholders’ consent. For instance,  in France, the administrator may be 
authorised by the court to sell the shares  of a bank without the agreement of the 
shareholders. In the Czech Republic, the administrator must seek the approval 
of the central bank instead  of the general meeting of the shareholders. The 
                                                                                                                                                        
 
The preceding provisions shall not, however, in any way impa ir the right of the State to  enforce such laws as it 
deems necessary to control the use of property in accordance with the general interest or to secure 
payment of taxes or other contributions or penalties."  
65 Sporring and Lonnroth v Sweden  (1982) 5 EHRR 35  
66 Lithgow v United Kingdom ( (1986) 8 EHRR 329. paragraph 121. 
 
EN 43   EN extent to which such a national rule is consistent with the current legislative 
framework at EU level remains to be examined.  
129. Under the UK Special Resolution Regime , the authorities may take certain 
decisions affecting the rights of sharehol ders and creditors without their prior 
consent (to the extent that such c onsent is not required under EU law). 
However, the system does provide for cer tain safeguards for the protection of 
their interests. In the case of a partial tr ansfer of assets and liabilities, creditors 
that are left in the residual company ar e entitled to compensation based on the 
principle that they should be no worse off than they would have been had the 
bank been fully liquidated. The calculati on of the proceeds of a hypothetical 
whole-bank liquidation and the dividends that  would be paid to each creditors is 
determined by an independent valuer. Secu red creditors may be transferred with 
the relevant collateral to the new co mpany. The same principle applies to 
shareholders when shares are transferred to a private purchaser or to a bridge 
bank: they are entitled to compensation which cannot be inferior to what they 
would have received in the event of the liquidation of the whole bank. The stakeholders are entitled to judicial re view of the decision  of the authorities 
affecting their rights. However, this  review cannot reverse the operations 
decided by the authorities but only aff ect the amount of the compensation. 
Section 3 – Adequacy of  the current framework 
130. The procedural requirements contained in  EU law do not necessarily interfere 
with bank resolution where measures may be taken or required by supervisors 
exercising powers under Article 136 of th e CRD since the necessary time to 
comply with such requirements is likel y to be available. Furthermore, the 
harmonisation of the requirements through the EU directives ensures a level playing field within the EU. Howeve r, it cannot be excluded that, under 
exceptional circumstances, certain of these requirements (for example, the minimum convocation period under the Sh areholder Rights Directive) may pose 
hurdles to effective crisis resolution. In  extreme situations, the requirement for 
prior consent of stakeholders for rest ructuring decisions,  while ensuring a 
degree of legal certainty and high stakeholder protection, may undermine 
attempts by authorities to handle a bank crisis quickly  - for example by 
orchestrating a private sector purchase. Lack of approval by affected shareholders may hamper the adoption of appropriate solutions that involve, for 
example, the transfer of assets or shares.  
131. The latter problem was demonstrated by the case of Fortis where, under Belgian 
law, shareholder control delayed the implementation of the sale of a majority stake in the Belgian bank to BNP Paribas.  The rescue plan had to be revised and 
renegotiated because shareholder approval was required, and resolution was delayed by a prolonged legal challenge with resulting uncertainty for creditors, employees and other stakeholders in Fortis.  
Section 4 – Possible ways forward 
132. Adjustments to the Company law Directives and to national company laws may 
be needed to guarantee the ability of national authorities to intervene rapidly 
 
EN 44   EN without having to seek shareholder approva l and thus to ensure continuity of 
essential services that have been provided by the bank and to minimise the systemic impact of its failure.  
133. Such adjustments have three potential objectives: (1) they could be aimed at 
clarifying the scope of the Company La w Directives, and in particular the 
question to what extent the Second Company law Directive applies to 
companies that have reached insolvency ; (2) they could pr ovide for specific 
exemptions from certain of the rules of the Company law Directives in the context of bank resolution schemes; and/or (3) they could provide for 
exemptions in the context of such re solution procedures from requirements 
imposed by national company laws (or a llowed by these laws and laid down in 
listing rules or articles of association). 
134. However, reflecting the protection c onferred by Article 1, Protocol 1, any 
restriction of shareholder rights would need to be justif ied by an overriding 
public interest and made subject to the a ppropriate safeguards to ensure that the 
rights of shareholders are given proper  weight. Those safeguards should entail 
conditions for intervention that reflect the considerations of public interest 
recognised in the jurisprudence of ECHR, and adequate arrangements for the 
compensation of shareholders. Furtherm ore, a stabilization and resolution 
framework would have to re spect constitutional limitations of Member States' 
laws – as guaranteed under the EU Treaty. 
135. Finally, where rights grante d by EU law are affected, appropriate mechanisms 
for redress and compensation would need to  be agreed and set out at EU level. 
The question for further consideration is whether for all othe r cases, appropriate 
mechanisms can be left to the discretion of Member States. If resolution measures are applied at a cross-border le vel involving entities in more than one 
Member State, it seems logical that re dress possibilities and compensation for 
shareholders of the affected entities should be determined in the same way. 
Section 5 – Questions 
(19) Is it necessary to derogate from certain of the requirements imposed by the EU 
Company Law Directives and, if so, what  conditions should apply to any such 
derogation? If the scope of an EU sp ecial resolution framework extended beyond 
deposit-taking banks to cover other financial institutions (see Chapter 1), should such derogations from the EU Company law ru les apply to all financial institutions 
covered?  
(20) The Fortis case has shown that requirements  imposed only at the level of the national 
law, or allowed by it, can also impair effect ive measures to save an ailing bank. Is it 
therefore necessary to regulate at EU level to ensure that such national rules do not 
apply in where measures are taken under a bank resolution framework? If so, what 
conditions should apply to any such  derogation from national rules? 
(21) What kind of triggers or conditions are likel y to best deliver the objectives set out in 
paragraphs 132-133, and to ensure that intervention in the fiel d of shareholde r rights is 
proportionate and justified? In  particular, should these triggers or conditions be the 
 
EN 45   EN same as those discussed in Chapter 5, or should the conditions for interference be 
stricter where shareholders' rights are at stake. 
(22) Should mechanisms for compensation be set out at EU level, and if so how should this 
be done? 
 
EN 46   EN 8. CHAPTER 8 - COORDINATION V /INTEGRATION OF RESOLUTION AND INSOLVENCY  
Section 1 – The Issue 
This Chapter focuses on the changes, if any, that  may be needed to insolvency law to support 
an EU resolution regime for banking groups. 
The resolution of a cross-border banking grou p would entail the application of resolution 
measures to group entities in different juri sdictions. This requires, as a minimum, a 
framework for coordinated action by the rel evant national resolution authorities. However, it 
may be necessary to go further and provide fo r an integrated resolutio n orchestrated by a 
lead authority. 
Any resolution will almost certainly be ac companied by the applic ation of insolvency 
measures to elements of the group. The effecti veness of that resoluti on, and the willingness of 
national authorities to apply reso lution at group level, may de pend to a large extent on the 
ability of the applicable insolvency regi mes to support the resolution measures.  
Section 2 – The current legal framework 
136. In the resolution of a cross-border banki ng group, measures must be applied to 
legal entities in different jurisdictions.  This requires either coordination between the national resolution authorities involved or an integrated resolution 
orchestrated by a lead authority. Under a simple cooperation and coordination 
framework, the resolution of a banking group will necessarily be carried out at the level of each legal entity in accordance  with the applicable national regime. 
For example, relevant resolu tion authorities could be s ubject to a duty to consult 
each other before taking measures in relation to a member of a banking group. 
Going further, they might be required to  consider (but not necessarily apply) 
joint resolution measures if that would be likely to represent the best outcome 
for the group as a whole.  
137. However, while the simplest option lega lly, this may not reflect commercial 
reality. Banking groups are increasin gly operationally and commercially 
interdependent, frequently centralise liqui dity management in a way that entails 
the intermingling of assets, and are orga nised and operated in a way that reflects 
business lines rather than legal struct ure. Even where co ordinated, separate 
entity resolution will not necessarily allow the most efficient reorganisation. 
These concerns can only be fully addresse d by greater structural  integration of a 
resolution framework, possibly by de signating a single au thority to be 
responsible for the resolution of a particular group. The Commission 
Communication on an EU Framework for Cross-border Crisis Management in 
the Banking Sector outlines these alternative approaches.  
138. However, any resolution will almost certai nly be carried out in conjunction with 
national insolvency procedures.
67 The separate entity approach to resolution 
                                                 
67 Directive 2001/24/EC on the Reorganisation and Winding Up of Credit Institutions prohibits the 
application of separate insolvency measures to branch es under the law of the host State. It ensures the 
 
EN 47   EN means that insolvency proceedings are only effective in the country where they 
are initiated, and will administer only those assets that are located within that jurisdiction.
68 This territorial approach to cros s border insolvenci es has not kept 
pace with the increasing irrelevance of national frontiers in a global financial market. Cooperation between national inso lvency authorities is often uneasy 
and imperfect, and cannot deal effectiv ely with financia l conglomerates, 
international holding structures and the organisation of financial groups 
according to business lines. 
139. These difficulties are aggravated by pro cedural and substantive differences in 
national insolvency laws for credit inst itutions. Some Member States use the 
same general corporate insolvency law for the reorganisation and winding up of 
banks, while others have special proceedings for credit institutions. Special banking insolvency regimes may entail a sy stem of depositor preference, so that 
depositors' claims are paid before those of general creditors, while this will not be the case where banks are subject to a general corporate insolvency regime.  
Section 3 – Adequacy of  the current framework 
140. The territorial nature of insolvency law and the substantive differences between 
national regimes may represent a disincenti ve to coordinated or integrated group 
resolution. If insolvency is necessarily national, domestic authorities have a 
legitimate interest, and are likely to be  motivated by a political imperative, to 
ring-fence the national assets  of an ailing bank in order to protect national 
deposits and maximise the assets available to the creditors of the national entity. It also limits the feasibility of asset transfer between group entities as a means 
of addressing liquidity problems within other parts of the group, even if such 
action would be in the interest s of the group as a whole.  
Section 4 – Possible ways forward 
141. It may therefore be necessary to devel op EU measures for the insolvency of 
banking groups to complement and s upport bank resolution measures.  Of 
course, the nature of any adaptation of insolvency law that may be needed will 
depend on the nature of any EU resolution regime and the way in which multi-jurisdictional application is managed:  whether by coordination of separate 
national actions or by a more integrated approach. The need for modification of 
insolvency law arises to th e extent that measures adopt ed at EU leve l facilitate 
or are likely to result in the reorganisa tion of business or the transfer of assets 
between group entities in different jurisd ictions. A coordinated approach to 
resolution may require fewer changes (i f any) to insolvency law than an 
integrated regime. An enabling regime fo r asset transfer would almost certainly 
                                                                                                                                                        
 
mutual recognition and coordination of procedures und er home country control, imposes a single-entity 
approach by which all the assets and liabilities of the 'parent' bank and its foreign branches are 
reorganised or wound up as one legal entity under, subj ect only to exceptions specified in the Directive, 
the law of the home State. However, this directive do es not provide for the consolidation of insolvency 
proceedings for separate legal entities within a banking group, and makes no attempt to harmonise national insolvency law.  
68 This is subject to the exception under Directive 2001 /24/EC of branch assets that are located in another 
Member State. 
 
EN 48   EN require adjustments to national insolvency  law to ensure adequate protection for 
creditors of the transferor, but might be most consistent with more structural 
coordination or integration of insolv ency proceedings for banking groups. 
142. There are two basic approaches for the design of an EU resolution framework. 
Under a coordinated  framework, each legal entity of a cross-border group 
would be resolved under the insolvency law of its country of incorporation, but formal framework would permit or require  those proceedings to be coordinated 
where appropriate. Under an integrated  framework, the insolvency of the group 
as a whole would be conducted under a single process, possibly in accordance 
with a single applicable regime.  
Coordination 
143. Coordination may be in particular efficient where bank ing groups are not 
integrated, or where ring-fe ncing of a legal entity is  needed to e.g. avoid 
contagion of risks. Two principal approaches might be explored.   
144. The first – a framework for cooperation and exchange of information – would 
entail 
EU rules requiring courts and insolvency officials to exchange 
information in respect of the different  group entities under resolution. However, 
the insolvency of the indi vidual group entities would continue to be conducted 
in accordance with the app licable national insolvency regime. Going further, a 
new EU instrument might also pr ovide a framework for coordinated 
stabilisation or reorganisation plans a nd, in the context of reorganisation or 
liquidation, facilitate the c oordination of the use and di sposition of assets, use of 
avoidance powers and distributions to creditors. Such measures might address 
some of the problems experienced in the liquidation of affiliated entities where there has been significant co-mingling of assets. 
145. The second approach would facilitate a mo re directed coordination of national 
proceedings in relation to group entities by a 'lead' administrator or liquidator. EU rules would determine the identity of that lead practitioner in a way that was consistent with the principal focus of its business activities. . Such rules might also include procedures for the adopti on of a coordinated stabilisation or 
reorganisation plan and for decision-taking in accordance with agreed objectives. More radically, this approach  could provide for the nomination of 
the same insolvency administrator to all the group members concerned. Those 
proceedings would be conducted in accord ance with the applicable national 
insolvency regime. 
146. An initiative of this kind would not be unprecedented and might be able to draw 
upon other international wor k.. In an EU context, Council Regulation (EC) No 
1346/2000 on insolvency proceedings
69 requires liquidators to cooperate 
                                                 
69 Council Regulation (EC) No 1346/2000  applies to the reorganisation or winding up of a single legal 
entity with establishments in multiple jurisdictions, and does not deal with the insolvency of groups. 
Banks, investment firms and collective investment undertakings are excluded from its scope. Its central principle is that the main insolvency proceedings with universal scope are conducted in the Member 
State where the debtor has the centre of its main in terests ('COMI'), while retaining the possibility that 
secondary local proceedings may be opened in other Member States whether the debtor has an 
 
EN 49   EN closely, in particular by exchanging in formation. In order to ensure the 
dominant role of the main insolvency proceedings, the liquidator has the power 
to intervene in concurrent secondary proceedings, for example, by proposing a restructuring plan or composition or appl ying for a suspension of the realisation 
of the assets in the secondary insolvency proceedings. 
147. Proposals by UNCITRAL
70 to facilitate cooperation between insolvency 
officials and courts located in different jurisdictions could also provide a useful 
model for an EU cooperation framework for the resolution and liquidation of 
cross border banking groups. This work focussed on the expansion of the Model 
Law on coordination and cooperation for en terprise groups (but not financial 
institutions).71 Under the draft recommendations, courts and administrators 
would be required to cooperate and co mmunicate with foreign courts and 
administrators responsible for other members of the group. The recommended 
measures include: 
– the use of bilateral and multilateral agreements and the exchange of information 
between administrators of enterprise  group members located in different 
jurisdictions;  
– agreement between insolvency representatives on the division of powers and 
allocation of responsibilities, with one  insolvency representative taking a 
coordinating or leading role;  
– the agreement of coordinated reorganisation plans;  
– coordination with respect to administrati on and supervision of the affairs of the 
group members subject to insolvency proceedings, including day-to-day 
operations where the business is to be  continued, post-commencement finance, 
safeguarding of assets, use and disposal of assets, use of avoidance powers; submission and admission of claims, and distributions to creditors. 
148. UNCITRAL also considers th at coordination may be achieved by appointing the 
same insolvency representative in multiple proceedings affecting members of the same group in different States wher e that person meets applicable local 
requirements. 
 
                                                                                                                                                        
 
establishment. It provides specific  rules of jurisdiction, applicable law and recognition of judgements, 
while enhancing co-ordination of measures in relation to an insolvent debtor's assets. 
70 UNCITRAL Working Group V, Treatment of enterp rise groups in insolvency.(See www.uncitral.org) 
71 The UNCITRAL Model Law on Cross-Border Insolv ency, adopted in 1997, offers an effective 
framework for cross-border insolvency where an insolvent entity has assets in more than one State or 
where creditors are established in a jurisdiction othe r than the one where the in solvency proceeding is 
taking place. It applies to the insolvency of a sing le entity with establishmen ts and assets in multiple 
jurisdictions, and does not address groups. The Model Law does not attempt a substantive 
harmonisation of insolvency law; rather, it develops mechanisms for cooperation and coordination, including foreign assistance for an insolvency pro ceeding taking place in the enacting State; access for 
foreign representatives to courts of the enacting St ate; recognition of foreign proceedings; cr oss-border 
cooperation; and coordination of concurrent proceedings.  
 
EN 50   EN Integration 
149. Because of the nature of groups and th e way in which they operate, there may 
be a complex web of financial tr ansactions between group members. 
Centralisation of liquidity is a comm on feature in EU banking groups. Because 
of the intermingling of assets that cen tralised liquidity risk management may 
entail, creditors may have to deal w ith different members in insolvency 
proceedings or even with the gr oup as a single economic entity. The 
coordination of separate national insolv ency proceedings may not achieve an 
equitable treatment for creditors in such  cases. In more general terms, where 
subsidiaries are 'branch-like' in practice,  it may be appropriate to allow creditors 
to file claims not only against the subsid iary that is their counterparty, but also 
against the parent, as the 'dominant' company.  
150. Some national regimes contain reme dies for overcoming the perceived 
inefficiency and unfairness of the tradit ional single entity approach where the 
disentangling of operations or assets is  excessively complex, or other reasons 
justify treating the group as a single enterprise. Such remedies include: 
extending liability for debts of an aff iliate to other solvent group members, as 
well as to corporate office holders and shareholders; contribution orders; and 
asset pooling or substantiv e consolidation orders. 
Extension of liability to  affiliated entities  
151. Certain laws recognize circumstances in which exceptions to the limited 
liability of corporate enti ties can be made, so that another group member and its 
office holders may be made liable for the debts and actions of an affiliate. Extending liability for external debts and, in some cases, the actions of the group members subject to insolvency proceedings to solvent group members 
and relevant office holders is a remedy available to individual creditors on a case-by-case basis and is ge nerally subject to rigorous  conditions. The following 
conditions are typical: 
– A subsidiary has been operated as the pare nt company’s agent, trustee or partner;  
– A group member has exploited or abused its control over anot her group member, 
including operating a subsidiary conti nually at a loss in its own interests; 
– Creditors have been misled to believe that they are dealing with a single 
enterprise, rather than with a member of a group. 
Contribution orders 
152. A contribution order is an order by wh ich a court can require a solvent group 
member to contribute funds to cover al l or some of the debts of other group 
members subject to insolvency proceedings. Considerations relevant to the granting of such an order may include:  
– the extent to which a related group memb er took part in the management of the 
group member;  
 
EN 51   EN – the extent to which the reasons for liquidation are attributable to the actions of the 
related group member, for example, failure to perform a contract or the fact that 
the parent had permitted the subsidiary to continue trading whilst insolvent. 
Substantive consolidation 
153. Substantive consolidation, in insolvency  proceedings involving two or more 
group members, generally permits authorities  to disregard the separate identity 
of each group member in appropriate circ umstances and consolidate their assets 
and liabilities, treating them  as though held and incurred by a single entity. This 
has the effect of creating a single estate fo r the general benefit of all creditors of 
the consolidated group members. 
154. Consolidation might be appropriate where it  leads to greater return of value for 
creditors, either because of the st ructural relationship between the group 
members and their conduct of business and financial relationships or because of 
the value of assets comm on to the whole group, such as intellectual property.  
155. However this technique pierces the corporat e veil and the claims of creditors of 
a more solvent entity are treated pari passu  with creditors of a financially 
weaker affiliate. Because this undermines  a fundamental principle of company 
law, consolidation is gene rally restricted to situations when the assets or 
liabilities of the enterprise group member s are intermingled to  such an extent 
that the ownership of assets and responsib ility for liabilities cannot be identified 
without disproportionate expense or de lay; or where the enterprise group 
members are engaged in a fraudulent scheme or activity and substantive 
consolidation is essential to rectify that scheme or activity. 
156. Where these techniques are available under national law,  their application is 
necessarily restricted to en tities within the same jurisdiction, and subject to the 
same insolvency regime. If similar measures were to be developed for use in insolvency proceedings for cross-border banking groups, the new dimension of different insolvency regimes - with diffe rent substantive rules on, for example, 
priority and avoidance powers – would need to be addressed. 
157. In the EU, a single set of harmonised insolvency rules, covering procedural and 
substantive elements, might be deve loped for cross-border banking groups. 
They could ensure, as a minimum, that core powers such as repudiation and the 
avoidance of security interests were exercisable in the same way; harmonised rules on priority; and in pa rticular that unsecured clai ms of depositors (or, if 
applicable, any subrogated claim by a Deposit Guarantee Scheme). 
158. One possible approach might be to introduce changes via a "28
th regime": a 
separate and self-contained insolvency regime that would be available, and 
would replace the otherwise applicable na tional regimes, for the reorganisation 
and winding up of cross-border banking gr oups in the EU. Such a regime would 
only fully address the problems associated  with the separate entity approach 
under national insolvency law if it perm itted an integrated treatment of the 
group entities. Careful thought would need to  be given to the a pplication of such 
a regime and the extent – if at all – to which it should be optional for 
systemically important cro ss-border banking groups.  
 
EN 52   EN 159. Clearly, the difficulty of such work cannot  be underestimated. Insolvency law is 
closely related to other areas of nati onal law such as the law of property, 
contract and commercial law, and rules on aspects such as prio rity reflect social 
policy. Accommodating distinct national c oncepts, such as trusts or floating 
charges, in a unified code would be complex. Moreover, like commercial law 
generally, national insolvency law enhan ces the commercial attractiveness of a 
jurisdiction, and harmonisation could remove  competitive advantages that States 
currently perceive to be c onferred by their national systems. It is recognised that 
any imposition of a new EU insolvency regime on existing entities would raise 
transitional problems, including the imp act on creditors and counterparties. A 
single set of harmonised insolvency rules is likely to change the contractual 
terms of bilateral agreements between firms and counterparts, which may be 
disruptive on specific market segments.  
Section 4 –Questions 
(23) Are mechanisms for cooperation and co mmunication between authorities and 
administrators responsible for the resolution and insolvency of a cross border banking 
group desirable?  The Commission services  would also welcome views on the form 
that such mechanisms might take. 
(24) Is a more integrated resolution and insolv ency framework for banking groups feasible 
and desirable?   
– In particular, should the Commission expl ore mechanisms at EU level for the 
extension of liability, contri bution orders and pooling or substantive consolidation 
in relation to cross border banking groups. 
(25) Would a "28th regime" be useful and feasible? If  so, what would be the appropriate 
scope of its application, and the difficult ies of applying it to  existing entities?