EN    EN EN 
 
EN    EN  COMMISSION OF THE EUROPEAN COMMUNITIES  
Brussels, 20.10.2009 
SEC(2009) 1389 final 
  
COMMISSION STAFF WORKING DOCUMENT 
  
IMPACT ASSESSMENT  
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 
 
on an EU Framework for Cross-border Cris is Management in the Banking Sector 
  
{COM(2009) 561 final} 
{SEC(2009) 1390} {SEC(2009) 1407}
 
 
EN 1-2   EN This report commits only the Commission's servi ces involved in its pr eparation and does not 
prejudge the final form of any deci sion to be taken by the Commission  
TABLE OF CONTENTS 
1. Introduction................................................................................................................ .. 4 
2. Procedural Issues and Consulta tion of Interested Parties ............................................ 6 
2.1. Procedural issues......................................................................................................... .6  
2.2. Consultation of interested parties................................................................................. 6 3. Policy context, Problem de finition and Subsidiarity.................................................... 8 
3.1. Background and context............................................................................................... 8 3.1.1. Nature and size of the market concerned ..................................................................... 8 3.1.2. Overview of legislative framework.............................................................................. 9 3.1.3. Overview of ongoing developments .......................................................................... 13 3.2. Problem definition...................................................................................................... 15  
3.2.1. General problems ....................................................................................................... 1 5 
3.2.2. Drivers and specific problems.................................................................................... 19 3.2.3. Baseline scenario....................................................................................................... . 34 
3.2.4. Problem tree ............................................................................................................ ... 36 
3.3. The EU's right to act and justification........................................................................ 37 3.4. Objectives................................................................................................................ ... 37 
4. Policy Options and Analysis of Impacts .................................................................... 39 4.1. General Considerations about the need for a new bank resolution framework ......... 39 4.1.1. Baseline Scenario (no changes to cu rrent bank resolution arrangements)................. 39 
4.1.2. Introduction of an EU ba nk resolution framework .................................................... 39 
4.1.3. Scaling back cross-border banking groups in order to manage crises more efficiently 
on a national basis ...................................................................................................... 40 
4.2. Early Intervention ...................................................................................................... 42  
4.2.1. Possible policies to address early intervention conditions, triggers........................... 42 4.2.2. Possible policies to addre ss early intervention tools.................................................. 44 
4.2.3. Possible policies to address misalignment between responsibility of national 
supervision and intern ational business....................................................................... 46 
4.3. Bank resolution .......................................................................................................... 4 7 
 
EN 1-3   EN 4.3.1. Possible policies to address ba nk resolution tools and triggers ................................. 47 
4.3.2. Possible policies to address misalignment between responsibility of national 
authorities and intern ational business ........................................................................ 49 
4.3.3. Possible options to address legal obst acles (company, insolvency law) to bank 
resolution.................................................................................................................... 5 3 
4.3.4. Possible policies to support fina ncing of cross border resolution.............................. 55 
4.3.5. Possible policies to support co ntinuity of banking services....................................... 59 
4.4. Impact on EU budget ................................................................................................. 63 4.5. Package and cumulative effects ................................................................................. 63 5. Annex I: Glossary ...................................................................................................... 64 6. Annex II: Extract from the De Larosière report dealing with Crisis Management and 
Resolution .................................................................................................................. 66 
7. Annex III: Main elements of a possible future framework (extract from the 
Commission Communication) ................................................................................... 71 
8. Annex IV. Summary of the public co nsulation concerning Directive on the 
reorganisation and Winding up of cred it Institutions (2001/24/EC).......................... 73 
 
 
EN 4   EN 1. INTRODUCTION  
Over the course of this financial crisis, the ability of authorities to manage crises both 
domestically and in cross-border situations has been severely tested. Financial markets within the EU have become integrated to such an extent that the effects on credit institutions of problems occurring in one Member State cannot  always be contained and isolated and 
domestic shocks may be rapidly transmitted to firms and markets in other Member States.  
The lessons learned during this crisis have pr ompted the Commission services to examine the 
issue of bank resolution and to give serious  consideration about how existing arrangements 
and cross-border cooperation can be strengthened  in such a way as to more appropriately 
reflect the degree of integrati on in EU financial services ma rket. The Commission services 
believe that resolving these issues will be ke y to restoring and further consolidating the 
Internal Market by providing further confidence in the home-host arrangements underpinning 
banking supervision, and ensuring its smoot h functioning in stressed situations. 
One of the most important issues  concerning actions to maintain financial stability is the 
ability of authorities to pre-empt  or manage the crisis situati ons of banks. The involvement of 
authorities may be crucial to maintaining the stability of the whole financial system, to 
protecting the deposits of peopl e and companies and to mainta ining the continuity of the 
payment systems and other basic financial services. 
At international level, G20-Leaders have iden tified as a medium-term action the “review of 
resolution regimes and bankruptcy laws in light of recent experience to ensure that they 
permit an orderly wind-down of larg e complex cross-border institutions.”
1 At the Pittsburgh 
summit on 25 September, they comm itted to act together to ".. create more powerful tools to 
hold large global firms to account for the risks they take"  and, more specifically, to " develop 
resolution tools and frameworks for the effec tive resolution of finan cial groups to help 
mitigate the disruption of financial institution failures and reduce moral hazard in the future."  
The Basel Committee is also currently dealing with this issue.2 In the US, the existing crisis 
management system will be further improved and strengthened.3 In the EU, several Member 
States (UK, Spain, Germany etc.) have recently reinforced their systems to enable prompt and 
effective crisis management of banks.  
The conclusions of the October 2007 ECOFIN  Council called for an enhancement of the 
arrangements for financial stability in the EU an d a review of the tools for crisis prevention, 
management and resolution, including a revision  of the 2001 Directive on the reorganisation 
and winding up of credit institutions. The report of the High-Level Group on Financial 
Supervision in the EU chai red by Jacques de Larosière4 observed: “ The lack of consistent 
crisis management and resolution tools across the Single Market places Europe at a 
                                                 
1 G20 Leaders' declaration of the Summit on financial markets and the world economy, April 2009. 
2 A Basel Working Group called Cr oss-border Bank resolu tion Group (CBRG) was set up in December 
2007 to study the resolution of cross-border bank s. It is comparing the national policies, legal 
frameworks and the allocation of responsibilities for the resolution of banks with significant cross-
border operations. It also promotes the use of bank specific resolution techniques for authorities. http://www.bis.org/bcbs/index.htm 
3 Financial Regulatory Reform; http://www.finan cialstability.gov/docs/regs/FinalReport_web.pdf 
4 http://ec.europa.eu/economy_finance/publications/publication14527_en.pdf 
 
EN 5   EN disadvantage vis-à-vis the US and these issues  should be addressed by the adoption at EU 
level of adequate measures .”5 
The Commission stressed in its 4 Marc h 2009 Communication the importance of 
strengthening the EU's crisis management arrangements and announced its intention to 
publish a paper on Early intervention by June 2009. It subsequently decided, due to the complexity and importance of the issues to be  addressed, to precede any policy orientations 
with an open consultative Communication.  
While it is important that an EU approach be consistent with international developments, it is 
also essential and urgent – in light of the gr eater degree of integrat ion and interconnectedness 
within the Internal Market –to carry out exte nsive work at EU level to complement the 
existing EU prudential framework. 
The Communication on "A Bank Resolution Fram ework for the EU", that this impact 
assessment accompanies, presents an overview of the problems, the areas under examination 
related to early intervention measures and bank resolution. It  focuses on cross-border banks 
i.e. those banks which are internationally ac tive and of "systemic importance" but also 
considers whether there is a need to cover ot her banks which are active across borders (but 
not necessarily judged to be systemic)
6. The Communication also cons iders whether there is a 
need to extend the scope of a possible future  framework beyond deposit taking banks to other 
types of financial instituti on (e.g. investment firms a nd insurance companies). The 
Communication proposes policy objectives an d an overall approach without proposing 
specific detailed policy solutions at this stage. This impact assessment focuses primarily on the problem definition and the need for and objectiv es of EU level action in this area. It also 
explains how EU level action in  cross border crisis management would complement the other 
important changes (in the field of deposit in surance, capital requirements, supervisory 
architecture) proposed as responses to the fina ncial crisis in order to strengthen the bank 
regulatory framework. In view of the consul tative nature of th e Communication, policy 
options are only considered in the broadest of  terms. Any subsequent policy proposals to 
emerge as a result of this consultation will be subject to further and more thorough impact assessment at the appropriate stage.  
Key concepts used in this impact assessment: 
Early intervention : early remedial actions of banking supervisors  (e.g. raising private 
capital, modification of business lines, divestiture of assets) which aim at correcting 
irregularities at banks and hence helping banks  returning to normal course of business and 
avoiding that banks enter in a resolution stage. 
Bank resolution : reorganisation of ailing banks (in ei ther an administrative or judicial 
process) that aims at maintaining financial stab ility, the continuity of banking services and the 
revitalisation of the bank. In addition to trad itional reorganisation techniques, bank resolution 
uses specific tools (e.g. bridge banks, forced merger, assisted acquisition, partial sale of 
assets) to reach the above objectives. The process is managed by a resolution authority , 
which can be different in Member States (national bank, financ ial supervisor, deposit 
                                                 
5 For more details, see Annex II where the full chapter on crisis management and resolution in the De 
Larosière report is reproduced. 
6 More details on the size of the market concerned are to be found under section 3.1. 
 
EN 6   EN guarantee scheme, ministry of finance, special authority). 
2. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES  
2.1. Procedural issues 
An Inter-service Steering Committee on early in tervention and bank reso lution was set up in 
October 2008 comprising differe nt Directorate Generals: MARKT, ECFIN, SG, SJ, ENTR, 
EMPL, COMP, JLS and the European Centra l Bank (ECB). The steering committee met in 
November 2008, June 2009 and September 2009.  
The Impact Assessment was submitted on 10 September 2009 and discussed by the Impact 
Assessment Board on 23 September 2009. 
The minutes of the last Steering Group meeting we re attached to the Im pact Assessment at the 
submission to the Impact Assessment Board.  
The comments received from the Impact Assessment  Board resulted in the following changes:  
• More detailed description of the relati onship between early intervention and bank 
resolution with other initiatives to address weaknesses highlighted by the financial crisis 
especially concerning the s upervisory architecture;  
• Clarification of the scope of the Communi cation in terms of banks concerned;  
• More explicit reference to the problems asso ciated with cross-border crisis management 
which the case studies seek to highlight ;  
• Clarification of options concer ning bank resolution financing;  
• Addition of a table showing the impacts of  major policy options on each stakeholders; 
• Addition of tables methodically linking options to the full set of objectives; 
• Addition of an annex on the main results of the public consultation on the review of the 
reorganisation and winding up of cr edit institutions Directive. 
• Addition of an annex with a table which provide s an overview of the issues covered in the 
Communication, including the bodies  involved at different phas es of a developing crisis. 
2.2. Consultation of interested parties 
In the period until September 2009, the Commi ssion services organised a number of 
consultations with experts and key stakeholders. 
A working group on Early Intervention was set up in November 2008 which comprised of 
experts of all Member States, mostly represen ting Ministries of Finance. The working group 
met on two occasions and provided important  insight and opinion to the matters under 
examination. Experts commented in writing on the first Issues Paper that was circulated for 
consultation in January 2009. Initial reactions suggest that Member State experts clearly 
support the Commission's work on early intervention and bank resolution, considering the 
 
EN 7   EN issues to be of high importance and priorit y. They requested the Commission to adopt an 
ambitious approach which at the same time sets the right balance between financial stability and the interest of stakeholders. 
In the second half of 2008, the Committee of  Banking Supervisors (CEBS) conducted a 
comprehensive survey among all banking supervisors in the EU and delivere d its report to the 
Commission in March 2009
7. The report summarises the obj ectives and powers, including 
early intervention measures and sanctioning powe rs of financial supervisors. The report is 
widely quoted in this impact assessment. 
During technical meetings and continuous contacts , the issues were also discussed with the 
European Central Bank. Views were shared on the need for improved early intervention and 
bank resolution in the EU. 
In July 2009, a high level Working Group of the Economic and Finance Committee published 
a paper entitled "Lessons from the financia l crisis for European financial stability 
arrangements", containing 10 recommendations fo r improvements in the field of crisis 
management. The recommendations are in line with  the analysis contained in this impact 
assessment. 
An external legal consultant (DBB Law) was hired in August 2008 to support th e work with 
key inputs, data and legal analysis. The Consu ltant summarised the legal frameworks of 16 
Member States regarding early intervention  possibilities by supervisors, insolvency 
legislations for banks and banki ng groups, and special interven tion possibilities by resolution 
authorities. The Consultant delivered its interim report in November 20088 and its draft final 
report in July 2009. 
The contributions of DBB Law and CEBS were important in understanding the problems that 
are addressed by this initiative. 
In May 2007, a public consultation9 was launched to seek the view s of stakeholders in relation 
to the Directive on the reorganisation and wi nding up of credit institutions (2001/24/EC).10 
The survey respondents broadly supported the de velopment of a legal framework tailored to 
the winding up and re-organisation of cross- border banking groups. The consultation's result 
suggested that the current directive that deal s with cross border branches might need also 
some adjustment (e.g. investment firms ar e not covered by the directive, home-host 
responsibilities can create pr oblems in managing cross border branches: to determine which 
should be the applicable law and responsible authority). 
The European Banking Federation11 (EBF) set up a special working group to support the work 
of the Commission and provided their views on early  intervention and ba nk resolution. They 
delivered their draft report in April 2009. EB F expressed its support for the work of the 
                                                 
7 http://www.c-ebs.org/getdoc/f7a4d0f8-5147-4aa4-bb5b-28b0e56c1910/CEBS-2009-47-Final-(Report-
on-Supervisory-Powers)-.aspx 
8 http://ec.europa.eu/internal_market/bank/windingup/index_en.htm 
9 The summary of the main findings can be found in Annex IV. All consultations documents can be 
found on the following website: http://ec.europa.eu/internal_market/bank/windingup/index_en.htm 
10 See description of the Directive in sub-ch apter: Overview of legislative framework 
11 Set up in 1960, the European Banking Federation is the voice of the European banking sector (EU & 
EFTA countries). The EBF represents the interests of some 5000 European banks: large and small, 
wholesale and retail, local and cross-border financial institutions. www.fbe.be 
 
EN 8   EN Commission on early intervention ai ming at enhancing the effectiv eness of cross-border crisis 
management. They also supported actions re garding coordinated ap proaches in groups’ 
insolvency. EBF called for a cl ear policy around the different stages of a crisis: who the 
responsible competent authoritie s are and what tools are at th eir disposal at each stage. 
3. POLICY CONTEXT , PROBLEM DEFINITION AND SUBSIDIARITY  
3.1. Background and context 
3.1.1.  Nature and size of the market concerned 
The Communication addresses crisis manageme nt and resolution issues in relation to 
internationally active banks. Ther e are 39 large cross border banks in the EU and around 100 
further banks that have subsidiaries or systemic  branches in another Member State. The focus 
is on crisis management for individual banks  under normal market conditions, as opposed to 
under conditions of generalised economic and systemic  crisis. This is an important distinction, 
as policy options may differ according to the market environment. Chapter 4 presents therefore policy options that primarily applicable in the case of crisis in one individual cross-border bank. The main objective of such a crisis  management framework is to put in place 
arrangements which are capable of handling the failure of even the largest cross-border bank 
without provoking wider systemic impacts. Unde r generalised financial crises, such as the 
recent crisis, there may be no alternative other than to use public funds to support the banking 
sector. Nevertheless, the developm ent of effective crisis management tools should also useful 
in all circumstances. 
EU financial markets are increasingly integrat ed, especially at the wholesale level. The 
banking and insurance markets are dominat ed by pan-European groups, whose risk 
management functions are centralised in the group's headquarters. According to the ECB
12, in 
2007, total assets of approximately 8,300 credit institutions13 in the EU27 were €41,072 
billion with a significant share thereof owned by  the 39 large cross-bord er groups. Their total 
assets represent around 68 % of the total EU  banking market. Especially in the EU-12, 
banking markets are dominated by foreign (mos tly Western European) financial groups. In 
these countries, on average 65% of banking assets  are in foreign-owne d banks. In countries 
like Estonia, the Czech Republic and Slovakia over 92% of banking assets are in foreign-
owned banks. 
                                                 
12 ECB, EU Banking Structures , October 2008 
13 At a Member State level, this figure includes branches and subsidiaries of banks from other EU and 
third countries. Where a foreign bank has several branches in a given MS, they are counted as a single 
branch. 
 
EN 9   EN Chart 1 Market share of foreign- owned banks (% of total assets)  
 
Source: European Commission, European Financial Integration Report 2008 (2009) 
The assets of bank branches and subsidiaries established in another Member State has been 
growing over the past years. Around 500 forei gn subsidiaries owned assets of almost 4000 
billion euros in 2006 up from 2000 billion in 2002. 
Chart 2  Branches14 and subsidiaries of credit institutions from other MS and their cross-
border assets in 2002-2006  
300350400450500550600650700
2002 2003 2004 2005 2006Count
05001.0001.5002.0002.5003.0003.5004.000Euro, bln
Cross-border branches Cross-border subsidiaries
Branch assets Subsidiary assets 
Source: ECB  
3.1.2.  Overview of legislative framework 
The current EU financial stability framework is focused on ensuring banks are adequately 
capitalised. The Capital Requirements Directive (CRD)15 contains provisions aimed at 
                                                 
14 Where a credit institution has several branches in a given MS, they are counted as a single branch. 
 
EN 10   EN stabilising capital within banks, but it is not prescriptive about what to do when banks no 
longer meet the 8%16 minimum capital threshold. The management of situations when the 
bank does not meet the requirements of banking la ws (8% CAR) but is st ill not insolvent is 
left to national legislation. 17  
Presently at EU level, article 136 of the CR D deals with the early intervention powers and 
tools of banking supervisors in a crisis situation. This article enables the supervisors to oblige 
banks to implement measures that correct irregu larities and restore cap ital requirements, e.g. 
by requiring them to hold additional capital, improve governance, systems and internal control arrangements, increase reserves, limit business operations and risk exposures, etc. 
The CRD also establishes rules a bout alerting other authorities
18 (i.e. Central Banks and 
Ministries of Finance) in emergency situa tions, requiring coordination of supervisory 
activities and exchange of info rmation in emergency situations19 among Member States.  
National banking legislations enable financial s upervisors with different powers and tools to 
intervene at an early stage  in the operation of a bank in a crisis situation. The survey of 
CEBS (mentioned above) summarises the main  differences between national systems. 
In July 2008, agreement was reached on an  EU wide Memorandum of Understanding 
('MoU')20 setting out cross-border crisis mana gement arrangements and involving the 
commitment of all signatories (e.g. EU fina nce ministries, Central Banks and supervisory 
authorities) to cooperate across borders between re levant authorities with a view to enhancing 
preparedness for the management of potential cross-border crisis situations. Although not 
legally binding in nature, the MoU defines procedures for the involvement of all relevant 
parties in a crisis situation, based on the ex isting legal responsibilities and decentralised 
supervisory framework, and building on existing ne tworks of authoritie s (Domestic Standing 
Groups, colleges of supervisors, and networks of  Central banks). It also  defines coordination 
mechanisms, relying on a national coordinator in charge of actions to be taken at a national 
level (who may vary according to the nature, the characteristics and stages of the crisis) and 
Cross-Border Coordinator which, as a rule, is one of the authorities of the home country and 
should efficiently use internal cooperation mechanisms of the country. The MoU stipulates 
that sufficient cross-border proced ures in normal times between all relevant authorities are to 
be put in place to enhance the availability of  tools for crisis management; addressing the 
issues of burden sharing be tween home and host countries; and ensuring preparedness for 
financial crisis situations.  
                                                                                                                                                         
15 Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions and 
Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions. 
16 Capital Adequacy Ratio (CAR): bank's capital expre ssed as a percentage of its risk weighted assets. 
17 This approach is supplemented by the two "safet y net Directives" should preventive measures fail: the 
DGS Directive and the Re-organisation and winding- up of credit institutions Directive (2001/24/EC). 
The latter Directive is limited to organising conflict of law rules (Which law is applicable in the procedure: both the host and home Member States (cou ntry of origin), or only the home Member States 
(universality and unity principles) but does not govern the actual insolvency laws themselves, which are 
left to the discretion of Member States. Furthermor e it caters only for credit institutions with branches 
(not subsidiaries) in an other Member State.  
18 Article 130 CRD 
19 Article 129(1) CRD 
20 Memorandum of Understanding on Cooperation betw een the Financial Supervisory Authorities, Central 
Banks and Finance Ministries of the European Union on Cross Border Stability (1 June 2008). 
 
EN 11   EN Table 1 Relevant EU and national legislations and agreements 
EU Competence 
Directive/agreement Description Relevance for this topic 
Capital Requirements 
Directive (CRD, 
Directive 2006/48/EC 
and 2006/49/EC) CRD establishes the authorisation and pursuit of 
business of credit institutions along with the principle of single passport and home country 
control and further sets out the applicable 
prudential requirements: supervision and disclosure by competent authorities, consolidated 
supervision, capital requirements, reporting of and 
limits to large exposures and non-financial 
holdings, suitability of managers and shareholders, 
standards for the internal risk management and public disclosure to achieve market discipline.  
Together, the Codified banking Directive and the 
Capital Adequacy Directive implemented the capital requirement framework based on the Basel 
II accord developed by the Basel Committee on 
Banking Supervision (BCBS). 
 Article 136 lists the minimum 
powers supervisors must have to correct irregularities at a bank. 
This list could be expanded in 
light of the current crisis as not all authorities had adequate tools 
to handle ailing banks. 
Article 129 and 130 established 
rules about alerting other 
authorities (i.e. Central Banks and Ministries of Finance) in 
emergency situations. 
New provisions on home/host 
supervision have recently been 
adopted (but not yet transposed 
into national legislation) which establish colleges of supervisors 
for internationally active banks. 
 
Directive on the 
Reorganisation and 
Winding up of Credit 
Institutions (Directive 
2001/24/EC) The Directive establishes that the home 
administrative or judicial authorities are the 
empowered authorities to decide on reorganisation 
measures and winding-up proceedings for credit 
institutions that operate branches in other Member 
States. The measures ar e governed by a single 
bankruptcy law, that of the home state. It prohibits 
the application of separate insolvency measures to 
branches under the law of the host State. It ensures the mutual recognition and coordination of 
procedures under home co untry 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, subject only to exceptions specified 
in the Directive, the law of the home State.  This directive does not provide 
for the consolidation of 
insolvency proceedings for 
separate legal entities i.e.: subsidiaries within a banking 
group, and makes no attempt to 
harmonise national insolvency 
laws.
  
Directive on Deposit 
Guarantee Schemes 
(Directive 94/19/EC) 
and its amendment by 
Directive 2009/14/EC The Directives aim at safeguarding deposits from 
bank customers. Each depositor is guaranteed a 
protection of at least € 50,000. Unless the Commission Services finds it differently, the limit 
will be increased to € 100,000 by 31 December 
2010. Member States are obliged to ensure that 
one or more deposit guarantee schemes are set up. 
The schemes must also cover depositors at 
branches in other Member States. In certain Member States deposit 
guarantee schemes not only have 
the task to pay out deposits but also to actively take part in crisis 
management or even to finance a 
resolution. 
 
EN 12   EN  
EU Competence 
Directive Description Relevance for this topic 
Memorandum of 
Understanding 
2008 Building on the existing national and EU legislation, 
the objective of the Memorandum is to ensure cooperation in financial crises between Financial 
Supervisory Authorities , Central Banks and Finance 
Ministries through appr opriate procedures for 
sharing of information and assessments, in order to 
facilitate the pursuance of their respective policy 
functions and to preserve stability of the financial 
system of individual Memb er States and of the EU 
as a whole.  Voluntary cooperation of 
authorities proved to be inadequate in the recent financial 
crisis despite the fact that the 
MoU was already in force. 
Second Company 
Law Directive 
77/91/EEC  The Directive on coordination of safeguards which, 
for the protection of the interests of members and 
others, 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. Mandatory requirements on the 
shareholders' approval of any 
increase or reduction of capital as 
well as rules on shareholders' pre-emption rights may hinder 
effective resolution measures of 
public authorities in an ailing bank. 
Shareholder Rights 
Directive 
2007/36/EC The Directive on the exercise of certain rights of 
shareholders in listed companies establishes 
requirements for general meetings of shareholders and in particular the convocation periods and the 
form of the convocation. Long convocation periods may 
slow down speedy actions of 
authorities aiming at resolving ailing banks. 
National Competence 
Legislation Relevance for this topic 
Banking laws on 
powers of 
supervisors Beyond the minimum requirements of the CRD, early intervention by supervisors is 
defined by national supervisory/banking laws. These laws include widespread powers 
which may not be compatible across Member  States and may complicate cross-border 
supervisory cooperation. 
Insolvency laws Bank resolution depends in most Member States on national insolvency provisions. Re-
organisation of different entities of the same cross-border banking group will take place 
according to different national insolvency la ws. There is no coordinated operation of 
these laws on a cross border level. 
Special bank 
resolutions laws Special laws on bank resolution are aimed at optimising the response to a banking crisis, 
allowing intervention at a stage before formal insolvency has been reached. Such laws 
only exist in very few Member States he nce the absence of special reorganisation 
techniques for banks can compli cate cross-border coordination. 
 
EN 13   EN 3.1.3.  Overview of ongoing developments 
On 23 September 2009, the European Comm ission adopted a legislative proposal21 to reform 
the architecture of European financial supervis ion and address critical  weaknesses highlighted 
by the financial crisis of 2008-2009. Based on the recommendations of the de Larosière 
Group, the Commission proposes to  create two new bodies: the European Systemic Risk 
Board (ESRB) and the European System of Financ ial Supervisors (ESFS). As for the latter, it 
is proposed to transform the three existing European committees of financial supervisors22 
into European Supervisory Authorities (ESA s), (a European Banki ng Authority (EBA), a 
European Insurance and Occ upational Pensions Authority (EIOPA), and a European 
Securities and Markets Authority (ESMA)) with  commensurately increased powers to, inter 
alia:  
• co-ordinate the work of national supervisors,  in particular in case of adverse developments 
which potentially jeopardise the orderly functioning of the fi nancial system in the EU;   
• settle disputes between national supervisors in  cases of disagreement on supervisory issues 
regarding a cross-border financial institution;  
• take steps to harmonise national regulatory rules and move towards a common European 
rulebook, and 
• supervise certain pan-European entities which are regulated at  EU level, i.e.: Credit Rating 
Agencies. 
The proposals of the Commission suggest that the ESAs will fulfil an active coordination role 
in emergency situations, while in very excep tional circumstances, the ESAs, which decision-
making body consists of the Heads of the releva nt national supervisory authorities, should 
also have the power to require national supervisors to  jointly take specif ic action. Article 10 
of the proposed regulation esta blishing a Banking Authority sets out the role that the new 
authority would play in crisis s ituations. It envisages that, in the case of adverse developments 
which may seriously jeopardise the orderly func tioning and integrity of financial markets or 
the stability of the whole or pa rt of the financial system in  the Community, the Commission, 
upon its own initiative or following a request by the Authority, the Council, or the ESRB, 
may adopt a decision addressed to the Authority, determining the existence of an emergency situation. In such cases, the Authority may adopt individual decisions requiring competent 
authorities to take the necessa ry action to address any risks that may jeopardise the orderly 
functioning and integrity of financial markets or the stabil ity of the whole or part of the 
financial system. 
If a competent authority does not comply with the decision of the Authority, it may adopt an 
individual decision addressed to a financial institution requiring the necessary action to comply with its obligations under that legisl ation, including the cessa tion of any practice. 
Such decisions shall prevail over any previous  decision adopted by the competent authorities 
on the same matter. 
                                                
 
21  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
establishing a European Banking Authority, 23 September 2009 
22 These are the Committee of European Banking Supervisors (CEBS), the Committee of European 
Insurance and Occupational Pensions Supervisors (C EIOPS) and the Committee of European Securities 
Regulators (CESR). 
 
EN 14   EN Based on Article 23 of the Proposal, the deci sion making power of the EBA is however 
subject to a safeguard clause which makes clear  that decisions by the EBA should not in any 
way impinge on the fiscal responsib ilities of the Member States. In  another initiative on crisis 
management, the Economic and Finance Comm ittee has prepared a report for finance 
ministers in advance of the Informal ECOFIN (1 October). The report  sets out a suggested 
way forward for an integrated framework for European financial stability arrangements, 
suggesting a two-strand approach: 
• developing a comprehensive EU-wide fram ework for closer policy coordination on 
financial stability, in particular in a financial crisis, without  the need for legislative 
proposals, and 
• further enhancing the EU regulatory framew ork for crisis management by developing 
common and interoperable tools, on th e basis of EU legislative proposals. 
There is a clear linkage with the Commission's initiative, and a strong focus on the need to 
make progress on burden sharing. The Co mmission's Communication, on the other hand, 
focuses less on burden sharing (although the impor tance of progress in this area is clearly 
recognised), and concentrates more on improv ement of processes in order to increase 
efficiency of crisis resolution and rely less on public sector financi ng arrangements. Both 
initiatives are complementary. 
At international level,  the G20 has been discussing crisis  management and resolution among a 
host of other issues aimed at addressing shortcom ings in the international financial regulatory 
system. At the Pittsburgh summit on 24-25 Se ptember 2009, the Leaders' statement called for 
agreement to be reached, inter alia , on: 
"Addressing cross-border resolutions and system ically important financial institutions by 
end-2010: Systemically important financial fir ms should develop intern ationally-consistent 
firm-specific contingency and re solution plans. Our authorities  should establish crisis 
management groups for the major cross-border firms and a legal fr amework for crisis 
intervention as well as improve information sharing in times of stress. We should develop resolution tools and frameworks for the effec tive resolution of finan cial groups to help 
mitigate the disruption of financ ial institution failures and reduce moral hazard in the future. 
Our prudential standards for systemically impor tant institutions should be commensurate 
with the costs of their failure. The FSB should propose by the end of October 2010 possible measures including more intensive supervision and specific additional capital, liquidity, and 
other prudential requirements ." 
 
 
EN 15   EN 3.2. Problem definition 
3.2.1.  General problems 
While the operation of cross border banks has b ecome highly integrated, (with the result that 
business lines and internal se rvices are deeply interconnect ed and cannot be efficiently 
separated along geographical bord ers of Member States), cris is management of banks has 
remained national. As a consequence, in the event of a cross border bank failure, financial 
supervisors and other (resolution) authorities will only concentrate on the operations located 
in their respective territories. This may co mplicate cross border cooperation and lead to 
inefficient and possibly competing resolution appr oaches and suboptimal results at EU level. 
The existing framework has proved inadequate to deal with cross-border banking failure. 
While the introduction of the EU Memorandum of Understanding on Cross-border Stability 
came too late to be effectively applied duri ng the recent bank failures, it is questionable 
whether voluntary arrangements would have be en sufficient to ensure smooth cooperation 
during the fast moving events which characterise d this crisis. And whil e recent amendments 
to the CRD will result in the setting up of colleges fo r all cross-border groups, in the absence 
of a broader legal framework setting out bank resolution arrangements, there is no guarantee that cooperative solutions will be forthcoming during future crises.  
A key shortcoming to effective cooperation is the misalignment of incentives between 
national authorities. Unless these are better  aligned (both within  countries and across 
countries), outcomes to crisis re solutions will invariably fall short of their potential. An 
incentive-compatible framework is thus an essen tial part of broader reform to the framework. 
In particular, trust a nd confidence in cooperation arrangeme nts need to be underpinned by the 
assurance that the costs resulting from a cro ss-border resolution can be fairly shared and 
borne between the various stakeholders (inc luding public funds should private sector 
solutions prove insufficient).  
Although a number of European supe rvisors have tools available to intervene in a banking 
crisis , the tools which exist may be different betw een Member States, or in some cases may 
not exist at all. These differences and gaps, including legislative differences between Member 
States and/or a lack of a legislative/institutiona l basis in some countries , have the potential to 
complicate and even hinder the efficient cross-bo rder handling of a banki ng crisis. If different 
authorities intervene at different  points in time, pursue different  objectives and use different 
tools and measures according to their own unders tanding of the problem, the results are likely 
to be suboptimal. 
Furthermore, misalignment between the nationa l accountability and mandate of supervisors 
and the cross-border nature of the banking  industry complicates co-operation between 
supervisors of different Member States, and is an additional element leading to a suboptimal level of crisis prevention in case of cross-border banks 
There is no legislatio n at EU level governing bank resolution . Beyond introducing a 
minimum set of powers for supervisory authori ties aimed at restoring a situation in a bank
23, 
and establishing arrangements for the winding-up and reorganisation of credit institutions with branches in othe r Member States, no EU framework exists which sets out how and under 
                                                
 
23 In Article 136 of the CRD.  
 
EN 16   EN which conditions authorities should act in the even t of a crisis arising in a cross-border bank. 
The management of crises is almost  entirely governed by national laws.  
The diverging approaches and tools, and conflic ting interests between authorities is likely to 
lead to inefficient crisis prevention and resoluti on and deliver sub optimal results at EU level. 
This in turn can produce more costly outcomes for EU citizens and tax-pa yers, as the bail-out 
of systemically important cross border banks can be extremely costly compared to the cost of 
a timely and effective resolution.24 According to the latest IMF25 estimates, crisis related 
writedowns on assets originated globally will reach $4.1trilli on by 2010, with global banking 
industry expected to bear abou t two thirds of the losses, half of which (or $1.4 trillion, 
equivalent to 9% of the EU's GDP) is  now attributable to  European Banks. 
Effective cross-border crisis resolution is al so hindered by legal obstacles embedded in 
insolvency and company law and legal uncertain ty, as well as the lack of arrangements for 
financing cross-border resolutions . Maintenance of continuity of banking services, which is 
crucial for the preservation of confidence in ba nks, may be jeopardised if authorities do not 
have tools to keep the going concer n status of a bank in a resolution. 
The causal links between the driver s and their consequences in th e field of early intervention 
and resolution of banks are described in  the problem tree (see section 2.2.4). 
The current financial crisis has provided some  clear examples of just how damaging the 
absence of adequate EU arrangements in the field of cross-border ba nking crisis resolution 
can be.  
Fortis 
In the case of Fortis, authorities from different  Member States were unable to rapidly agree on 
a rescue plan which could have maintained the cohesion of the group structure. As a 
consequence the group was split up along geog raphical boundaries and not along a more 
logical and cost effective divi sion between business lines. The situation is described in the 
Fortis 2008 Annual Review26 as follows: The global financial si tuation continued to 
deteriorate. Alarmist rumours affected Fort is’s interbank market access, while it had to 
contend with an extremely substantial liquidi ty requirement. During the weekends of 27–28 
September and 4–5 October, Fortis had to concl ude a number of transactions that ultimately 
led to the sale of its main bank ing and insurance activities to  strong parties. On 29 September 
2008, Fortis announced that the Belgian governmen t would invest EUR 4.7 billion in Fortis 
Bank SA/NV, that the Dutch government w ould invest EUR 4.0 billion in Fortis Bank 
Nederland (Holding) N.V., and that the Lu xembourg government w ould invest EUR 2.5 
billion in Fortis Banque Luxembourg SA. Th ese investments represented 49.9 % of the 
common equity of the respective entities. The parties concerned expected that a solution had 
been found and that matters would resume their normal course. In the days that followed, the 
parties negotiated the implementation of th ese agreements with both the Luxembourg 
government and the Dutch government. A term sheet was signed on 30 September 2008 with 
the Luxembourg government. The agreement with th e Dutch state, by contrast, could not be 
                                                 
24 Effective cross border arrangements  should ensure a result that is optimal at EU level, taking into 
account the interests of stakeholders in all Member States, and thus minimising the overall cost all. 
25 IMF, Responding to the Financial Crisis and Measuring Systemic Risk (Global Financial Stability 
Report), April 2009 
26 http://www.holding.fortis.com/shareholde rs/media/pdf/EN_AnnualReview_2008_1.pdf  
 
EN 17   EN implemented. Despite hopes at the beginning  of the week, the si tuation continued to 
deteriorate, due to tensions in  the interbank market. Fortis found it extremely  difficult to 
regain the confidence of the market and its sh are continued to decline, reaching a closing 
price on 29 September 2008 of EU R 3.97. In terms of liquidity, the situation was extremely 
uncertain and it was necessary to negotiate new conditions with the Belgian central bank and 
to obtain an Emergency Liquidity Agreement wi th the Dutch central bank. Withdrawals by 
institutional clients and by companies had increa sed substantially. This situation led on 3 
October to the sale of Fortis Bank Ne derland (Holding) N.V., Fortis Verzekeringen 
Nederland N.V. and Fortis Corporate Insurance N.V. to the Dutch state for a total 
consideration of EUR 16.8 billion, wh ich was allocated as follows : 
• EUR 12.8 billion received fo r the Dutch banking activi ties (including ABN AMRO) 
remained within Fortis Bank; 
• EUR 4 billion received for the Dutch insurance activities went to the Fortis holding 
company.  
Following the transfer of the operations in the Netherlands to the Dutch state, Fortis was 
obliged to review its options : 
• Continue on a stand-alone basis with the Belg ian state as a minority  shareholder in the 
bank;  
• Find a strategic partner for Fortis Bank and fo r all or part of Fortis’s other operations; 
• Sell the remaining 50 % of the Belgian bank to th e Belgian state, prior to a possible resale 
to a private investor" 
How does this example illustrate the issues  highlighted in the problem definition? 
The Fortis case is a clear illustration of many of the problems which can arise during a cross 
border banking crisis. It shows the tendency of au thorities to adopt terri torial approaches in 
crisis resolution and how the c onsequent competition for asse ts can lead to sub-optimal 
results. Absence of complete information, ex acerbated by the complex business structure of 
Fortis, compromised the early burden sharing arrangement, and ultimately resulted in the 
splitting of the group. The misalignment of respons ibilities between author ities gave rise to 
tensions which further compromised cooperati on. The absence of a clear legal framework 
under which resolution measures  could be taken resulted in legal challenges from 
shareholders which created a protra cted period of legal uncertainty. 
 
Iceland 
In the case of the Icelandic banks, the inability to deal with problems at an early stage in a 
cooperative manner led to the subs equent disorderly re solutions and disput es between national 
authorities, in particular about who should bear the costs which were incurred. " After five 
years of brisk expansion, the c ountry’s three main banks, re presenting 85% of the banking 
system, all collapsed during the same week in October 2008 […] Upon their failure, the three 
banks were put into receiversh ip and new banks were formed to enable the domestic payment 
system to continue to func tion smoothly. Complex negotiatio ns between the new banks and the 
creditors of the old banks were needed to reach a final settle ment. With hinds ight, it appears 
that the Icelandic financial su pervisory authorities had b ecome overwhelmed by the 
complexity of the national banking system, and had been unable to stop their expansion. […] 
An important cross-border banking issue raised by the financial crisis was that national 
 
EN 18   EN deposit guarantee systems may not have enough re sources to honour the minimum EU deposit 
guarantee obligations. The government was oblig ed to stand behind Iceland’s Depositors’ 
and Investors’ Guarantee Fund (DIGF) to enable it to meet these oblig ations, thus exposing 
Icelandic taxpayers to a large cost ."27 
How does this example illustrate the issues  highlighted in the problem definition? 
An absence of cooperation mechanisms and early  intervention tools pr evented an early and 
possibly less costly resolution to the Icelandic Banking Crisis. There was also a clear problem 
associated with financing the resolution, and th e cross-border arrangements were limited to a 
Deposit Guarantee Scheme which was inadequately  financed.  Assets of  the Icelandic banks 
were ring fenced in the absence of satisfact ory cooperative arrangements – with counter 
productive effects for the Icela ndic banks and their creditors.  
 
Lehman Brothers 
The chaotic way in which Lehman Brothers wa s placed into bankruptcy led to a significant 
loss of value for unsecured creditors, and highlig hted the extreme market disruption caused by 
uncertainties about the location and return of cl ient assets held by Lehman as prime broker, 
and about the contractual positions of Lehman 's counterparties and the status of their 
outstanding trades. The administrators overs eeing the winding down of Lehman Brothers, 
have described the complexity of the task they are faced with as follows28: "Lehman Brothers 
was a very significant and complex global organi sation, operating in multiple territories and 
across most areas of financial services. Its collapse also coincided with a period of 
unprecedented turmoil in financial markets. The US operations of Lehman Brothers, and the 
UK and European Lehman Brothers’  entities in administrati on, are now being dealt with 
through separate legal procedures and it is as  if they are no longer part of the same group. 
This has significant practical consequences for the Administrators in meeting their objectives. 
As with most global financial services organi sations, on a day to day basis Lehman Brothers 
was previously managed and run mainly alon g global product lines. Following Lehman 
Brothers’ bankruptcy in the US, and the UK and European Lehman Brothers' entities being 
placed into insolvency proceedings, a legal en tity focus is now paramount and all information 
relating to the group’s activities now has to be captured and a ssessed on a legal entity basis 
instead. Funding, and other inte rdependencies, existed between  the US and various UK and 
European Lehman Brothers’ entities and these links are now broken. These factors add 
further complexity to the administration. The sale of th e North American investment banking 
and capital markets business of Lehman Brothers to  Barclays also complicates the situation 
faced by the Administrators." 
How does this example illustrate the issues  highlighted in the problem definition? 
Lehman was an internationally active bank, wi th a highly complex organizational structure 
and was supervised by a number of different authorities. The case is a good illustration of the 
failure of cooperation and information sharing at a critical moment prior to and during 
insolvency. It also illustrates how difficult ring  fencing of assets can be in practice – as 
liquidity was moved rapidly around the organization it was impossi ble for authorities to keep 
                                                 
27 OECD Policy Brief, September 2009, Economic survey of Iceland 2009, 
http://www.oecd.org/dataoecd/29/8/43455728.pdf 
28 www.pwc.co.uk/eng/issues/lehman_faq_1008.html  
 
EN 19   EN track of.  The challenge to wind up the organi zation in the wake of a disorderly failure 
provides evidence of the inade quacies of the current territor ial approach to  cross-border 
resolution and winding up rules. Finally, the ch aos caused by the collapse of Lehman is a 
strong illustration of the disruptive impact of  the failure of a highly connected financial 
institution and the potential damage disorderly  resolutions can have on market confidence.  
The absence of adequate cross-border crisis management arrangements has almost certainly 
resulted in higher costs which have ultimatel y fallen on taxpayers. Although it is difficult to 
estimate with any degree of accuracy the extent of the cost savings that might result from effective cross-border arrangements, it can be e xpected – given the overall costs associated 
with banking crises - that these would be significant. Since October 2008, the European 
Commission has approved €3.6 trillion (equival ent to 30.5% of EU's GDP) of state aid 
measures to financial institutions, of which €1.5 trillion has been effectively used by June 
2009. 
The IMF has recently estimated the cost of  banking crises as a whole since the 1970s
29 and 
concludes that on average the fiscal costs, net of recoveries, associated with crisis 
management average around 13.3 % of GDP, an d can be as high as 55.1 % of GDP. Output 
losses average around 20 % of GDP during the first four years of the crisis. If this study had 
incorporated data from the current crisis, the costs would doubtless have been even higher30.  
3.2.2.  Drivers and specific problems 
There are two key aspects which ne ed to be considered in the context of a framework for bank 
resolution: early intervention  (or early remedial actions) and bank resolution  measures. 
Although both aim at stabilising the financial s ituation of a bank and thus avoiding market 
disruption, they can be prompted in different situations. 
Early interventions or remedial actions can be  prompted by financial supervisors when the 
bank is not threatened with imme diate insolvency. In such situ ations supervisors can ask the 
banks to implement certain measures (to hold additional capital, improve governance, systems 
and internal control arrangements, increase reserves, limit business operations and risk 
exposures) to ward off the problems. Such meas ures leave control of the institution in the 
hands of the management, and do not represent a significant interference with the rights of 
shareholders or creditors.  
When banks are close to insolvency, actions and measures need to be more severe in order to 
pre-empt potential instabilities in the banking a nd the whole financial system resulting from 
bankruptcy. In such situations, public authorit ies (central banks, fina nce ministries, deposit 
guarantee schemes, judicial and supervisory aut horities) might need to take over certain 
decisions on the business operation of a bank  and implement far reaching restructuring, 
reorganisation measures. 
                                                 
29 Systemic Banking Crises: A New Database Luc Laeven and Fabian Valencia, IMF, November 2008 
30 For more detailed quantification of the costs of the financial crisis, see also the European Commission's 
report "Public Finances in EMU 2009", 
http://ec.europa.eu/economy_finance/publications/publication_summary15289_en.htm 
 
EN 20   EN 3.2.2.1.  Early intervention 
Driver: Lack of effective early warning indicators and early-int ervention triggers 
Problems: Sub-optimal effectivene ss in prevention of crisis situ ations in cross-border banks 
Effective prevention of crisis  situations is conditional on accurate and early detection  of 
stress situations. Early intervention measures ar e activated by different triggers developed by 
each Member State. Results of a recent CEBS survey31 shows that only a few Member States' 
domestic legal frameworks specify the triggers that lead to automatic corrective action. Supervisors are obliged to act if an indicator hits a threshold).
32 However, CEBS 
acknowledges that such threshold levels fo r above indicators are too low for remedial 
measures to be considered true early interv ention measures and supervisory action will need 
to be taken long before the situation of an indivi dual institution deteriorat es to such a level.  
More commonly, early intervention measures ar e activated by ongoing prudential supervision 
whereby analysis is performed on the basis of financial and prudential information collected 
either during on-site inspections or via regular off-site communication. In this regard, in order 
to detect potential problems most EU supervisory author ities have developed Risk 
Assessment Systems33 (RAS) that play an important role in the Supervisory Review and 
Evaluation Process (SREP)34 (part of Pillar 235 of the CRD). RAS are typically geared 
towards assessing a broad range of risk factors based on a set of quantitative,36 qualitative and 
supervisory indicators.  
The events of 2008 have demonstrated that e ffectiveness of current early warning systems 
employed by the supervisory community is sub- optimal. Certain risks were underestimated 
because smaller-than-warranted  importance had been assigned to them while the signalling 
capacity of some risk indicators has been erro neously overlooked. This may have interfered 
with a timely undertaking of appropriate actions and in turn necessitate d more intrusive and 
costly – for many stakeholders involved - intervention measures. " Once problems escalated 
                                                 
31 http://www.c-ebs.org/getdoc/f7a4d0f8-5147-4aa4-bb5b-28b0e56c1910/CEBS-2009-47-Final-(Report-
on-Supervisory-Powers)-.aspx 
32 For instance, in Czech Republic, the supervisory au thority must impose remedial measures (e.g. capital 
increase, acquisition of assets having a risk weighting of less than 100%, prohibition to acquire any 
interest in any other legal entity, prohibition to grant a loan to a person having a special relation with the institution) if it becomes aware that an instituti on's capital is lower than two thirds of the minimum 
required capital; in Hungary, the supervisory author ity shall use corrective measures if the own funds 
are less than 75% or less than 50 % of the capital requirements; while in Slovakia, the supervisory 
authority shall place a cred it institution under forced administrati on if the own funds of the institution 
concerned fall below 50% of the minimum requirement. 
33 For more on features of Risk Assessment Systems please see http://www.c-ebs.org/Supervisory-
Disclosure/Supervisory-review.aspx 
34 See Glossary 
35 See Glossary 
36 Quantitative indicators (e.g., capital ratios, compositi on of own funds) are often analysed by comparing 
them against those of peer institutions. This allows authorities to identify worst performers or a relative 
strength of an institution vis-à-vis a peer group averag e. In some Member States, statistical models (For 
instance, Sytème d'Aide à Analyse Bancaire (S AABA) used by the French Commission Bancaire, 
forecasts likely evolution of an in stitution's solvency and quality of its  credit portfolio.) are used to 
conduct a more-in-depth quantitative analysis of the soundness of credit institutions. Such quantitative 
analysis is then complemented with a qualitative review of risk management and internal control 
systems.  
 
EN 21   EN into specific crises, there were  real problems of informati on exchange and collective decision 
making involving central banks, supervis ors and finance ministries…Regulators and 
supervisors focused on the micro-prudential su pervision of individual financial institutions 
and not sufficiently on the ma cro-systemic risks of a cont agion of correlated horizontal 
shocks."37 
More specifically, the crisis has demonstrated that current approaches focus too narrowly on 
capital ratios while underestimating the effects of  leverage and liquidity on the 'soundness' of 
an institution as perceived by ma rket participants. In this re gard, the predictive power of 
certain market-based indicators has not been  given due attention. Tier 1 capital ratio38 at 
Fortis, Dexia and Hypo Real Estate Holding were at 9.1%, 11.3% and 8.6%, respectively, at 
the time when their share price39 was experiencing a precipitous decline, eventually 
prompting national governments to take action in  late September 2008. This raises a question 
about the risk capture of capit al requirements under the Basel II framework and, in retrospect, 
underscores the merit of certain forward-looking market-based indicators that might be used 
to supplement the more traditional warning tools that are based on the past data.  
Empirical studies provide some support for the above observations. A recent study 
(Poghosyan, Čihák, 2009)40 on bank distress events in the EU from 1997 until 2008 looked at 
a range of potential indicators and possible thre shold levels that could be used to identify 
weak banks. The analysis found that indicators li nked to bank leverage and liquidity (defined 
as the share of wholesal e financing of liabilities41) have a significant predictive power. 
Indicators based on asset quality, bank profitability, market discipline, contagion effect and stock price were found to be releva nt as well. With regard to 19 distress events that took place 
in 2008, the study showed that while some mech anics identified over the entire observation 
period remained in place, certai n differences existed. More speci fically, a managerial quality-
based indicator was found to have a significant predictive potential for the most recent bank 
distress events. 
Driver: Divergence in national early warni ng indicators and early-intervention tools 
Problems: Sub-optimal level of supervisory co operation and effectiveness in prevention of 
crisis situations at  cross-border banks 
It is evident, that all Member States operate  some form of pre-intervention mechanism in 
order to handle a crisis in an ailing bank. Bu t the nature of the measures, the criteria 
                                                 
37 De Larosière report – CH I Causes of the financial crisis, pp 10-11. 
38 Tier 1 capital ratio - definition. Average Tier 1 ratio for 35 large diversified and internationally active 
EU banks was equal to 7.6% at the end of June 2008 (source: ECB, CEBS). 
39 Dexia's stock came under pressure following a series of financial commitments aiming at maintaining 
the AAA credit rating at its bond insurance unit Financ ial Security Assurance Inc.  Fortis' problems were 
linked mainly with the financing (€24 billion) of its commitment to buy Dutch operations of the ABN AMRO bank. Difficulties of Hypo Real Estate Holding were predominantly linked to its exposure to 
collateralised debt obligations (CDOs)  and short-term liquidity shortage. 
40 Poghosyan, T., and Čihák, M., Distress in European Banks: An Analysis Based on a New Data Set , IMF 
Working Paper, January 2009 
41 Banks' dependence on wholesale funding was acknowledged by the FSA as one of the main culprits for 
distress events at the UK banks during the current crisis (speech by Hector Sants, Chief Executive of 
the FSA, to the Associate Parliamentary Group on Business Finance & Accountancy Banking Reform, 
October 14, 2008). 
 
EN 22   EN conditioning their application and the moment  at which measures are activated are not 
harmonised and consequently differ across Member States.  
Divergence in national approaches to early inte rvention arises in all phases of the process. 
Early warning indicators and their threshold levels  that prompt supervisors to take appropriate 
measures vary across Member States as they are embedded in the Pillar 2 process. In this regard, CEBS
42 has observed that currently there is no minimal common set of early warning 
indicators and no commonly agreed  definition for each of them.  
With regard to the toolkit of measures and pow ers available to supervisors, Article 136 of the 
CRD already specifies some of these. It stipulates  that in order to addr ess a distress situation 
at an early stage, supervisory authorities shou ld be able to require banks to hold additional 
capital, improve governance, systems and internal  control arrangements, increase reserves, 
limit business operations and risk exposures stemming therefrom. The stocktaking of supervisory objectives a nd powers conducted by CEBS
43 revealed that several Member States 
implemented this Article differently, hence supe rvisory authorities have slightly different 
tools, and that a number of authorities lacked  certain powers. Further convergence might be 
needed in this respect if such difference s have the potential to complicate cross-border 
cooperation between authorities.  
In order to intervene effectiv ely and promptly to restore th e soundness of a bank, supervisors 
might also need to resort to additional domestic measures that go beyond the legal requirements of the EU legislation. In fact, some supervisors are entrusted with regulatory 
powers in the field of prudentia l supervision which enable them  to issue mandatory secondary 
legislation and non-mandatory rules and principles . All authorities have a "general power" to 
ensure compliance with the laws and regulati ons governing the activitie s of a bank. However, 
a number of supervisors either cannot achieve certain measures thr ough general powers or do 
not have access to the same speci fic powers that are available to the supervisory authorities in 
other Member States (see Chart 1). Specific circumstances that trigger application of a given 
power may also differ, therefore, cont ributing to the dive rgence of practices. 
                                                
 
42 CEBS, Mapping of supervisory objectives and powers, including early intervention measures and 
sanctioning powers, January 2009  
43 CEBS, Mapping of supervisory objectives and powers, including early intervention measures and 
sanctioning powers, January 2009  
 
EN 23   EN Chart 3 Supervisory authorities' access to selected powers and measures 
 
Source: CEBS 
Certain supervisory powers (e .g. suspending voting rights, tr ansfer of shares, changing 
ownership, prohibiting dividends) imp acting on shareholder rights can be also exercised with 
a view to achieving wider public policy objectives, such  as maintaining financial stability and 
protecting depositors' interests. Most of these powers are not prevented by EU rules and are 
used – to a varying degree – by natio nal supervisors or other authorities. 
Some of these powers can be viewed as altern ative means to arrive to the same end. For 
instance, authorities who do not have powers to require a transfer of shares or change in 
ownership may use the suspension of rights to i ndirectly incite a chan ge in ownership (AT), 
or, by limiting distribution of profits may indir ectly achieve an increase in capital (MT). 
Nevertheless, a number of authorities lack ac cess to some of these powers and, as a result, 
cannot attain – directly or indirectly – the same outcomes as their counterparts in other 
Member States44. 
Given that a speedy action is often critically important to the survival of an institution and to 
the ability for supervisors to minimi se costs associated with its failure45, differences in 
national pre-intervention approaches have the potential to complicate or impair efficient and 
coordinated cross-bord er crisis handling. 
Driver: Misalignment between national accounta bility and mandate of supervisors and cross-
border nature of the industry 
Problems: Sub-optimal level of supervisory coop eration impairing the effectiveness of cross-
border crisis prevention and counter productive ring fencing of assets 
As a result of industry consolidation over th e recent years, large cross-border banks now 
dominate the European banking landscape (see section 2.1).  
                                                 
44 For example, NL and DK have neither a power to limit profit distributions nor a power to require 
shareholders to provide financial support to an ins titution (Authority in LU may limit, but not prohibit 
distribution of profits). 
45 This was particularly evident during th e resolution of Fortis (see section 2.2.1). 
 
EN 24   EN Given the degree of banking market integration, it has been argued for some time that the key 
hurdle in developing a functional and effective EU financial stab ility framework is rooted in 
the fact that fiduciary  responsibilities of na tional authorities are to wards national governments 
limiting their incentives to work towa rds a common EU stability framework46. Before the 
current crisis, national authori ties were reluctant to develop commonly binding EU principles 
and procedures for cross-border financial crisis  prevention and resolution and often resorted 
to introducing their own national legislation to achieve home Member State-oriented 
objectives. As a result behaviour du ring a financial crisis has tend ed to be nationally focused. 
According to the IMF : "the dominant strategy for supervisors in an LCFI47 crisis will likely 
be to look out for the national treasury, usi ng informational advantages to that effect, 
notwithstanding MoUs on information sharing and cooperation. A scramble for assets in an LCFI crisis is thus likely and would have significant cross-border spill over, preventing efficient and effective crisis management and resolution. In this se t-up, it is natural for 
national prudential authorities to fear loss of  control over domestic ally-active financial 
players"
48.  
This conflict, whereby host Member States have an incentive to ring-fence assets (i.e. keep 
them within their jurisdiction) whereas home Me mber States have an incentive to seek the 
centralisation of assets while keeping liabiliti es decentralised, is of most relevance for 
'significant' subsidiaries .  
Currently, while supervisory author ities in all Member States ha ve a power to limit or prohibit 
intra-group transfers and transactions49, no framework currently exis ts to facilitate cross-
border intra-group asset transfers. This is es pecially problematic for intra-group financing 
across borders. Company law requirements (directors' liability) and different insolvency measures (intra-group transfers in suspect period)  can severely restrict any potential for using 
intra-group asset transfer
 as a tool for averting or managing a developing liquidity crisis in a 
group entity. There is currently no EU authoris ation regime for asset transfers (although in 
some Member States authorisation by supervisor y authorities is required), and EU legislation 
does not provide a general framework of terms and conditions for transfers. In some cases 
Member States prohibit 'disadvantageous' trans actions or transactions  at undervalue, while 
others impose the principle that transactions must be made at 'arms length', on standard commercial terms. In many cases, procedural requirements, such as authorisation by the 
General Assembly of the supervisory board may be triggered by the size of the transfer, the 
fact that the transfer was not concluded in the ordinary course  of business, or because the 
transfer is made between connected parties. As  there is no concept of 'group interest’ at EU 
level, directors of a company are neither respon sible to other group ent ities, nor to the group 
as a whole. Indeed, should they act to promot e the interests of the group in a way that is 
detrimental to their own company, they would likely  be in breach of thei r duties and at risk of 
liability under nati onal company law or even civil or cr iminal liability under national law. 
Under national insolvency laws, transfers carried  out during the 'suspect' period preceding the 
commencement of winding up proceedings may be  retroactively invalid ated, or else the 
transfer may be set aside or challenged if it wa s made at an undervalue or was detrimental to 
the transferor or its creditors. As a conseque nce, cross-border banking groups are unable to 
                                                
 
46 IMF Country Reports No. 07/260, July 2007, and No.08/262, August 2008 
47 LCFI - large and complex financial institutions 
48 IMF Country Report No. 07/260, paragraph 26 
49 CEBS, Mapping of supervisory objectives and powers, including early intervention measures and 
sanctioning powers, January 2009  
 
EN 25   EN mobilise available assets in on e part of the group in support of another part of the group 
which may be encountering liquidity shortfalls.  
Disincentives to cooperate have implications not  only for shareholders, but also creditors and 
employees of cross-border banks, as an uncoope rative crisis management process between 
national authorities may undermine the effectiven ess of pre-intervention measures and banks’ 
private crisis resolution solutions, with the ultimate financial burden falling on taxpayers.  
Recent changes to the legislative framework have  resulted in some important progress to put 
in place cooperation arrangements aimed at enhancing EU-wide fina ncial stability. The 
CRD50 already requires that superv isory authorities coordinate in gathering and dissemination 
of relevant information and, more generally, c oordinate their supervis ory activities in both 
going concern and emergency si tuations. However, the Dir ective does not specify the 
conditions that trigger the application of such  measures, and how joint assessment should be 
conducted. If national law or national supervis ors interpret those conditions differently, 
coordinated action by supervis ors of different group enti ties might be difficult. 
A number of revisions to the existing CRD  provisions, designed to  i) enhance work 
organisation and information shar ing in supervisory colleges, including obligation to alert 
peer supervisory authorities if financial st ability in their respect ive Member State is 
jeopardised and ii) clarify right s and responsibilities of home a nd host supervisors, including 
host supervisors of significant bran ches, have recently been adopted 51 (they will come into 
effect in 2010 ). The establishment of colleges of supe rvisors will improve cooperation and 
coordination of national supervis ors in the cases of cross bord er banks, including situation 
when early intervention might  be needed. Cooperation may however not grant always a 
common conclusion and joint actions  in a crisis situation when  national interests confront 
with each other. 
To facilitate more effective supervisory coope ration on these and othe r issues in a cross-
border context, CEBS has developed a Templa te Multilateral Coopera tion and Coordination 
Agreement52 that was field-tested by eight supe rvisory colleges in 2008. The guidelines, 
however, are not legally binding and supervisors are supposed to implement them on a best 
efforts basis only, thereby impeding effectiveness of the initiative. To date, currently only six 
supervisory authorities (CZ, FI, LU, SI, SK, and UK) have been explicitly mandated with 
promoting convergence of supervisory practices53.  
The new European Banking Authority (EBA) w ill further foster the cooperation among 
supervisors and ensure the c onsistent application of Comm unity rules including technical 
standards developed by the Authority. The EBA w ill contribute to promoting the efficient and 
                                                 
50 Article 129 (1) 
51 http://ec.europa.eu/internal_market/ban k/docs/regcapital/crd_proposal_en.pdf   
52 This agreement lays out the basis for the cooperation between the competent authorities and the 
practical organization of the supervisory activities on a specific group in going-concern as well as in 
emergency situations. These activities include, but are not n ecessarily limited to, the role of the college 
of supervisors, the role and responsibilities of th e competent authorities, information exchange among 
supervisors, communication with a specific group, sharing and delegation of tasks, Basel 2 validation 
procedures concerning internal models for credit, market and operational risks, Supervisory Review and 
Evaluation Process (SREP), and crisis management. http://www.c-ebs.org/get doc/aaafdb97-f131-4af6-
96b5-34720c1bd2ad/CEBS-2007-177-rev-4 -_template-for-written-agreemen.aspx   
53 CEBS, Mapping of supervisory objectives and powers, including early intervention measures and 
sanctioning powers, January 2009 
 
EN 26   EN consistent functioning of colleges of supervis ors and monitor the co herence of the work 
across colleges. In adverse developments whic h potentially jeopardise the functioning of the 
financial system in the EU, the EBA will fulfil  and active coordination role between national 
supervisors. In exceptional situations EBA will have the power to require national supervisors 
to jointly take specific actions. 
3.2.2.2.  Bank resolution  
There is currently no EU framework which deal s with problems in a bank once it approaches 
insolvency as this stretches beyond the sphe re of supervisory competence. Consequently 
Member States have adopted very different a pproaches to bank resolu tion, both with respect 
to the tools available and the conditions dete rmining their application. The diversity of 
national crisis intervention arrangements and ga ps in the tools provided under Member States’ 
legal frameworks makes cross-border manageme nt of intervention measures particularly 
challenging in an increasingly integrated Intern al Market. Any inadequacies in cooperation 
arrangements, different crisis management tool kits and conditions under which tools may be 
applied, lacking financing arrangement have th e potential to complicate or even compromise 
effective crisis management.  
 
EN 27   EN Driver: Lack of effective tools and powers a nd diverging national reso lution tools & powers  
Problems: Inefficient cross-border bank crisis  resolution process and suboptimal outcomes 
A study carried out on behalf of the Commission services54 describes the extent to which 
Member States' arrangements differ: they are based on different approaches , pursue different 
goals  and have been designed to fit with the different wider legal systems  of each country 
(e.g. provisions governing areas such as commerci al and contract law, ownership law, labour 
law, netting and set-off,55 tax law, etc.). The powers to ma nage bank crises are split between 
different domestic authorities , ranging from supervisory aut horities, to central banks, to 
government ministries, judicial authorities and in some cases deposit guarantee schemes, and 
the extent of powers and the conditions governing their use also differ according to each national system. 
As regards reorganisation tools,  general insolvency frameworks enable the use of certain tools 
to be applied to banks. These include: 
– mergers or acquisitions (transfer of all sh ares to the third party on an ongoing basis) 
– agreements with creditors, concerning reduction  of debt, debt restructuring, debt-equity 
conversion 
– assets sales 
– closure of non viable part of the business 
In certain Member States, more specific techniques for bank restructuring may also be 
available:  
– purchase-and-assumption transactio ns (transfer of assets and lia bilities to a purchaser; the 
transfer may include all the assets and liabilities or part of the assets w ith certain liabilities) 
– “Good-Bank/Bad-Bank” sepa ration and bridge banks
56 (selling of non-performing loans 
and other substandard assets for collection or transferring viable assets to a newly set up 
bank) 
– nationalisation. 
In the EU, only the UK Banking Act 200957 explicitly lists specific bank restructuring 
techniques which can be applied by the author ities without the consen t of the shareholders 
under the Special Resolution Regime. In other Member States, althoug h specific tools may 
not be explicitly prescribed in the legislati on, specific restructuring techniques may also be 
available either under administrative or j udicial proceedings applied to banks.  
                                                 
54 DBB Law "Study on the feasibility of reducing obstacles  to the transfer of asse ts 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", 2009. 
55 See Glossary 
56 See Glossary 
57 http://www.opsi.gov.uk/acts/acts2009/pdf/ukpga_20090001_en.pdf 
 
EN 28   EN – In Italy, for example, the law does not spec ify which techniques th e appointed special 
administrator may use, but the powers are set mo re broadly with the law stipulating that the 
administrator must promote helpful solutions in the interest of depositors . Possible wide 
interpretations may include a merger, acquisiti on or partial sales of  assets. However an 
important difference compared to the UK system is that shareholders retain the right for 
final approval of any reorganisation measure. 
– In France, the provisional administrator nominated by the banking supervisor may 
conclude transactions in the ordinary cour se of business. However a more intrusive 
intervention entailing a transf er of shares without the shar eholders’ author isation, requires 
the administrator to obtain a court order. Settlements with creditors may be achieved 
through various types of proceedings at the initiative of the debtor58. Specific bank re-
structuring techniques may only be us ed under an insolvency proceeding.  
– In Germany, the legal framework does not provide a bank specific administrative 
reorganisation, however under th e corporate insolvency law certain techniques (e.g. asset 
sales) are possible subject to  the approval of creditors. 
– In Sweden, no formal reorganisation proceedings  are possible for banks  – they can only be 
reorganised on a voluntary ba sis through negotiations with shareholders and creditors. 
Under a judicial insolvency, onl y liquidation is possible.  
In certain Member States however, reorganisati on of banks is not an option at all, as only 
liquidation is possible under insolvency proceedings. 
Differences in the availability of tools, the extent of powers held by authorities and the 
conditions under which they can be  exercised is likely to give rise to tensi ons in a cross-
border resolution and hamper efficient cooperation: 
– If national authoritie s are equipped with different tools and powers , certain measures can 
be impossible to implement. As a basic exampl e, if one national aut hority has the power to 
transfer part of the business to a third part y purchaser by executive order, while another 
cannot do so, a rapid and coordinated interven tion by those two authorities to deal with 
affiliated banks in their respective jurisdictions might be difficult. If cross border reorganisation measures are impossible to impl ement, national authorities are left with 
limited choices, among which the very expensiv e bail-out is the most likely outcome. 
– Different types of procedure  can slow down the overall crisis resolution process for a 
group. Where the necessary measures require judici al approval, or have to be taken with in 
the framework of court-directed insolvency proceedings, they may not necessarily lend 
themselves to a quick handling of a crisis si tuation (e.g. in France).  In other countries, 
administrative processes, managed by the su pervisor or central bank can implement 
measures more rapidly. The interaction of  judicial and admi nistrative processes 
implemented in different countries can thus ha rm efficiency and risk  loosing value during a 
prolonged resolution process. 
                                                
 
58 For instance, France has three types of proceedings provided by the commercial code and applicable to 
banks, aimed at a settlement with creditors: th e "ad hoc mandate", the composition procedure and 
safeguard procedure.  
 
EN 29   EN – Diverging threshold conditions  – which when reached (in di fferent points in time in 
different Member States) permit a national re solution authority to intervene and take 
control of a troubled in stitution in specified ways – may al so prevent coordinated action at 
cross border level. Not all Member State authorities have the power to intervene to stabilise and reorganise an ailing bank at an early stage before the formal point of insolvency (as defined in national law) is reached. The diverging conditions for prompting 
resolutions may reduce the chances of  immediate actions at group level. 
Until recently, cross-border banking failures were extremely rare events, and consequently 
many Member States’ crisis resolution arra ngements have never been tested. However 
experiences during the crisis have exposed a number of serious shor tcomings in certain 
Member States and demonstrate how damaging the absence of adequate EU arrangements can be.  
The examples (Fortis, Lehman, Icelandic banks ) listed in the general problem description 
chapter also show how diverging tools can unde rmine optimal results. Most recently, in 
Germany, there has been an inte nse debate about how to impr ove the existing bank resolution 
framework, in light of subprime-related lo sses faced by the banking sector (e.g., at 
Landesbanken, such as Sachsen LB and We stLB, as well as at IKB and Hypo Real)
59. 
Driver: Misalignment between national responsibili ty, accountability of authorities and cross-
border nature of the industry 
Problems: Suboptimal level of cooperation between authorities 
Despite the agreement of July 2008 on an EU wide Memorandum of Understanding ('MoU')60 
setting out cross-border crisis management a rrangements, as mentioned above, recent events 
have highlighted the limits of a framework based on voluntary cooperation  between national 
authorities. There has been inadequate transmissi on of information to other interested parties 
in other Member States and the agreement to  open, full, constructive and timely cooperation 
is weakened by a legal framework that militates towards national approaches. In times of crisis, national interest has proved much stro nger than the broader general interest. The 
limitations of the MoU have been recognised rece ntly in a report to the Economic and Finance 
Committee
61, "The MoU framework has not played  a key operational role in the 
management of the crisis. Its limited relevance in the financi al crisis is partly explained by 
the fact that it was designed as a tool primar ily aimed at dealing with crises limited to 
individual cross-border financial institutions and not  with a global systemic crisis in mind. In 
addition, the implementation of the MoU is still ongoing, particul arly regarding the voluntary 
establishment of Cross-Border Stability Groups  (CBSGs) and Voluntar y Specific Cooperation 
Agreements (VSCAs). 
National interest is reinforced by the EU legal framework for company and insolvency law, 
which is based around individual legal enti ties and the rights of  the stakeholders – 
shareholders and creditors – of those individual entities. 
                                                 
59 See IMF working paper "Financial Stability Framewor ks and the Role of Central Banks: Lessons from 
the Crisis", P. 21, author: Walter Neir 
60 Memorandum of Understanding on Cooperation betw een the Financial Supervisory Authorities, Central 
Banks and Finance Ministries of the European Union on Cross Border Stability (1 June 2008). 
61 Report from the EFC's High level Working Group: Lessons from the financial crisis for European 
financial stability arrangements 
 
EN 30   EN Different insolvency procedures  are also a significa nt obstacle to the ability of, or the 
incentives for, Member States to adopt reso lution measures in respect of a cross-border 
banking group. Any reorganisation or liquidation w ill necessarily be carrie d out in accordance 
with national insolvency procedures, and any coordination must be based on the voluntary 
cooperation between different national insolvency authorities and officers.62 Under current 
arrangements insolvency proceedings are onl y effective in the country where they are 
initiated, and will administer only those assets  that are located within that jurisdiction.63 
However, in practice cooperation between national insolvency authorities is often uneasy and imperfect, and cannot deal effectively with fi nancial conglomerates, international holding 
structures and the organisation of fina ncial groups according to business lines. 
Reorganisation measures that concentrate only on one entity without taking into account the 
interests of the broader group ri sk the possibility of value loss for certain parts of the group. 
The value of synergy, goodwill and certain immaterial assets could decrease leaving creditors and shareholders with lower coll ateral against their claims.  
At EU level and in most of the Member States' company laws , there is no concept of 'group 
interest’ which might otherwis e facilitate the re solution of cross-border banking groups. 
Directors of a company are neither responsible to other group entities, nor to the group as a 
whole. Indeed, should they act to promote the interests of the group in a way that is 
detrimental to their own company, they would likely  be in breach of thei r duties and at risk of 
liability under national company law or even civi l or criminal liability under national law. As 
the legal basis of group treatment is missing, it is very problematic to handle banking groups 
as a single economic entity during a resolution. Such limitations might undermine a universal approach which has the potential to reach  a more optimal result at EU level. 
The Fortis case provided a good example how the l ack of cooperation structures can result in 
a suboptimal solution for both Member States. The failure of joint reorga nisation resulted in 
separation of the group along geographical borders (ignoring coherence of business lines) and 
costly bailout by the governments involved. 
Driver: Lack of adequate arrangements for financing a cross border resolution 
Problems: Suboptimal level of cooperation betw een authorities and In efficient cross border 
bank resolutions process and suboptimal outcomes. 
The current financial crisis is of such sever ity that Member States have needed to take 
exceptional measures, such as capital injectio ns and guarantees of banks' debt, to protect 
financial stability and to combat the economic downturn.64 Such measures fall outside the 
scope of the Commission's Communication, a nd are already the subject of Commission 
                                                 
62 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 
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.  
63 This is subject to the exception under Directive 2001 /24/EC of branch assets that are located in another 
Member State. 
64 Such bank re-structuring measures are consider ed in the context of EU rules on state aid.  
 
EN 31   EN communications on measures taken in relation to  financial institutions, on recapitalisation, on 
the treatment of impaired assets and on resc ue and restructuring aid. The Communication on 
bank resolution explores the contou rs of a resolution regime that would ensure that authorities 
have the appropriate tools for intervening quickly  to stabilise and restructure a failing cross-
border bank, with the objective of minimising the need for Stat es to resort to the kind of 
exceptional measures that have been used in this crisis.  
The provision of funding in a resolution may co me from intra-group, external or public 
sources. Financing a resolution fo r a cross-border bank raises pa rticular challenges compared 
with domestic banks, and the first real expe riences of cross-bord er bank failures have 
confirmed serious shortcomings in this area. 
Cross-border intra-group financing  may be an alternative to public funding, but its potential 
is currently limited by the obstacles to intra-gro up asset transfer. As insolvency legislations 
and procedures are national, domestic authorities have a legitimate inte rest, 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 deposit s and maximise the assets available to the creditors of the 
national entity. At the same time however, it also limits feasibility of asset transfer between group entities as a means of addressing liquid ity problems within other parts of the group, 
even if such action would be in th e interests of the group as a whole. 
Most Member States' legislations do not provide incentives for private investors to finance  
an ailing bank under resolution. Pr ivate financing sources may not  have adequate incentives 
and guarantees in insolvency proceedings (no priority in the ranking of claims in many 
Member States, or possibility for collateral), which may consequently discourage risk-taking. 
Consideration could be given whether and ho w incentives should be in place for private 
financing during such proceedings. 
In certain Member States, funds of the deposit guarantee scheme  can be used not only to pay 
out depositors when a bank fails but also to finance reorganisation of an ailing bank. Such 
transactions may be rational if the cost of fi nancing - taking into account the probability of 
successful reorganisation - is smaller for the DGS than the total payout to all depositors of the same bank in the event of bankruptcy. Only a few Member States (e.g. Spain, Italy and more 
recently UK) currently allow this  possibility. Lack of cohere nce between national DGS roles 
may further impede coordinated ac tions on a cross border basis.  
In terms of public funding , while the general interest may entail maintaining different parts 
of a financial group together as a coherent whole, action by nationa l authorities, who are 
accountable to their own national taxpayers, may be dictated by narrower domestic 
considerations. In the absence of burden shar ing arrangements and a ligned incentives to 
cooperate, the likely outcome to a cross-border in tervention will be a series of uncoordinated 
and potentially competitive actions  taken by authorities with a view to minimising losses for 
their own taxpayers, but with no – or at best limited – regard to the consequences for citizens 
outside their jurisdiction. This  may raise the overall cost of a resolution, and limit the possible 
spectrum of stabilisation measur es involving public financing as a result of ring fencing and 
national solutions. 
Driver: Legal obstacles to effec tive and efficient bank resolution 
Problems: Lack of legal certainty and Ineffici ent cross border bank resolutions process and 
suboptimal outcomes. 
 
EN 32   EN The current crisis has shown that  legislation does not always st rike the right balance between 
achieving objectives such as financial stabil ity and adequate safeguarding of different 
stakeholders' rights. This issue has given rise to substantial legal uncertainty for many stakeholders in the recent crisis and has the po tential to cause further uncertainties in the 
future. 
There are 2 major conflicts of interest: 1. Shareholders' versus  authorities' (public) interest 
2. Legal entity's versus  banking group's interest 
1. Shareholders' versus  authorities' (public) interest
 
Banks are subject to general co mpany law rules and in particul ar certain rules aimed at the 
protection of the company's shareholders. At European level, there are mandatory 
requirements on the shareholders' approval of a ny increase or reduction of capital as well as 
rules on shareholders' pre-emption rights in the Second Company Law Directive65. 
Furthermore, the Shareholder Rights Directive66 - which had to be transposed by Member 
States by 3 August 2009 - establis hes requirements for general meetings of shareholders and 
in particular the convocation periods and th e form of the convocation. As regards re-
organisation measures, the gene ral meeting of shareholders  has a decision making role 
according to the Third67 and the Tenth68 Company Law Directives if mergers are concerned, 
and in the Sixth69 Company law Directive in the case of divisions. These rules on mergers and 
divisions need not however apply in cases wher e the company or companies are the subject of 
bankruptcy proceedings, proceedings relating to the winding-up of insolvent companies, 
judicial arrangements, compositions and analogous proceedings . Finally, there are also 
requirements at national level in a number of Member States, such as the requirement to have 
any material transaction appr oved by the general meeting. 
The present crisis has shown that interventions by public authorities to ailing banks need to be 
implemented in a very short period of time (w ithin 24-72 hours). If interventions need to be 
delayed due to constraints in th e legislation (e.g. need to obta in shareholders’ approval at a 
general meeting) there is a risk that banks might  already fail before th e necessary procedures 
have been complied with70. Banks, and especially large syst ematically important banks, are 
susceptible to bank-runs, and the in view of the degree of interconnectedness of financial 
markets, the knock-on effects coul d lead to the collapse of othe r institutions a nd hence to a 
                                                 
65 Second Council Directive 77/91/EEC of 13 December 19 76 on coordination 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  
66 Directive 2007/36/EC on the ex ercise of certain rights of shareholders in listed companies 
67 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 
68 Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-
border mergers of limited liability companies 
69 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  
70 Convocation of the general meeting of a company shall be issued not later than on the 21st day before 
the day of the meeting 
 
EN 33   EN general banking crisis. Public  authorities and many analysts71 argue that due to the special 
nature and high importance of the banking sector  in the broader economy, financial stability 
must take precedence over shareholders' rights in such situations72. There needs to be a 
balance found between shareholders' right and the common interest of financial stability. 
The Fortis case has demonstrated that resoluti on-measures of authoritie s can be attacked by 
shareholders through the courts and in the absence of a clear legal framework they can be 
ruled retroactively void.  
2. Legal entity's versus banking group's interest  
In a crisis situation, a ll members of a banking group might not  have identical interests. While 
certain subsidiaries might be financially strong,  the parent may be faced with difficulties or 
vice-versa. Although the economic rationale c ould justify a group-wide solution for the 
problems, legal provisions can block such outcomes. 
Reorganisation measures under insolvency law  only cater for national legal entities. This 
means that the national conditions for reorganisa tion would have to be met for each relevant 
group entity, separate proceedings would need  to be opened and managed and that the 
relevant authorities in Member States where le gal entities of the group are incorporated would 
concentrate solely on that respective entity. 
The Winding-up and Reorganisation Directiv e introduces the universality principle73 in 
insolvency for the EU but it only governs credit  institutions with bran ches in other Member 
States, and not subsidiaries. Furthermore, the Directive never intended to harmonise 
insolvency proceedings, as national laws were at  the time believed to be sufficient. However 
the lack of insolvency legislation dealing with groups with su bsidiaries limits the possibilities 
to reorganise a cross-border banking group, in a market which has since become increasingly 
integrated and consolidated. 
Driver: Barriers to maintaining continuity of banking services 
Problems: Interruption of continuous banking services 
To maintain confidence in the banking and financial system, cu stomers of banks, especially 
depositors need to be assured that they can have uninter rupted access to banking services, 
especially to their deposits. Although Depos it Guarantee Schemes, which guarantee re-
imbursement of deposits up to a certain limit, are in place in all Member States, basic banking services, such as bill payments, credit cards, transfers are equally important for (especially 
retail) customers. Similarly a reorganisation or liqui dation of a bank may cause disruption of 
services to other market participants, provoki ng loss of confidence, bank runs and hence 
instability in the financial system. The new Banking Act in the UK, which introduced a 
                                                
 
71 E.g.: An Overview of the Legal, Institutional, and Regulatory Framework for Bank Insolvency, Staff of 
IMF and World Bank, April 17, 2009. 
72 If the bank fails and undergo an insolvency proceeding, shareholders would immediately loose their 
rights in any case. In a situation when banks need public intervention, they are technically insolvent 
(imminent insolvency). 
73 See Glossary 
 
EN 34   EN Special Resolution Regime, has explicitly addressed this issue by setting the continuity of 
banking services as an objective74 in a bank resolution process. 
Present arrangements, legislations, and re solution systems do not necessarily enable 
authorities to maintain basic banking services  when a bank reaches the point of insolvency75. 
Banks may be forced to stop pr oviding services and make depos its unavailable if insolvency 
proceedings are initiated against them. The morato rium, while an important tool at the initial 
stages of a bank insolvency (by providing the re-organising authority sufficient time and 
opportunities to take necessary m easures), may explicitly prohi bit customers to access their 
deposits, or make payments. Consequently not only deposits will be blocked for private and corporate customers but also othe r services like direct debit, standing orders, payments, credit 
cards would stop. This may incur further pr oblems for customers e.g. utilities may be 
switched off.  
In addition to the above problems, certain bank  resolution tools (e.g. bridge banks) would 
need to be supplemented by other measures to ensure the continuity of banking services. In 
the event of the transfer of business to a bridge bank or a partial sale to a private sector entity, 
the residual company would need to provide s upport necessary to ensure  the continuity of 
banking services offered by the bridge bank or  purchaser. Such support might be necessary, 
for example, where certain systems, contracts or services necessary to the operation of a 
bridge bank have not been transferred from the residual company. This however may not be 
possible in all Member States if the residu al company is placed under an insolvency 
procedure. 
Continuity of banking services may also be jeopardised by the actions of third parties should 
they decide to terminate contracts under cer tain circumstances, for example where the 
contracts are transferred to a bridge bank, before  the actions of the resolution authority have 
been completed.  
3.2.3.  Baseline scenario 
The baseline scenario would be one in which th e EU would continue to rely on the existing 
narrow (or non existing) EU legi slation and widespread national legislations and arrangement 
in crisis situation of  cross border banks.  
In the case of early intervention  by supervisors, this would mean  that supervisors in different 
Member States would continue  to have different powers a nd intervention tools against 
different members of the same cross border banks  that breach certain regulation or become 
financially weaker. They would intervene at different times, under different conditions and 
trigger mechanisms and implement different meas ures. This would probably not ensure that 
problems of cross border banks could be effectiv ely stopped before they became more serious 
and started affecting other members of the group located in different Member States. 
When cross border banks approach insolvency, different national author ities would continue 
to focus their resolution  activities only on the respective su bsidiary or mother of the banking 
                                                
 
74 Article 4 (9) of Banking Act 2009 
75 A recent study by the IMF on bank insolvency (“An overview of the legal, institutional, and regulatory 
framework for bank insolvency”, April 2009) argues th at the aim of a bank restructuring should be to 
secure the continuation of the bank’s business in a way that minimizes disruptions to the financial 
system and limits costs to deposito rs, other creditors, and taxpayers. 
 
EN 35   EN group that are located in their te rritory. Conflicting inte rests would be likely to impede a more 
optimal reorganisation solutions, optimised at the group level, taking into consideration the 
interest of all Member States. National solu tions would probably be more costly for the 
citizens and taxpayers of the EU than if the group were reorganised at EU level. 
At the same time we assume that proposals of the Commission aiming at improving the macro 
warning systems would create an improved environment. The proposed European System of 
Financial Supervisors (ESFS) , and the new European Supervisory Authorities (ESAs), would 
help cooperation of supervisor s and better functioning of Colle ges. The ESAs should fulfil an 
active coordination role between national supervisory authorities,  in particular in case of 
adverse developments which potentially jeopardis e the orderly functioning and integrity of the 
financial system in the EU. However, in some  emergency situations, coordination may not be 
sufficient, notably when national supervisors al one lack the tools to respond rapidly to an 
emerging cross-border crisis. The ESAs should ther efore, in such except ional circumstances, 
have the power to require national superv isors to jointly take specific action. The 
determination of a cross-border emergency situ ation involves a degree  of appreciation, and 
should therefore be le ft to the European Commission. Mo reover, given the fact that no 
decision by the Authorities should impinge on the fiscal responsibilities of the Member states, 
the Authorities cannot make any decisions related to resolution processes, as this will almost 
always entail the possibility  that public funds are used. 
 
EN 36   EN  
3.2.4.  Problem tree 
 
 
Sub-optimal level of 
supervisory cooperation 
impairing the effectiveness 
of cross-border crisis 
prevention and 
counterproductive ring 
fencing of assets
Reduced societal 
welfare (shareholders, 
creditors ,customers , 
Increased risks to 
financial stability  
Suboptimal level of 
cooperation between 
authorities  
Misalignment between 
national accountability and 
mandate of supervisors and 
cross-border nature of the 
industr y 
Misalignment b/w national 
responsibility and interest of 
authorities and cross-border 
nature of the indust ry 
Lack of effective early 
intervention triggers & tools 
Diverging national early 
intervention triggers & tools  
Lack of adequate 
arrangements for financing 
cross border resolution  
Implications on int'l 
competitiveness of EU 
bankin g industr y
Lack of legal certainty  
Lack of effective resolution 
tools & powers 
Sub-optimal level of crisis 
situation prevention for 
cross-border banks 
Diverging national 
resolution tools & powers  PROBLEM 
DRIVERS 
Inefficient cross-border 
bank crisis resolution 
process and suboptimal 
outcomes  E
A
R
L
Y
-
I
N
TE
RV
E
N
T
I
O
N 
 
B
ANK 
 
R
E
S
O
L
U
T
I
O
N  
PROBLEMS
Legal obstacles (insolvency 
and company law) to 
effective and efficient bank 
lt i
Interruption of continuous 
banking services 
 Barriers to maintaining 
continuity of banking 
services  
 
EN 37   EN 3.3. The EU's right to act and justification  
Action at European level is required in this fi eld due to the high integration of the banking 
market within the EU (see section 2.1). However,  systems to deal with crises within banks 
remain nationally based and-ill adapted to deal  with cross-border situ ations. Coordination in 
such circumstances is likely to be complicated and the objec tives pursued by each authority 
may differ. As a consequence, Member State aut horities cannot be sure that critical problems 
arising in a cross-border bank ing group can be solved fairl y, effectively and expediently 
through robust cooperation arrange ments. Unless these flaws in the framework are adequately 
addressed, national authorities will be left in  practice with only two alternatives: they can 
either take the politically unpopul ar option of using public mone y to bail out banks or they 
can decide to ring fence assets in a cross-bo rder bank and apply natio nal resolution tools at 
each entity level – which may drive up the over all cost of the resolution. Limited options 
available to authorities would in crease the risk of moral hazard and generate an expectation 
that large banks would be bailed  out in the event of problems. 
The financial crisis has underlined the import ance of strengthening cross-border crisis 
management arrangements. It is a matter of pr iority to address these shortcomings which 
undermine the Internal Market, by considering the introduction of new crisis management 
arrangements and tools at EU level, as well as  the changes that may be  needed to the broader 
legal framework in order to underpin cross-bo rder cooperative soluti ons. Underpinning a new 
framework with the introduction of incentives n ecessary to induce cross-border cooperation is 
a task which can most effectively be undertaken at European level (this is particularly true 
with respect to addressing differences between  national resolution and insolvency frameworks 
as well as arrangements for burden sharing).  
3.4. Objectives 
Viewed from an EU perspectiv e, it would seem that the general objectives  could be to  
• Maintain financial stability and confidence in banks, avoid contagion of problems; 
• Minimise losses for society as a whole and especially for taxpayers; 
• Strengthen the internal market for banking serv ices while maintaining a level playing field. 
Within the context of early intervention,  the following specific objectives  could be: 
• Develop tools and triggers to detect problems in banks and in tervene at an early stage ; 
• Ensure efficient cooperation between national financial supervisors responsible for cross 
border banks in crisis situations. 
The table below links the problem drivers fo r early intervention with a possible set of 
operational and specific obj ectives in this area. 
 
EN 38   EN Table 2 Problem drivers and possible objectives for early intervention:  
Specific objectives 
Problem drivers Develop tools and 
triggers to detect 
problems in banks and 
intervene at an early Efficient 
cooperation of 
supervisors 
Misalignment between national accountability and mandate of 
supervisors and cross-border nature of the industry v v 
Lack of effective early intervention triggers & tools v v 
Diverging national early intervention triggers & tools v v 
For bank resolution  specific objectives  could be: 
• Develop tools and triggers to ensure reorganisation and resolu tion of cross border banks in 
a timely and robust manner; 
• Improve cooperation of national resolution authoritie s to deliver optimal solutions at EU 
level; 
• Create certainty and predictability aro und bank resolutions for all stakeholders; 
• Ensure continuity of basic banki ng services during resolution. 
The table below links the problem drivers for bank resolution with a possible set of 
operational and specific obj ectives in this area. 
Table 3 Problem drivers and possibl e objectives for bank resolution:  
Specific objectives 
Problem drivers  Develop tools and 
triggers to ensure 
reorganisation and 
resolution of cross 
border banks in a timely 
and robust  manner Efficient 
cooperation 
of resolution 
authorities Legal 
certainty Continuity 
of banking 
services 
Misalignment b/w national 
responsibility of authorities and cross-
border nature of the industry v v   
Lack of adequate arrangements for 
financing cross border resolution v v v v 
Lack of effective resolution tools & 
powers v v   
Diverging national resolution tools & 
powers v v   
Legal obstacles to effective and 
efficient bank resolution v  v  
Barriers to maintaining continuity of 
banking services v  v v 
 
EN 39   EN 4. POLICY OPTIONS AND ANALYSIS OF IMPACTS  
For the purposes of this impact assessment, the analysis of options is restricted at this stage to 
a general assessment about the introduction of a new framework and the alternatives. Some 
areas which could be dealt with under a ne w framework are also assessed - but without 
favouring or proposing any concre te measures. Indeed policy options which are considered 
should not be interpreted as a cl osed list of options, and should further options come to light 
as a result of the stakeholder consultation, these may be assesse d at a later stage when the 
Commission makes firm proposals.  
4.1. General Considerations about the need for a new bank resolution framework  
4.1.1.  Baseline Scenario (no changes to current bank resolution arrangements) 
Under this scenario, no new framework for bank re solution is introduced at EU level. Crisis 
management remains a national competence, comb ined with a limited set of arrangements at 
EU level – in particular as  agreed in the 2008 Memorandum of Understanding on Cross-
border Stability, and supplemented by recent changes to the Capital Requirements Directive which establish colleges for cros s-border banking groups, new al ert and information exchange 
obligations and provisions on joint decision-taking.  
The fundamental problems resulting from misalig nment of responsibilities and accountability 
between different authorities, differences be tween national tools and powers and conditions 
determining their use, absence of cross-borde r financing arrangements and the broader legal 
obstacles which hamper cross-border coopera tion are not addressed. Recent experiences 
during the crisis have provided clear evidence th at such a situation is not sustainable, and 
have resulted in very considerable additional costs for the economy (see section 2.2.3 for a quantitative indication of costs). 
4.1.2.  Introduction of an EU bank  resolution framework 
Under this scenario, an EU bank resolution fra mework is introduced which seeks to achieve 
the objectives set out in Section 3. The details of what such a framework might contain are 
explained in the Communication an d the specific options are a ssessed in more detail in the 
following sections. The framework would need  to be designed to address the problems 
identified in section 2, and to fulfil the key objectives for a bank resolution process. However 
putting in place of such a framework would entail  considerable challenges – especially in 
those areas where there is currentl y no harmonisation at EU level.  
As to the feasibility of such an approach, it need s to be recognised that certain aspects of such 
a framework may entail fundamental changes to  existing approaches to bank resolution at 
national level. On the other ha nd, changes to national systems would be kept to the minimum 
absolutely necessary to ensure coherent applic ation at EU level, and the introduction of new 
tools need not necessarily require the phasing out of existing tools. National approaches to resolution could be retained to deal with  purely domestic banking crises. The framework 
could be designed in such a way as to ensure  complementarity between existing rules and the 
new tools, although some changes may be necessa ry in order to elim inate potential areas 
where conflicts would be likely to occur. Furthermore the dept h and seriousness of the current 
crisis has already prompted a number of Member  States to embark on significant reforms of 
their current systems, and early consultations w ith Member States have  suggested there would 
be strong support to develop common approaches at EU level.  
 
EN 40   EN With regard to the level of ambition achieva ble for such a framework, much will depend on 
the outcome of consultations with Member States  – which is the reason that the Commission's 
position remains open at this stage. This is es pecially the case with respect to options to 
address differences between bank insolvency laws , and the choice of tool s for bank resolution.  
Introduction of a bank resolution framework would affect the rights of cer tain stakeholders – 
in particular those of creditors and shareholders. In this respect , there is an important debate 
which needs to be held about striking the corr ect balance between thos e rights and the broader 
societal interest. The Communi cation recognises this and considers the need for the 
introduction of appropriate safeguards when ever bank resolution measures impact on 
stakeholders' rights. 
4.1.3.  Scaling back cross-border banking groups in or der to manage crises more efficiently 
on a national basis 
An alternative and opposite possibility to the introduction of an EU bank resolution 
framework would be to recognise  the limitations of the existing arrangements (as described in 
the baseline scenario) and to require changes to  cross-border banking stru ctures in such a way 
that they no longer posed  any threat to an e fficient resolution proce ss. Such an approach 
would have the advantage of resolving any uncer tainties about crisis resolution which would 
remain a purely national competence withou t the need for new cross-border cooperation 
arrangements. During a crisis re solution process, assets would be ring fenced, banks would be 
re-organised along national lines and winding  up would take place in accordance with 
national insolvency law. 
However, for the resolution process to remain tr uly national, it would be necessary to require 
banking structures which ensured that all legal enti ties within a cross-border banking group 
could continue to operate on a st and-alone basis – in the event of  failure of other parts of the 
group. This approach would ignore the fact that  cross-border banking groups, for reasons of 
efficiency, tend to centralise certain functions (liquidity management, IT, etc.) in specific 
parts of the group. In a modern global banking environment, many of the assets may be 
located in different jurisdictions and thus subj ect to different insolvency proceedings – some 
form of cooperation between insolvency/resol ution authorities coul d not be avoided. 
Furthermore, applying restricti ons to cross-border provision of services  or establishment 
would run counter to the basic principles in the EU Treaty wh ich guarantee such freedoms. 
Any such approach would necessa rily entail a modification of the Treaty – in a way which 
would fundamentally undermine the Internal Market. Finally, insi stence on autonomous 
national banking structures woul d obviate economies of scale,  drive up costs of banking 
services and place EU banks at a competitive disadvantage in a global market.  
 
EN 41   EN Table 4:  Summary of impacts on stakeholder groups of the introduction of a new crisis management framework  
                           Key 
           Stakeholders 
 
Policy options Banking Industry Supervisors/Crisis 
management 
authorities Creditors Shareholders Bank Employees Depositors Bank customers Taxpayers 
Baseline  +/- 
Expectation that in 
the absence of 
alternatives, banks 
will be saved, but 
risks to financial 
stability - 
Absence of clear 
incentives to fully 
cooperate and 
coordinate 
combined with 
lack of harmonised 
tools -  
Legal uncertainty +/- 
Continued 
protection of rights 
under EU and 
national legislation, 
but uncertainty 
about how 
resolution measures 
will be applied - 
Uncertainty about 
how a banking 
group would be 
resolved and how it 
might impact 
employees  - 
Uncertainty 
about how cross-
border deposits 
would be treated 
in event of bank 
failure -  
Uncertainty around 
the continuity of 
the banking 
operation in a 
crisis situation. - 
Absence of clear 
framework tailored 
for ailing banks 
will result in 
increased fiscal 
burdens 
 
Introduction of an 
EU bank resolution 
framework +/- 
Improved financial 
stability, but no 
bank would be  too 
big to fail and 
resolution 
outcomes could 
entail radical 
changes in 
operation and 
structure. + 
Improved 
incentives and 
ability to 
cooperate. Better 
chances for 
optimal solutions 
(all interests taken 
into consideration 
and solutions 
optimised at EU 
level) + 
Clearer framework 
would improve 
prospects of equal 
treatment across 
the group, with 
better prospects for 
maintenance of 
continuous 
operation +/- 
Potential loss of 
protection under 
EU and national 
laws, but greater 
certainty about 
when and how 
authorities are 
allowed to act, 
backed, when 
necessary, by 
safeguards and 
compensation 
mechanisms +/- 
Ability of 
authorities to 
cooperate and 
manage problems 
in a group would 
increase chances 
of effective early 
intervention but 
enhancing the 
option to  allow a 
bank to fail may 
result in job losses. + 
More certainty 
about effective 
cross-border 
handling and 
focus on 
continuity of 
services should 
allow depositors 
to benefit from 
cross-border 
competition + 
Maintenance of 
continuous 
banking services. +  
A new framework 
to enable effective 
crisis management 
should reduce 
fiscal burdens 
Scaling back of 
cross border 
groups - 
Damage to cross-
border bank 
business models 
and to international 
competitiveness, 
higher cost, lower 
synergies, lower 
profitability. + 
Less need to 
cooperate, reduced 
risk of conflicts, 
clearer 
responsibilities. +/- 
More certainty 
about treatment, 
but possible 
unequal treatment 
across the group -/+ 
Less profitable 
firms as a result of 
less efficient 
business models, 
but greater certainty 
about how 
resolution would 
apply at national 
level,  more adapted 
to national 
circumstances +/- 
More clarity that 
resolution will take 
place at national 
level – but 
possible negative 
impacts on cross-
border business 
models and 
competitiveness +/- 
More clarity 
about deposit 
protection, but 
fewer cross-
border 
opportunities 
and   higher 
prices for 
services due to 
reduced 
competition  -  
Limited choices for 
banking products 
and potentially 
higher pricing due 
to lower 
competition +/-  
National solutions 
maybe suboptimal 
at EU level, certain 
countries may bear 
higher fiscal cost.   
More certainty 
would reduce risk 
that national 
taxpayers might 
contribute to 
resolution in other 
Member States  
Legend: + overall positive effect, - overal l negative effect, +/- overall mixed effect  
 
EN 42   EN  
4.2. Early Intervention 
In the following section, options addressing problems at early intervention are analysed. They 
are separated according to the following areas: po licies to address the problem of differences 
in triggers, policies to addre ss the problem of differences in  tools and policies to address 
misalignment. 
4.2.1.  Possible policies to address early intervention conditions, triggers 
4.2.1.1.  Baseline scenario (no changes) 
Recent events have shown that the soundness of individual firms has been too often 
supervised in isolation with little focus on the degree of interdependence within the financial 
system. In order to ensure a more timely det ection and prevention of risks to financial 
stability, the Commission recently  adopted a regulation on establ ishing a European Systemic 
Risk Board (ESRB)76. The ESRB will enhance the effectiveness of early warning mechanisms 
by improving interaction between micro- a nd macro-level prudential analyses. The 
participation of the European Banking Authority and national supervisors in the work of the 
ESRB will ensure that assessment of macro-prudential risks is based on complete and accurate information about developments in the financial system. At the same time, based on 
its analysis, the ESRB will be able to issue risk warnings and recommendations which will 
have a specified timeline for a policy response and could be addressed to, among others, the 
EBA and national supervisors.  Were the addres sees of such warnings and recommendations 
to choose not to act, reasons for inaction would have to be explained to the ESRB. Such mechanism should partially contribute to a more  effective identificati on of potential problems 
at individual institutions.  
However at micro level, national supervisors of the same banking grou p would continue to 
use different indicators for dete cting problems in banks. They w ould continue to assess these 
indicators with diverging methodology and assessment process. Different understanding of 
the problem would prompt diverging actions at different times, which could weaken the 
effectiveness of measures against a bank with liquidity or solvency problems. The proposed 
European Banking Authority may help in de veloping common indica tors and understanding. 
 4.2.1.2.  Common assessment of common early warning indicators 
Under this option, a harmonised mi nimum set of early warning in dicators could be developed 
in the EU taking into account the existing methodologies of na tional supervisors. However, 
not only the indicators but al so their assessment could be harmonised. Common assessment of 
the situations could be developed to ensure c oordinated actions that are optimal for the cross 
border group as a whole.
77 The decision on which would be the necessary measures to correct 
                                                 
76 Proposal for a Regulation of the European Parliament and of the Council on Community macro 
prudential oversight of the financial system and es tablishing a European Systemic Risk Board, COM 
(2009) 499 
77 In support of a joint assessment framework, the Commission is plan ning to include new changes into 
the CRD which would introduce new complementary pr udential measures designed to capture at least 
 
EN 43   EN the situation at a bank would be however left to the discretion of the national supervisors 
concerned. 
Impacts: 
Compared to the baseline scenario this option would ensure that different supervisors of the 
same cross border banking group would use th e same methodology when analysing problems 
in the operation. This would f acilitate cooperation among them as the common indicators and 
their common understanding woul d substantially ease the communication and the joint 
conclusion making. Common practices  would also help banks as they would face the same (or 
at least very similar) of indi cators that different supervisors in differe nt countries would 
follow. This would contribute to the stability of  the system and could help towards ensuring 
more optimal solutions at EU (or group) level for all stakehol ders if banking groups need 
corrective actions from supervisors.  
4.2.1.3.  Automatic, hard triggers 
It is possible not only to harmonise indicators an d assessments but also to oblige authorities to 
act if certain thresholds of indi cators are hit (hard triggers). Mo stly quantitative indicators can 
be applied for implementing such hard triggers based on solvency (such as a capital adequacy 
or leverage) or liquidity indicato rs. It is also possible to tie s upervisory actions to thresholds 
i.e. obliging supervisors to implement predefin ed measures without an y discretion regarding 
the concrete situation and sp ecificity of the banking group. In the US under the Prompt 
Corrective Action (PCA) framework, critically  undercapitalised banks (having a tangible 
equity to total assets ratio equal to or less than 2 percent and those banks that do not have an adequate plan to restore capital to the re quired levels) are prohibited from continuing 
activities, and banks must be placed  under receivershi p within 90 days. 
Impacts: 
Compared to the baseline scenario the use of ha rd triggers would bring all the benefits as the 
previous option and would create and even clea rer situation for all st akeholders. The same 
hard triggers applied in all Member States would be an effective means of synchronising 
actions of supervisors and facilitate c ooperation. Conditions and possible actions of 
supervisors would be known ex-ante to th e whole industry, greatly decreasing the 
uncertainties around intervention of s upervisors and thus compliance cost. 
At the same time, advance knowledge of the ba sis for supervisory intervention could provide 
opportunities for regulatory arbitrage on the part  of banks. Knowledge that the supervisor 
focuses on certain indicators, might lead to ba nks manipulating their balance sheets to hide 
deviations. Moreover, hard indicators / benchmar k ratios could reduce su pervisors’ incentives 
to maintain comprehensive oversight of fina ncial institutions, thereby allowing potential 
problems elsewhere to escape detection. 
Moreover, it is very difficult to identify single  indicators that would be adequate to detect 
every possible technical problem and/or inco rporate all the possibl e relevant data and 
information for a proper supervisory assessment.  As each case is different, indicators that 
                                                                                                                                                        
 
the effects of leverage and liquidity risks. These harmonised measures would usefully supplement the 
indicators that form part of the 'early warning system' that will facilitate the joint assessment of 
emergency situations. 
 
EN 44   EN efficiently detect problems in a specific case can be also different78. A single set of hard 
triggers could thus prove to  be a blunt instrument for use in complex and developing 
situations. 
If not only the need for actions is tied to quant itative levels, but also the measures/tools to be 
applied by supervisors are pre-defined, the ce rtainty of intervention is even higher.  
While this would protect supe rvisors from possible litiga tion by stakeholders who are 
negatively affected by the interv entions (where that is possibl e under national law) and also 
bring certainty for ailing banks that can be fully aware of the consequences of their incorrect operation, supervisors would on the other hand l oose the flexibility fo r their interventions, 
increasing the risk that problems are ina ppropriately handled and hence resulting in 
suboptimal outcomes.  
4.2.2.  Possible policies to address early intervention tools  
4.2.2.1.  Baseline scenario (no changes) 
If no action is taken, national authorities will continue to have diverging tools and powers to 
correct irregularities at different members of  the same cross border banking group. This could 
lead to situations where certain parts of th e same banking group could not participate in a 
coordinated stabilisation because banking superv isors of those Member States do not have the 
powers to implement measures. Th is would risk suboptimal outco mes for certain stakeholders 
in the EU. 
The continued uncertainty around the possibility  to transfer asset within a cross border 
banking group would continue to impede optimal al location of liquidity in a crisis situation.  
4.2.2.2.  Expanded minimum set of early intervention tools  
The list of minimum supervisory tools and power s to correct the opera tion of a banking group 
provided for by Article 136 of the CRD could be further expanded. Based on existing 
practices of national supervisor s, it is possible to expand th e minimum set of supervisory 
tools. It is important for an e ffective intervention at group leve l that all European supervisors 
have appropriate enforcement actions at thei r disposal. The aim w ould not be to equip 
supervisors with exactly the same tools, but ra ther that tools available for supervisors should 
deliver the same result. In addition to th e minimum set of harmonised tools and powers, 
national supervisors may have additional t ools not necessarily available for everybody. 
In particular, the list of supervisory tools in  Article 136 does not include the power to require 
the submission of a restoration plan for a gr oup. A number of nationa l supervisors already 
have the power to require the individual entities that they supervise to  develop such a plan, 
but there is no clear framework to do th is at the level of a cross-border group. 
It may be also be useful to explore whethe r large banks should be obliged to prepare in 
advance and submit to authorities plans whic h detail the arrangements for winding down the 
institution should it fail. Such plans could in particular look at  cross-border dependencies of 
                                                
 
78 The current crisis drew attention to the importance of liquidity indicators since capital ratios were not 
informative this time. In the future, it is not evident which indicators will have larger importance. 
 
EN 45   EN the institution, the implications of legal sepa rateness in case of reso lution and the possible 
exercise of resolution powers. 
Consideration could also be give n as to whether the power to change the management of the 
bank by nominating a special repr esentative (an' administrator' or 'manager') with the 
objective of restoring the financial situation of the institution in the context of common group 
restoration plan should be granted. 
Impacts: 
An expanded harmonised set of early intervention tools that can achieve the same results to 
pre-empt or correct problems at supervis ory level could greatly increase the overall 
effectiveness of crisis management in the EU. It could improve cooperative actions of 
different supervisors and enable important actions/measures that are presently not available in all Member States where a cross border banki ng group may operate. Joint restoration plan for 
a group (for example) would ensure that resour ces available at different subsidiaries in 
different Member States may be optimally rea llocated at EU level by using the synergies of 
the group. 
Coordinated early remedial actions would contribute to the stability of the banking and 
financial system in all Member States conc erned and could help prevent problems evolving 
and resulting in bank-resolution. If done at the appropriate moment, early supervisory actions 
can result in substantial cost savings for societ y and taxpayers and avoid the need for bail-outs 
(of systematically important cross border banks)
79 . 
4.2.2.3.  Single set of early intervention tools 
An alternative approach to ensuring that all nati onal authorities have t ools that achieve similar 
results would be to agree on a fully harmonised list of supervisory tools and powers that need 
to be made available for all European bankin g supervisors. This co uld also include any 
additional tools presently not available for a ny national supervisor. Such new tools would 
mainly relate to early remedial ac tions for cross border banking groups. 
Compared to the baseline scenario, a single se t of supervisory early intervention tools would 
deliver all the benefits which are outlined in  the previous option. Having exactly the same 
tools and powers in all Member States woul d reinforce further chances of developing 
cooperative early remedial act ions for the same banking group. This could also enable 
effective solutions to prevent escalation of problems and hence assure stability for all stakeholders. 
Legal implementation of such a solution might  however pose problems for certain Member 
States. Due to differences in legal systems (e .g. constitutional limitations) and arrangements 
for banking supervision (single supervisor or  shared competences among supervisor and 
national bank and DGS), setting exactly the same tools and powers (and not tools that achieve 
the same results) in all Member States could be difficult to reach. 
                                                
 
79 See the cost of the current in  Chapter 2.2.1.General problems 
 
EN 46   EN 4.2.3.  Possible policies to address misalignmen t between responsibility of national 
supervision and international business 
4.2.3.1.  Baseline scenario (no changes) 
The voluntary cooperation between supervisors in crisis situ ations has proved to be 
inadequate in ensuring a co-ordinated reaction which led to suboptimal results and high costs 
for Member States. As national authorities are accountable only to their national Parliaments, 
and as no clear ex ante burden sharing arrange ments have yet been de veloped, host authorities 
can only hope that home authorities will take th eir situation into account in the event of a 
crisis. The imbalance between home and ho st countries may be further deepened by 
differences in size between countries. 
If no adjustments to the existing arrangements ar e made, there will be no improvement in the 
prospects that that cooperation will work better in  a future crisis when the there are once again 
likely to be competing interests between Member  States. Prudential supe rvision, as well as the 
capacity to manage the stability of the financial system, is highl y dependent on the quality of 
co-operation and information exchange between  supervisors. Problems of communication, or 
a lack of trust between supervisors, can seve rely endanger the effective control of the 
institutions or financial systems concerned. 
The Commission has recently proposed to  create a European Banking Authority by 
transforming the Committee of European Banking Supervisors (CEBS)80. It is proposed that 
the Authority81  should be able to require national s upervisory authorities to take specific 
actions to remedy an emergency situation. As the determination of an  emergency situation 
involves a significant degree of discretion, this power is ther efore left to the Commission82.  
The power of the Authority to make decision in  crisis situation would ensure timely decision-
making and coordinated actions. As a crisis-sit uation can evolve in days (evidenced by the 
recent crisis) prompt supervisory actions could be more effectively implemented at the EU 
level.  
From the point of view of effectively protect ing depositors, the prime objective is to respond 
to crisis situations with hi ghly coordinated and harmonised measures. The fact that the 
responsibility for crisis management over loca lly incorporated and supervised entities of 
cross-border groups is predominantly nationa l-based heightens the need for close EU 
coordination and action.  
                                                 
80 See more details above in Chapter 3.2.2.1.  
81  Recital 21 of Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE 
COUNCIL establishing a European Banking Authority, adopted on 23 September 2009. 
82 The explanatory memorandum of the Commission's proposed regulation establising an European 
Banking Authority states that " the ESAs shall fulfil an active coordination role between national 
supervisory authorities, in particular in case of adv erse developments which potentially jeopardise the 
orderly functioning and integrity of the financial  system in the EU. However, in some emergency 
situations, coordination may not be sufficient, notably when national supervisors alone lack the tools to 
respond rapidly to an emerging cross-border crisis. The ESAs should therefore, in such exceptional 
circumstances, have the power to require national supervisors to jointly take specific action. The 
determination of a cross-border emergency situation involves a degree of appreciation, and should 
therefore be left to the European Commission. This is  subject to the safeguard clause (see 6.2.11). In 
parallel, work should be accelerated to build a comprehensive cross-border framework to strengthen 
the European Union's financial crisis managemen t/resolution systems, including guarantee schemes 
and burden sharing ". 
 
EN 47   EN 4.2.3.2.  Improved cooperation between supe rvisors in crisis situation 
In addition to the proposed cha nges in the architecture of supervision and the proposed set up 
of the European Banking Authority, certain elem ents of supervisory cooperation in crisis 
situations could be further improved.  
Consideration could be given as to whether, when  a crisis begins to develop in a cross-border 
group, supervisors should be required to come to a joint decision, on the basis of a common 
assessment and a restoration plan submitted by the parent company for the group as a whole. A joint decision would only make sense where di fferent legal entities of a group are facing 
similar stress events, and require similar restoration measures. Recently agreed changes to the Capital Requirements Directive will require conso lidating supervisors to plan and coordinate 
joint assessments in emergency situations, exceptional measures, the implementation of contingency plans and co mmunication to the public
83. However, the Directive does not 
specify the conditions that trigger the applica tion of such measures, and how joint assessment 
should be conducted. If nationa l law or national supervisor s interpret those conditions 
differently, coordinated action by supervisors of different group entities might be difficult. 
It would also be possible to increase the role and power of  home supervisors in crisis 
situations where the problems affected more th an one Member State and a joint prompt action 
were needed to prevent escalation. 
Impacts: 
Joint decision might ensure that measures ta ken by different national supervisors reach an 
optimal outcome for the group as a whole. This  would provide a more advantageous outcome 
for all stakeholders. Concerned banks c ould face a more efficient procedure. 
At the same time, voluntary cooperation has its li mits when interests and important issues are 
at stake. Even with an improved cooperation framework, agreement on actions is not assured which can still result in suboptim al results at EU level. 
The increased role of home supervisors in a crisis situation would however limit the powers 
of host supervisors and would result in a mi salignment between the accountability of host 
authorities to their taxpayers and their (decreasing) compet ences in terms of prudential 
requirements. In this respect, this option coul d have a particularly negative impact on the 
Member States in Central Europe.  
4.3. Bank resolution 
4.3.1.  Possible policies to address bank  resolution tools and triggers 
4.3.1.1.  Baseline scenario (no changes) 
Under the baseline scenario bank resolution w ould be left to the competence of national 
resolution authorities (n ational banks, supervisors, judges,  DGS etc.) which have different 
procedures for ailing or insolvent banks. Re solution of a cross bor der banking group would 
remain fragmented by national borders where authorities would follow diverging goals and 
                                                
 
83 Article 129(1)(c) of Directive 2006/48/EC as re-casted in 2009 (Publication in the Official Journal is 
still pending). 
 
EN 48   EN apply diverging measures. Cert ain authorities could reorgani se banks in a special bank 
resolution framework (e.g. UK), others could pr ompt a special admini stration (e.g. Italy); 
many would need to initiate a judicial inso lvency proceeding (e.g. Germany). In several 
countries, reorganisation would remain as a missing option (e.g. in SE  only liquidation is 
possible). This would not deliver an optimal  outcome for all stakeholders in the EU. 
4.3.1.2.  Minimum set of harmonised bank reso lution tools and clear triggers 
While it may be appropriate to preserve a wide  range of possibilities in Member States' 
national toolkits, consideration should be given to equipping all resolu tion authorities with a 
minimum set of core tools with a view to meeting the common objectives of an EU bank 
resolution framework. Effective tools could enab le authorities to implement measures other 
than public financial support a nd liquidation to address problems in an ailing bank. In order to 
preserve financial stability, they could enable authorities to intervene rapidly, ensure the 
continuity of essential banking services, and give  authorities the time to organise an orderly 
resolution. Such tools84 could include:  
– The power to arrange acquisition by a private sector purchaser; 
– The power to transfer assets a nd liabilities to a bridge bank; 
– The power to partially transfer asse ts to a 'Bad bank' or 'Good bank'; 
– Assisted sale of part of the busin ess to a private sector purchaser; 
– Nationalisation. 
The goal would not be that each authority should  have exactly the same tool, but rather that 
measures implemented by different authorities sh ould deliver the same or  equivalent results. 
In addition to the minimum set of resolution t ools, national authorities could keep their 
specific tools and powers in relation to bank resolution. 
Impacts: 
The introduction of special bank resolution tools in all Member States would significantly 
increase the chances of author ities to achieve a su ccessful resolution. By introducing a special 
resolution procedure for cross border banks,  authorities could pre-empt initiating 
reorganisation under insolvency laws. This would save time (in terms of fulfilment of more 
lengthy procedures under insolvency laws) enable  techniques which are more suited to the 
needs of a bank resolution (e.g. bridge bank85) to be used and allow for a more appropriate 
balance of priorities to be exercised with rega rd to stakeholders (dep ositors, continuity of 
services for all customers) as opposed to only creditors as under an insolvency procedure. 
If banks can be reorganised in a timely and effective manner, financial stability would be 
substantially strengthened and th e probability of fiscal conse quences of a bank failure would 
                                                 
84 In case public resources are involv ed, such tools would need to be undertaken in compliance with State 
Aid rules. 
85 A bridge bank can keep the going concern status of the viable part of the banking business, and help 
avoiding formal insolvency. 
 
EN 49   EN diminish. It would also mean less need to support weakened financial institutions, more 
competition and consequently the intern al market would be strengthened. 
Since the aim of resolution is to as far as possible avoid that cost s are borne by taxpayers, 
losses are imposed in the first instance on shar eholders. However the above techniques, if 
applied at a point before the bank is technica lly balance sheet insolvent, may constitute a 
limitation to their rights. If public interest were  best served by ensuring the continuity of 
banking services and an orderly resolution, this may be justif ied and intervention should be 
possible at a 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. The use 
of resolution tools would thus need to be fu lly justified, on the basis of commonly agreed and 
legally sound conditions set out in a bank re solution framework. In particular, a clear 
demonstration would be needed that an actio n which limited the rights of stakeholders was 
proportionate to the seriousness of the problems in the institution and driven by clear public 
interest.  
4.3.1.3.  Single set of bank resolution tools 
Under this option a closed li st of tools and powers could be defined for all resolution 
authorities dealing with cross border banks. Under an EU framework tools and powers could 
be harmonised to a maximum extent. 
Impacts: 
Maximum harmonisation could bring all the benefits of the prev ious option compared to the 
baseline scenario. This would create an even clearer system for bank resolution. Practical 
implementation of such a maximum harmon isation would however most likely cause 
problems in many Member States because of  differences between legal systems (e.g. 
constitutional limitations) and differences in responsibilities of authorities (banking 
supervisor, national bank, ministry of  finance, deposit guarantee scheme). 
4.3.2.  Possible policies to address misalignmen t between responsibility of national 
authorities and international business 
4.3.2.1.  Baseline scenario (no changes) 
Under this option, national authorities would ke ep their focus on banking entities located on 
their respective territory. The geographical se paration of resolution measures implemented by 
national authorities would proba bly continue to be misaligne d with the highly integrated 
operation of a cross border banking groups. Re organisation procedures and actions would 
differ in all Member States concerned which w ould result in different outcomes. Separate 
procedures would probably not take into account  the positive, synergic effects of possible 
resolution at group level. The lack of agreemen t (or binding decision) w ould risk that national 
authorities implement uncoordinated measures resulting in suboptimal outcomes (e.g. Fortis 
case).  
The 2008 Memorandum of Understanding that created a cooperation framework between 
different authorities (Ministries of  Finance, Central Banks, supervis ors) in crisis situations did 
not prove to be effective in practice. On th e basis of recent experience, the Commission 
believes it unlikely that in the future when Cro ss Border Stability Groups have been created in 
 
EN 50   EN accordance with the MoU, the voluntary  cooperation under this framework will manage to 
reach the objectives of coordi nated cross-border resolution. 
The proposal of the Commission to  establish the European Syst em of Financial Supervisors 
(ESFS), does not foresee any role for these Authorities in a resolution process. Hence apart from their coordinating and deci sion-making role in supervisor y actions in case of emergency 
situations, these Authorities will not have any power in a resolution. Th e safeguard clause of 
the proposal makes clear that decisions by the ESAs in no way impinge on the fiscal 
responsibilities of the Member States. This al so constrains the Aut horities from making any 
decisions related to resolution processes, as this  will almost always entail the possibility that 
public funds are used. 
 4.3.2.2.  Improved cooperation between reso lution and other authorities 
Cooperation between resolution authorities 
Cooperation could be further im proved if there were more bi nding obligations. For example, 
supervisors could be legally obliged to alert resolution authorities  where they consider that a 
cross border bank is failing or is likely to get into difficulties and that it is reasonably unlikely 
that the bank will be able to turn itself around, while resolution authorities of different legal 
entities within a group could be legally obliged to consult each  other before taking measures 
on a legal entity of the group. It could be a pr econdition before the taking of any resolution 
measures at cross-border level that a discussi on takes place between th e resolution authorities 
on the situation of the bank (e.g. taking into account its ability to meet threshold conditions 
assessed by supervisors), while acknowledging that  specific circumstances may require rapid 
decisions. Consideration could al so be given as to whether re solution authoriti es should be 
obliged to consider (but not ne cessarily apply) joint resoluti on measures which would be to 
the benefit of the group as a whole. 
Voluntary cooperation could be further improve d if decisions made by certain authorities 
were to be made binding. Home resolution authorities might also nominate a "lead 
administrator" for the banking group who would be responsible  for coordinated resolution. 
More radically, this approach could provide for the nomination of the same administrator to 
all group members concerned. Those proceedings would be conducted in accordance with the 
applicable national legal regime. 
Finally, cooperation would be sign ificantly enhanced if it were clear in advance that if public 
money needed to be spent, the costs would be  shared fairly across countries. This would 
create the correct incentives a nd ensure that it was in everyone 's interest to cooperate fully 
towards the minimisation of the total social cost. 
Cooperation of judicial authorities 
Not only resolution authorities  but also courts and insolvency practitioners  could be required 
to exchange information and coordinate actions on  a cross border basis in  respect of different 
group entities under resolution. Prop osals to facilitate cooperati on between administrators and 
 
EN 51   EN courts located in different jurisdictions ha ve been or are being developed by UNCITRAL86 
and could provide useful models for an EU  cooperation framework for the resolution and 
liquidation of cross border banking groups. Two principle approaches might be explored: 
                                                 
86 United Nations Commission on Interna tional Trade Law, www.uncitral.org 
 
EN 52   EN • Coordination framework for coopera tion and exchange of information  
This would entail the conduct of territorial proceedings, in relation to separate legal 
entities, in accordance with the applicable  national insolvency regime. New EU rules 
would establish requirements for courts , insolvency practi tioners and (where 
applicable) resolution authorities to exchange  information in respect of the different 
group entities under resolution. 
Going further, a new EU instrument could also provide a framework for coordinated 
stabilisation or reorganisatio n plans and facilitate the coordination of the use and 
disposition of assets, use of avoidance powers87 and distributions to creditors. Such 
measures might address some of the pr oblems experienced in the liquidation of 
affiliated entities where there has been significant co-mingling of assets88. 
• Coordination of national proceedings by a “lead administrator”  
This approach would facilitate a more di rected coordination of  national proceedings 
in relation to group entities by a 'lead' admini strator or liquidator ( possibly that of the 
parent company, although some  flexibility might be ap propriate), or by a lead 
national authority for the purposes of stab ilisation measures. EU rules would, among 
other things, set out procedures for the adoption of a coordinated stabilisation or reorganisation plan and for decision -taking within agreed objectives. 
Increased coordination for bank resolution would improve chances  for an optimal outcome at 
EU level. Measures that take into account ot her parts of a cross border bank group could be 
more efficient (e.g. lower cost by using collaterals  available internally) and more effective in 
reaching better outcomes for all stakeholders (e .g. ensuring continuity of banking services for 
customers by maintaining uninte rrupted intra-group support). 
Impacts: 
Binding decisions taken by certain (home) authoriti es instead of the lack of agreement in case 
of voluntary cooperation would improve the effectiv eness of resolution meas ures at EU level. 
They could increase promptness of actions in stead of enduring and non conclusive decision-
making. At the same time, Member States woul d probably be reluctant to shift their powers 
over their banks in a resolution process to ot her Member States. One of the most crucial 
questions here is who should fi nance the resolution, if public  funds are needed. Would the 
country that makes the final bindi ng decision also assume the (financial) consequences for its 
decisions? 
4.3.2.3.  Increased powers to EU institutions in bank resolution 
Under a new European framework, EU bodies coul d be given decision-making roles in a cross 
border bank resolution. Considera tion should be given as to wh ether any EU institution (the 
new European Banking Authority or any other ex isting authorities) should be empowered to 
coordinate and/or lead a reso lution of banking groups. If nationa l resolution authorities were 
                                                
 
87 Transactions executed in the suspect period e.g. 6 months before insolvency may be ruled void or null. 
88 Assets are intermingled if it is impossible or to o costly to separate assets of two legal entities. 
 
EN 53   EN unable to reach agreement, an EU body might be  best placed to make the final binding 
decision. 
Impacts: 
This option would bring all the benefits (i.e.: effectiveness and efficiency) of the previous 
option for all stakeholders. The European Council, in its conclu sions of 19 June 2009, 
recommended that a European System of Fi nancial Supervisors (ESFS), comprising three, 
new European Supervisory Author ities (ESA), be established, wh ile stressing that decisions 
taken by the latter should not impinge on the fi scal responsibilities of Member States. Against 
this background, it is un likely that Member States would curre ntly be in the position to shift 
their powers on bank resolution to any EU body. To come to a situation where an EU body 
could decide on these issues, further steps are needed to come to robust burden-sharing 
arrangements between Member States. 
4.3.3.  Possible options to addre ss legal obstacles (company, insolvency law) to bank 
resolution 
4.3.3.1.  Baseline scenario (no changes) 
Under the baseline scenario, Member States' dive rging national legislati ons would continue to 
govern cross-border bank resolutions. Compan y law provisions would continue to hinder 
authorities from implementing prompt actions  without consulting shareholders. National 
insolvency laws would continue to focus only on maximizing value for creditors without 
taking into account financial stab ility and other stakeholders such as taxpayers. Different 
national resolution or insolvency systems wo uld probably have encounter difficulties to 
cooperate. Any reorganisation or liquidation would necessarily be  carried out in accordance 
with national insolvency procedures, and any coordination would be based on the voluntary 
cooperation between different national insolven cy authorities and officers. Under current 
arrangements insolvency proceedings are onl y effective in the country where they are 
initiated, and will administer only those assets  that are located within that jurisdiction.89 
4.3.3.2.  Adjustments in company and insolvency laws to support bank resolution 
Company law  at EU90 and national level91 could be amended in such a way as to enable 
authorities to take rapid and decisive actions. This might entail limiting certain rights (to decision and property) of bank shareholders. Su ch measures and thus limitations to rights 
could be implemented only in the pub lic interest of financial stability. 
                                                
 
89 This is subject to the exception under Directive 2001 /24/EC of branch assets that are located in another 
Member State. 
90 The capital maintenance regime under the Second Company Law Directive requires the approval of the 
shareholders' general meeting for any increase or re duction of issued share capital and confers pre-
emption rights for existing shareholders. The Shar eholder Rights Directive sets out requirements 
relating to the general meeting of shareholders of listed companies, and in particular specifies the 
convocation periods and the form of the convocation. 
91 There are domestic requirements in the company law or listing rules in a number of Member States, 
such as the requirement that material transactions be approved by the general meeting. 
 
EN 54   EN Convocation periods for the general meeting of shareholde rs that could prolong key resolution 
decisions could be decreased or in exceptional cases shareholders' approval could be totally 
abolished. 92 
Measures (like transfer of ownership or as sets of an ailing bank ) must comply with 
shareholders' right to property under Articl e 1, Protocol 1 ('A1P1') of the European 
Convention of Human Rights ('EC HR'). A1P1 does not prevent the use by national resolution 
authorities of intrusive measures  that interfere with shareholde rs' property rights in a bank, if 
it strikes a “fair balance” between “the demands of the general interest of the community and 
the requirement of the protection of the individual's fundamental rights”.93 However, a 
stabilization and resolution fram ework would need to respect constitutional limitations of 
Member States' laws – as guaranteed under th e EU Treaty – and would need to contain 
appropriate safeguards to ensure that the ri ghts of shareholders are given proper weight. 
For losses suffered as a result of resolution m easures, bank shareholders  should be entitled to 
compensation. Where rights granted by EU law are affected, appropriate mechanisms for 
redress and compensation would need to be agre ed and set out at EU level. The question for 
further consideration is whether for all other cases, appropriate mechanisms could be left to 
the discretion of Member States . If resolution measures are a pplied at a cross-border level, 
involving entities in more than one Member State, it seems logi cal that redress possibilities 
and compensation for shareholders of the affect ed entities should be determined in the same 
way. 
Insolvency laws  could be amended to support coordination of resolution measures and 
reorganisation at group level. Reorganisation might be carried out under an administrative 
process or under a judicial insolvency procedure.  In the first case insolvency laws would need 
to be adjusted to allow reso lution of an ailing bank under a sp ecial procedure. In the second 
case, insolvency procedures would need to be amended to cater for the group as a whole.  
4.3.3.3.  Developing new EU legislation for resolution of cross border banks 
Instead of amending existing EU and national le gislations governing company and insolvency 
law provisions to facilitate c oordinated cross border bank re solution, a new EU legislative 
framework could be developed. The administra tive special framework would deal only with 
the resolution of cross border banking groups  and regulate commencement and management 
of procedures; resolution tools and powers of  EU and national authorities; shareholders' 
rights; compensations; ranking of  creditors; group interest, in tragroup transactions. Certain 
contracts (e.g. employment, set off, netting, etc.) would however  continue to be settled 
according to national laws. Similarly, employees' information and consultation rights would continue to be ruled by national laws (which  in many instances implement Community law). 
 
                                                
 
92 With a view to the requirement established by th e Second Company law Direc tive, the European Court 
of Justice has clarified that neither the Treaty nor  the Second Directive itself provide for a possibility 
for Member States to derogate from this rule in crisis situations and where the company undergoes serious financial difficulties, judgment of the ECJ in the joined cases C-19/90 and C-20/90, "Karella 
and Karellas". 
93 Sporring and Lonnroth v Sweden (1982) 5 EHRR 35  
 
EN 55   EN Impacts: 
The introduction of such a legislative framewor k would create a clear a nd transparent system 
for the resolution of cross border banking groups;  all stakeholders would have an overview 
about their rights and obligations. The new system  would be effective as the tools of the new 
procedure would enable reaching the specific goa ls of a bank resolution. It would also be 
efficient as a speedy administrative process could replace a number of diverging national 
processes. 
The difficulty of developing such a 'quasi' ha rmonised insolvency system for cross border 
banks cannot be underestimated. Insolvency law is  closely related to other areas of national 
law such as the law of property, contract and commercial law, and rules on aspects such as 
priority reflect social policy. Accommodating distinct national c oncepts, such as trusts or 
floating charges, in a unified c ode would be complex. Furthermor e, it is recognised that if 
convergence is desirable it should ideally be glob al. However, work in the EU could allow it 
to shape any subsequent global initiatives.  
Such a project might take the form of a separa te and self-contained insolvency regime that 
would be available, and would replace the otherwise applicable national regimes, for the reorganisation and winding up of cross-border  banking groups in the EU. Such a regime 
would only fully address the problems associat ed with the separate entity approach under 
national insolvency law if it permitted an inte grated treatment of th e group entities. Careful 
thought would need to be given to the application of such a regime and the extent – if at all – 
to which it should be optional for systemically  important cross-border banking groups. It is 
recognised that any imposition of a new EU in solvency regime on ex isting entities would 
raise transitional pr oblems, including the impact on creditors and counterparties. 
4.3.4.  Possible policies to support finan cing of cross border resolution 
The policies listed below are not necessarily mu tually exclusive solutions. Financing from 
private sources does not mean that the invol vement of public sources can not become 
unavoidable at a certain point of  the resolution. However one of the main objectives for a 
bank resolution framework is to minimize losses for society as a whole and especially for 
taxpayers. This implies that finding solutions to facilitate resolution measures for a cross-
border bank should be considered a last – and not first – resort. As a consequence the focus in 
the first instance is on how to increase the chances of a resolution without recourse to public funds. Public financing solutions – in partic ular making progress on burden sharing – are 
considered, in particular because clarificat ions in advance on how costs may be shared 
between Member States should instil additional confidence in to a resolution process which 
can in turn enhance the prospects for a successful  resolution at minimal cost to the taxpayer. 
4.3.4.1.  Baseline scenario (no changes) 
Under current rules, financing of a cross border re solution is not assured from either private or 
public sources. The absence of funding arrange ments underpinning interv ention measures in a 
cross-border context limits the range of resolutio n tools that authorities may use, potentially to 
the detriment of the cost minimisation objective. 
Most Member States' legislations  do not provide incentives for pr ivate investors to finance an 
ailing bank under resolution. Intra-group financ ing would continue to generate legal 
uncertainty due to the risk of retroactive i nvalidity. Financing from other private sources 
 
EN 56   EN would continue not to have adequate incentive s and guarantees in inso lvency proceedings (no 
priority in the ranking of claims in many Member States, collateral provision). 
The use of public funds in a cross border case would continue to be possible on a national 
basis, which entails that resolution measur es would also be divided along geographical 
borders. This would maintain the risk for subopt imal reorganisation results at banking group 
level. 
4.3.4.2.  Adjustments in company law and insolvency laws to support private sector financing 
of resolution 
Private sector funding should be the most favoured  of solutions in terms of bank resolution as 
it avoids the use of public sources. Legal certainty surro unding the actions taken by bank 
resolution authorities can be ke y in reinforcing opportunities for private sector solutions. Any 
risk that restructuring measures might be subsequently unwound through court appeal 
processes may seriously restrict the readiness of  private sector parties to invest in asset 
purchases or to take over all or  part of a rescued credit instit ution (the Fortis resolution and 
eventual sale to a private sector purchas er was plagued by legal uncertainty). Legal 
uncertainty that discourages private sector fina ncing solutions of ailing banks due to the high 
risk and lack of assurance for repayment should be addressed. 
Impacts: 
Adjustments to company and insolvency laws would facilitate private sector solutions which 
carry the financial cost of a bank resolution. Co mpared to the baseline scenario, preferential 
treatment of private funds financing a resoluti on could be cost efficient, especially for 
taxpayers. If incentives and guarantees could be  provided in order to encourage private 
investment, increase legal certainty and reduce th e risks for investors associated with a bank 
insolvency procedure, the use of public funds would be more  likely to be minimised or 
avoided. Introducing changes to in solvency and company laws so  as to give preferential 
treatment to private sector fi nancing provided in the context of a bank resolution would 
however negatively impact exis ting unsecured creditors of th e ailing bank in a possible 
subsequent liquidation. 
4.3.4.3.  Intra-group asset transferability framework 
Added impetus could be given to work on the fe asibility of introducing a framework to allow 
intra-group cross-border  asset transferability after the commencement of an insolvency 
procedure. 
A clear framework regulating the transfer of assets as a mean s of intra-group financial support 
and a measure for stabilising entities in a bank ing group, could assist groups in liquidity 
management and in some cases could help in  the management of a developing crisis. 
However if transfers are executed on preferential terms, there is a risk of challenges from 
minority shareholders, creditors or insolvency administrators.94 Directors bearing liability for 
their own company may be exposed to  civil or criminal liability.  
                                                 
94 Intragroup transactions taking place prior to insolvency  (in the suspect period e. g. in 6 months) could be 
retroactively ruled null and void. 
 
EN 57   EN According to the UNCITRAL, the following gua rantees could be granted for such "post 
commencement financing"95 in an insolvency procedure (or in a special bank resolution 
framework): 
• A priority in the order of cr editors may be established in a subsequent liquidation (e.g. 
ahead of ordinary unsecured creditors, including those unsecure d creditors with 
administrative priority) 
• A security interest may also be gran ted for the lender on unencumbered assets96 o r as a 
junior or lower security intere st on already encumbered assets 
• The group member subject to insolvency procee dings may also guarantee or provide other 
assurance of repayment for post-commencement finance. 
Impacts: 
The synergies generated by reallocated funds wi thin a group could contri bute significantly to 
the reorganisation of a group without the ne ed for public funds, and allow continuous 
operation of the group while a solution was being found for the business. This would help to 
preserve value in the ailing bank. The cross bord er transfer of funds between entities after 
commencement of insolvency proceedings however could be contrary to the interests of the 
Member State and creditors from where the tran sfer is executed. Consideration could be given 
to constructing a framework that allows such a tr ansfer and at the same time grants sufficient 
(above listed) guarantees fo r certain stakeholders.  
4.3.4.4.  Financing through Deposit Guarantee Schemes 
The feasibility of using Deposit Guarantee Sc hemes beyond their trad itional paybox function 
could be explored. In some Member States (e.g. Spain), the deposit insurance fund may assess 
whether it is more cost efficient to finance a re solution of an ailing bank or to let the bank fail 
and pay out to depositors. The Commi ssion is currently preparing a report97 on further 
amending the Directive 94/19/EEC on Deposit Guar antee Schemes (DGS). One of the issues 
under examination is whether the scope of the DGS should be extended beyond the paybox 
function. 
Impacts: 
Financing through DGS would have the advantag e that the banking sect or would contribute 
more directly to ensuring its own stability, an d lessen the potential burden on taxpayers. In 
order to play a meaningful role in crisis in tervention, substantial addi tional funding resources 
would be necessary, compared to  what is currently available.98 Reliance solely on ex ante 
funds (which currently amount to an es timated €13 billion in all DGS combined99 ) would be 
quite simply inadequate. However, DGS are not solely reliant on ex ante funds, and by 
                                                 
95 Financing provided after the insolvency procedure begins. 
96 Not used as a collateral to secure payments of the debtor. 
97 More information, including the public consultation results on the DGS review can be found on the 
following website: http://ec.europa.eu/internal_market/bank/guarantee/index_en.htm 
98 Even more so in the case of large, complex cross-border financial groups 
99 See Commission Communication on the review of Directive 94/19/EC on Deposit Guarantee Schemes: 
http://ec.europa.eu/internal_market/bank/docs/guarantee/comm9419_en.pdf 
 
EN 58   EN pooling the financing capacities of all DGS and sufficiently st rengthening the funding base, it 
might be feasible to address the problems in a large cross-border banking group. Use of DGS 
funds to rescue ailing banks would need to comp ly with State Aid rules in order to ensure a 
level playing field across banks and Member States.  
4.3.4.5.  Developing public funding arrangements 
Although one of the major motivations for de veloping a cross-bo rder bank resolution 
framework would be avoidance of the use of  public funds, it needs nevertheless to be 
recognised that bank resolution measures ma y ultimately require public funding - in 
compliance with State Aid rules - should private sector soluti ons prove insufficient. This 
implies further development of arrangements wh ich set out how financial burdens should be 
shared if resolution measures need to be a pplied to a cross-border group. A recent report to 
the Economic and Finance Committee100 has recommended that the EU framework for 
financial stability should include  voluntary ex ante arrangement s for burden sharing regarding 
cross-border financial groups, supported by an  EU-wide terms of reference, with newly 
established cross-border st ability groups playing a key role in monitoring their 
implementation. In light of experiences during the recent crisis, more  clarity about cost 
sharing would be an essential part of any new framework, a nd would assist in building a 
robust framework for cooperation and provid e further incentives to converge national 
systems. Conversely, the putting in place of coherent sets of tools should provide the 
necessary assurance about the capacity of other national authorities to act in an appropriate 
manner and at an appropriate time. Finall y, the existence of clear burden sharing 
arrangements would be an important enhancemen t to the Internal Market, especially with 
respect to addressing particular concerns about the current stru cture of the Internal Market 
(e.g. the issue of smaller coun tries and the relative size of their banking se ctor, and the 
predominance of foreign owned banks in some host countries). 
Impacts: 
An agreement on burden sharing - in comp liance with EU State Aid rules - would 
substantially increase the effectiveness of cross border resolution measures. Establishing clarity about the financing arra ngements would provide the righ t incentives so that Member 
States would be more likely to cooperate in a cross border bank resolution and to implement 
measures that bring optimal solutions at EU level. The mere existence of burden sharing 
arrangements could also serve to reinforce the viability of private sector solutions. Greater clarity would also contribute to the efficien cy of the resolution, as speedy decisions and 
actions have higher chances for successful ea rly reorganisation where the involvement of 
public funds can be avoided. On the othe r hand, advance commitment between Member 
States on precise modalities would be particularly  challenging given that each crisis situation 
differs. Burden sharing arrangements would need to be tailored to each institution and agreed in the appropriate forum. Safeguards would also be needed to ensure that Member States did not walk away from non-binding arrangements. 
                                                
 
100 Lessons from the financial crisis for European financial stability arrangements, EFC High-Level 
Working Group on Cross-Border Financ ial Stability Arrangements, July 2008. 
 
EN 59   EN 4.3.5.  Possible policies to support c ontinuity of banking services 
4.3.5.1.  Baseline scenario (no changes) 
If no changes in EU or national legislations are implemented, continuity of banking services 
in a crisis situation or in an insolvency of  a cross border bank would not be assured in all 
Member States. Formal reorganisation or liquida tion of banks could freeze assets of certain 
customers or impede any payment transactio ns in one part of the banking group, while 
allowing it in an other. The l ack of regulation about the bridge bank's cont ractual relationships 
with the residual company (in part icular with regard to the need  to provide continuous mutual 
support of operations) would render such a re solution technique obsolete, limiting the choices 
of authorities and resu lting in higher costs. 
4.3.5.2.  Adjustments in company laws and insolvency  laws to support cont inuity of services 
Amendments might need to be implemented to  company and insolvency laws in certain 
situations to ensure continu ity of basic banking services: 
1. Bridge bank solution and partia l sales of assets (operation) 
For an effective implementation of a bri dge bank solution, certain adjustments in 
legislation would need to be implemented. Both the residual company (in the event 
of the transfer of business to a bridge bank or a partial sale  to a private sector entity) 
and the transferred part needed to provide support101 to each other, which are 
necessary to ensure the continuity of ba nking services. General insolvency law and 
company law does not necessarily allow such  service provision in an insolvency 
proceeding, which is special for bridge ba nks or partial sales under bank resolution. 
Both insolvency laws and company la ws could be amended to support such 
resolution techniques. This should apply ir respective of whether the entity providing 
the support is located in the same Member  State as the bridge bank or purchaser. 
2. Termination of contracts by third parties 
In order that continuity of banking serv ices is not jeopar dised by the sudden 
termination of contracts by third parties, it might be also ne cessary to restrict 
termination rights under certain circumstan ces, for example where the contracts are 
transferred to a bridge bank. 
3. Insolvency proceedings prompted by resolution measures 
In order to avoid that additional insolv ency proceedings are not opened once the 
relevant national authorities have d ecided to apply a resolution measure, 
modifications to national insolvency laws might be needed. Considerations should be 
given whether to introduce the possibi lity of simultane ously applying a 
moratorium102 to a cross-border banking group undergoing resolution for the purpose 
                                                 
101 Such support might be necessary, fo r example, where certain systems, c ontracts or services necessary to 
the operation of a bridge bank have not been transferred from the residual company, or where essential support services were formerly provided to former bank by another group entity. 
102 A legal official (usually a judge) can order a delay of payment due to extenuating circumstances that 
make one party unable to give payment to another. 
 
EN 60   EN of ensuring continuity of se rvices and ensuring an orde rly resolution process. This 
would need to be very short in duration, if the intention was to re-structure the group 
as a going concern. 
Impacts: 
The above options could help to  achieve continuity of servi ces, which could be one of the 
main objectives of a special bank resolution fr amework. Customers, mostly private persons 
and SMEs are often dependent on services of one particular ba nk. In case of failure, many 
could suffer further financial losses in additio n to the risk to thei r deposits. If payment 
services are blocked, private persons may face difficulties keeping up their mortgage or other 
loan payments, or face being cut off by public util ity services (gas, water, electricity). SMEs' 
business can seriously suffer if they can not pa y their suppliers on time. Thus policies above 
would have positive effects on the stability of the financial sector as a whole and benefit especially households and smaller companies. 
If the relation between a bridge bank and th e residual company is clearly established by 
legislation, authorities can appl y this technique in a bank resolution. A "Bridge bank" solution 
(putting the viable part of the business in a new bank) can give  time for authorities for finding 
the best reorganisation solution hence incr eases the efficiency of the procedure. 
Such changes would however require Member  States to change general insolvency 
legislations and/or intro duce special administrative bank resolution frameworks.  
 
 
EN 61   EN 4.3.5.3.  Linkage between objectives and options  
Early intervention  
Objectives  
 
 
Policy options Develop tools and triggers to detect 
problems in banks and intervene at 
an early stage Ensure efficient cooperation between 
national financial supervisors 
responsible for cross border banks in 
crisis situations. 
 
Possible policies to address early intervention conditions, triggers 
Common assessment of common early 
warning indicators ● ○ 
Automatic, hard triggers ● ○ 
Possible policies to address early intervention tools  
Expanded minimum set of early 
intervention tools ●  
Single set of early intervention tools ●  
Possible policies to address misalignment between responsib ility of national supervision and international business 
Baseline scenario with setting up 
European Banking Authority  ● 
Improved cooperation between 
supervisors in crisis situation  ● 
● Direct link       ○ Indirect link  
 
 
EN 62   EN Bank resolution  
Objectives 
  
Policy options Develop tools and 
triggers to ensure 
reorganisation and 
resolution of cross 
border banks in a 
timely and robust 
manner Improve cooperation 
of national resolution 
authorities to deliver 
optimal solutions at 
EU level  Create certainty 
and 
predictability 
around bank 
resolutions for 
all stakeholders Ensure continuity of 
basic banking 
services during 
resolution 
Possible policies to address bank resolution tools and triggers 
Minimum set of 
harmonised bank 
resolution tools and clear 
triggers ● ○ ● ● 
Single set of bank 
resolution tools ● ○ ● ● 
Possible policies to address misalignment between responsib ility of national authorities and international business 
Improved cooperation 
between  resolution and 
other authorities   ● ○  
Increased powers to EU 
institutions in bank 
resolution  ● ○  
Possible options to address legal obstacles (c ompany, insolvency law) to bank resolution 
Adjustments in company 
and insolvency laws to 
support bank resolution ○  ●  
Developing new EU 
legislation for resolution 
of cross border banks ○  ●  
Possible policies to support financ ing of cross border resolution 
Adjustments in company 
law and insolvency laws 
to support private sector 
financing of resolution ● ○ ○ 
 
Intra-group asset 
transferability framework ● ○ ○  
Financing through 
Deposit Guarantee 
Schemes ● ○ ○ 
 
Developing public 
funding arrangements ● ○ ○  
Possible policies to support cont inuity of banking services 
Adjustments in company 
and insolvency laws to 
support continuity of 
services   ○ ● 
● Direct link       ○ Indirect link  
 
EN 63   EN  
4.4. Impact on EU budget 
The above policy options do not have any implic ations for the budget of the European Union. 
Early intervention and bank resolu tions would be primarily mana ged by national authorities.  
4.5. Package and cumulative effects 
The issues listed above comprise wide le gislative areas and touch upon substantial 
responsibilities of authorities. Many policies address problems that have emerged over recent 
times and have never been analysed and attempte d to be solved before . Early intervention and 
bank resolution are however so in terconnected with all the issues  described in this impact 
assessment that policies could not be introduced in isolation. If special bank resolution tools 
are provided for authorities, cr oss border cooperation, financi ng, company law, insolvency 
law areas need to be adjusted accordingly. 
To reach the general and specific objectives defined above, amendments in EU and national 
laws would be substantial. Gr anted rights and intere sts could be sacrificed for financial 
stability and cooperation structures need to  be reshaped to reach optimal results. 
 
EN 64   EN 5. ANNEX I: GLOSSARY  
Bad bank – Good 
Bank Bad or Good bank is created when authorities separate good from bad assets 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 with a vi ew to facilitating a private sector solution 
Bank resolution Bank resolution: reorganisation of ailing banks (in either an administrative or judicial process) 
that aims at maintaining financial stability, the continuity of banking services and the revitalisation of the bank. In addition to trad itional reorganisation techniques, bank resolution 
uses specific tools (e.g. bridge banks, forced merg er, assisted acquisition, partial sale of assets) 
to reach the above objectives. The process is managed by a resolution authority, which can be different in Member States (national bank, financial supervisor, deposit guarantee scheme, 
ministry of finance, special authority). 
Basel II Basel II is the second of the Basel Accords, which are recommendations on banking laws and 
regulations issued by the Basel Committee on Ba nking Supervision. The purpose of Basel II, 
which was initially published in June 2004, is to create an international standard that banking 
regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. The Basel II framework 
has 3 pillars: Pillar I Minimum Capital Requirement, Pillar II Supervisory Review Process, 
Pillar III Market discipline. 
Bridge bank A 'bridge bank' is a temporary licensed banking institution created, and generally owned by or 
on behalf of, the national authority to take over the viable business of the failing institution and 
preserve it as a going concern while the authority seeks to arrange a permanent resolution, such as to a suitable private sector purchaser. 
Capital adequacy 
ratio Capital adequacy ratios ("CAR") are a measure of the amount of a bank's capital expressed as a 
percentage of its risk weighted credit exposures.  A bank's capital is the "cushion" for potential 
losses, which protect the bank's depositors or other lenders. 
Consolidating 
supervisor The supervisor responsible for the supervision on a consolidated basis of a banking group. As a 
rule, this is the supervisor of the Member Stat e where the parent bank of the group is based 
Early 
intervention Early intervention: early remedial actions of banking supervisors (e.g. raising private capital, 
modification of business lines, divestiture of assets) which aim at correcting irregularities at banks and hence helping banks returning to normal course of business and avoiding that banks 
enter in a resolution stage. 
European 
Banking Authority (EBA) The objective of the Authority shall be to contribute to: (i) improving the functioning of the 
internal market, including in particular a high , effective and consistent level of prudential 
regulation and supervision, (ii) protecting deposit ors and investors, (iii) protecting the integrity, 
efficiency and orderly functioning of financial markets, (iv) maintaining the stability of the 
financial system, and (v) strengthening international supervisory coordination. 
European 
Supervisory 
authorities (ESA) ESA is created by transforming the European supervisory Committees103 in a European 
Banking Authority (EBA), a European Securities and Markets Authority (ESMA) and a 
European Insurance and Occupational Pension Authority (EIOPA) 
European System 
of Financial 
supervisors A network of national supervisors working in tandem with the new European Supervisory 
Authorities (ESA) thereby combining the advantages of an overarching European framework 
for financial supervision with the expertise of local micro-prudential supervisory bodies that are 
                                                 
103 These are the Committee of European Banking Supervisors (CEBS), the Committee of European 
Insurance and Occupational Pensions Supervisors (C EIOPS) and the Committee of European Securities 
Regulators (CESR). 
 
EN 65   EN (ESFS) closest to the institutions operating in their jurisdictions. 
Going concern A going concern is a business that functions with the intention or threat of liquidation for the 
foreseeable future, usually regarded as at least within 12 months. 
Leverage ratio A ratio that compares capital with assets without risk adjustment. The Commission is working 
on a proposal to supplement the capital adequacy ratio with a simple leverage ratio. 
Memorandum of 
Understanding 
(MoU) A set of principles and procedures for sharing information, views and assessments, in order to 
facilitate the pursuance by participating authorities of their respective policy functions 
Pillar II The second pillar of the Basel Framework that d eals with the regulatory response to the first 
pillar, giving regulators much improved 'tools' over those available to them under Basel I. It 
also provides a framework  for dealing with all the other risks a bank may face, such as systemic 
risk, pension risk, concentration risk, strategic risk, reputation risk, liquidity risk and legal risk, 
which the accord combines under the title of resi dual risk. It gives banks a power to review 
their risk management system. 
Set-off / Netting An agreement between two parties to balance one debt against another or a loss against a gain. 
Supervisory 
Review and Evaluation 
Process (SREP) The Supervisory Review and Evaluation Process (SREP) is part of the larger Supervisory 
Review Process. The competent authority conducts the SREP. It  is a comprehensive process 
which supervisors use to review and evaluate the ins titution's exposure to risks. It is also used to 
review and evaluate the adequacy and reliability of the institution's Internal Capital Adequacy 
Assessment Process (ICAAP), and the adequacy of the institution's own funds and internal 
capital in relation to the assessment of its overall risk profile. It is done to monitor ongoing 
compliance with standards laid down in the CRD  and to identify any we akness or inadequacies 
and necessary prudential measures 
 
EN 66   EN 6. ANNEX II: EXTRACT FROM THE DE LAROSIÈRE REPORT DEALING WITH CRISIS 
MANAGEMENT AND RESOLUTION  
VI. CRISIS MANAGEMENT AND RESOLUTION 
125. As a general observation, it has been clearl y demonstrated that the stakes in a 
banking crisis are high for Governments and so ciety at large because such a situation 
has the potential to jeopardise financial st ability and the real economy. The crisis has 
also shown that crisis prevention, crisis management and crisis resolution tools should all be handled in a c onsistent regulatory framework. 
126. Of course, crisis prevention should be th e first preoccupation of national and EU 
authorities (see chapter on supervision). Supe rvisors should act as early as possible in 
order to address the vulnerabi lities identified in a given institution, and use all means 
available to them to this effect (e.g. calling on contributions from shareholders, 
fostering the acquisition of the institution concerned by a stronger one). In this respect, the role of central banks which are by essence well placed to observe the first signs of vulnerability of a bank is of  crucial importance. Therefore in countries 
where supervision is not in the hands of the central bank, a close collaboration must 
be ensured between supervisors and central banks. But crises will always occur and 
recent experiences in managing crises have shown that many improvements to the present system are called for. 
a) Dealing with the moral hazard issue 
127. “Constructive ambiguity” rega rding decisions whether or  not public sector support 
will be made available can be useful to contain moral hazard. However, the cure for moral hazard is not to be ambiguous on th e issue of public sector involvement as 
such in crisis management. Two aspects need to be distinguished and require different treatment. On the one hand, a cl ear and consistent fr amework for crisis 
management is required with full transparency  and certainty that the authorities have 
developed concrete crisis management plan s to be used in cases where absence of 
such public sector support is likely to create uncertainty and threaten financial 
stability. On the other hand, constructive ambi guity and uncertainty is appropriate in 
the application of these arrangements in future individual cases of distressed 
banks
104.  
b) Framework for dealing with distressed banks 
128. In the management of a crisis, priority s hould always be give n to private-sector 
solutions (e.g. restructuring). When these solutions appear insufficient, then public 
authorities have to play a more prominen t role and the injection of public money 
becomes often inevitable.  
129. As far as domestic national banks are concerned, crisis management should be kept 
at the national level. National supervis ors know the banks we ll, the political 
                                                 
104 This approach is recommended by Charles Goodhart and Dirk Schoenmaker, “Fiscal Burden Sharing in 
Cross Border Banking Crises”, in International Journal of Central Banking, to be published early 2009.  
 
EN 67   EN authorities have at their disposal a c onsistent legal framework and taxpayers' 
concerns can be dealt with in the democratic framewor k of an elected government. 
For cross-border institutions at EU level,  because of different  supervisory, crisis 
management and resolution tools as well as  different company and insolvency laws, 
the situation is much more complex to handle. There are inconsistencies between national legislation preventing an orderly and efficient handling of an institution in difficulty. 
130. For example, company law provisions in some countries prevent in times of crisis the 
transfer of assets from one legal entity to a nother within the same group. This makes 
it impossible to transfer as sets where they are neede d, even though this may be 
crucial to safeguard the viab ility of the group as a whole.  Another problem is that 
some countries place, in their nationa l laws, emphasis on the protection of the 
institution while other countries attach a great er priority to the protection of creditors. 
In the crisis resolution phase, other problems appear: for example, the ranks of creditors are different from one  Member State to the other. 
131. The lack of consistent cr isis management and resolu tion tools across the Single 
Market places Europe at a disadvantage vi s-à-vis the US and these issues should be 
addressed by the adoption at EU level of adequate measures. 
c) Deposit Guarantee Schemes (DGS) 
132. The crisis has demonstrated that the curre nt organisation of DGSs in the Member 
States was a major weakness in th e EU banking regulatory framework
105. The 
Commission recent proposal is an important st ep to improve the current regime, as it 
will improve the protection of depositors. 
133. A critical element of this proposal is the requirement that all Member States apply 
the same amount of DGS protection for each depositor. The EU cannot indeed 
continue to rely on the prin ciple of a minimum coverage level, which can be topped-
up at national level. This principle presents  two major flaws: first, in a situation 
                                                 
105 The Commission's recent proposal is  an important step to improve the current DGS-regime, as it 
strengthens harmonisation and improves the protection of depositors. However, the directive still leaves 
a large degree of discretion to member states, pa rticularly in relation to funding arrangements, 
administrative responsibility and the role of DGS in  the overall crisis management framework. Leaving 
these issues unresolved at EU-level implies that si gnificant weaknesses remain in the DGS framework, 
including inter alia: 
 - Unsustainable funding – the current lack of so phisticated and risk sensitive funding arrangements 
involves a significant risk that governments will have to carry the financial burden indented for the 
banks, or worse, that the DGS fails on their commitments (both of which illustrated by the Icelandic case). In particular, in relation to the any of the 43 European LFCIs id entified earlier in the chapter, no 
current scheme can be expected to have the capacity to make reimbursements without involving public 
funds. 
 - Limited use in crisis management – Even if DG S’ had that capacity, the pay box nature of most 
schemes makes it unlikely that they ever will be util ised for LFCIs, because of the large externalities 
associated with letting such institutions fail. 
 - Negative effects on financial stability – relian ce on ex-post funding and lack of risk sensitive 
premiums weakens market discipline (moral hazard), distort the efficien t allocation of deposits, as well 
as it may be a source of pro-cyclicality. 
 - Obstacle to efficient crisis management – du e to incompatible schemes (trigger points, early 
intervention powers etc.) and divergin g incentives among member states. 
 
EN 68   EN where a national banking sector is perceive d as becoming fragile, there is the risk 
that deposits would be moved to the countries with the most protective regime (thus 
weakening banks in the first country even fu rther); second, it woul d mean that in the 
same Member State the customers of a local  bank and those using the services of a 
third country branch could enjoy different c overage levels. As th e crisis has shown, 
this cannot be reconciled with the no tion of a well-functi oning Single Market. 
134. Another important element to be taken into account is the way in which the DGSs are 
funded. In this respect, the Group is of the view that preference should be given to 
schemes which are pre-funded by the financ ial sector. Such schemes are better to 
foster confidence and help avoiding pro-cyclical effects resulting from banks having to pay into the schemes at a time where they are already in difficulty. 
135. Normally, pre-funded DGSs should take care  in the future of losses incurred by 
depositors. Nonetheless, it is probable that for very large and cross border 
institutions, pre-funded mechanisms mi ght not be sufficient to cover these 
guarantees. In order to preserve trust in th e system, it should be made clear that in 
those cases pre-funded schemes would have to be topped-up by the State. 
136. The idea of a pooled EU fund, composed of the national deposit guarantee funds, has 
been discussed by the Group, but has not  been supported. The setting-up and 
management of such a fund would raise num erous political and practical problems. 
Furthermore, one fails to see the added- value that such a fund would have in 
comparison to national funds operating unde r well-harmonised rules (notably for 
coverage levels and the tr iggering of the scheme). 
EU harmonization should not go as far either as laying down rules on the possible 
use of DGSs in the management of a cris is. It should not prohibit additional roles 
beyond the base task for a DGS to act ex post , in the crisis resolu tion phase, as a pay 
box by reimbursing the guaranteed amount to depositors in a defaulted bank. Most 
member countries limit their national DGS to this pay box function. Some countries, 
however, extend the activities by giving thei r DGS also a rescue function. The Group 
did not see any need for EU ha rmonization in this respect. 
137. There is a specific case (of the Icelandic t ype) when a supervisor y authority allows 
some of its banks to mushroom large br anches in other EU countries, whilst the 
home Member State is not able to honour  the deposit guarantee schemes which are 
inadequate for such exposures. The guarant ee responsibilities then  de facto fall into 
the jurisdiction of the host country. This is not acceptable and should at least be 
addressed, for example, in the following way: the host Member State should have the 
right to inquire whether the funds availa ble in the DGS of the home Member State 
are indeed sufficient to prot ect fully the depositors in th e host Member State. Should 
the host Member State not have sufficient guara ntees that this is indeed the case, the 
only way to address this kind of problem is to give sufficient powers to the host 
supervisory authorities to take measures th at would at the very beginning curtail the 
expansive trends observed. 
138. The Group has not entered into the specifics  of the protection of  policy-holders and 
investors. It neverthe less considers that the above genera l principles, and in particular 
the equal protection of a ll customers in the Single Market, should also be 
implemented in the insuran ce and investment sectors. 
 
EN 69   EN d) Burden sharing 
139. The issue of burden sharing in cases of cris is resolution is extremely complicated for 
two reasons. First, cases where financial su pport from both public sector and private 
sector is needed to reach an acceptable solution are more complex than rescues where either private or public money is involved. Second, agreement on burden 
sharing on an ex post basis, at the moment  of the rescue operation, is more difficult 
to reach than when one can rely on predetermined, ex ante arrangements. 
140. As noted above, the current la ck of pan-EU mechanism to resolve a crisis affecting a 
cross-border group implies that there is no c hoice but to resolve this crisis at national 
entity-level or to agree on improvised, ad hoc cross-border solutions. The lack of a 
financing mechanism to support the reso lution of a cross-border group further 
complicates the situation. 
141. On the basis of the experiences learnt fr om the crisis, the Group believes that the 
Member States should become able to manage a crisis in a more adequate way than is feasible today. There would be merit, in order to achie ve this, in developing more 
detailed criteria on burden sharing than th e principles established in the current 
Memorandum of Understanding (MoU), which limits the sharing of a fiscal burden 
to two main principles: the economic imp act of the crisis on the Member States 
concerned (equity principle) and the al location of home/host supervisory powers 
(accountability principle). 
142. Burden sharing arrangements could, in additi on, include one of th e following criteria, 
or a combination thereof: 
– the deposits of the institution; 
– the assets (either in terms of accounting values, market values  or risk-weighted 
values) of the institution; 
– the revenue flows of the institution; 
– the share of payment system flows of the institution; 
– the division of supervisor y responsibility; the party responsible for supervisory 
work, analysis and decision being also re sponsible for an a ppropriately larger 
share of the costs. 
143. These criteria would preferably be im plemented by amending the 2008 MoU. Where 
needed, additional criteria could be agreed. 
Recommendation 13: The Group calls for a co herent and workable regulatory framework 
for crisis management in the EU: 
– without pre-judging the interven tion in future individual ca ses of distressed financial 
institutions, a transparent and clear framework for managing crises should be 
developed;  
– all relevant authorities in the EU should be equipped with appropriate and equivalent 
crisis prevention and crisis intervention tools;  
 
EN 70   EN – legal obstacles which stand in the way of using these tools in a cross-border context 
should be removed, with adequate measures to be adopted at EU level.  
– Recommendation 14: Deposit Guarantee Sc hemes (DGS) in the EU should be 
harmonised and preferably be pre-funded by  the private sector (in exceptional cases 
topped up by the State) and provide high, equal protection to all bank customers 
throughout the EU. 
The principle of high, equal protection of all customers should also be implemented in the 
insurance and investment sectors. 
The Group recognises that the present arrang ements for safeguarding the interests of 
depositors in host countries have not proved ro bust in all cases, and recommends that the 
existing powers of host countries in respect of branches be reviewed to deal with the 
problems which have occurred in this context. 
Recommendation 15: In view of the absence of an EU-level mechanisms for financing 
cross-border crisis resolution efforts, Member States should agree on more detailed criteria 
for burden sharing than those contained in  the existing Memorandum of Understanding 
(MoU) and amend the MoU accordingly. 
 
 
EN 71   EN 7. ANNEX III: M AIN ELEMENTS OF A POSSIBLE FUTURE FRAMEWORK (EXTRACT 
FROM THE COMMISSION COMMUNICATION ) 
The issues that need to be addressed in or der to construct an EU crisis management 
framework to deal with cross-border banks are described in greater detail in the 
Communication and accompanying  staff working document. Th e table below provides an 
overview of what those issues are and when they are likely to be relevant .  Measures aimed at 
strengthening crisis prevention fall outside  the scope of the Co mmunication, and are the 
subject of separate Commission initiatives.  
The Communication covers three areas that, for the purposes of discussion, are presented as 
conceptually distinct.  These are: 
1.   Early intervention  (section 3), covering actions by supervisors with the aim of 
restoring the stability and financial soundne ss of an institution when problems are 
developing, together with intra-group asse t transfer between solvent entities for the 
purposes of financial support.  These actions  would be taken befo re the thresholds 
conditions for resolution are met, and before it is or likely to become insolvent (within 
the meaning of the applicable law). The ne w European Banking Authority could play a 
role in coordinating supervisory early in tervention in a cross-border group;  
2.  Resolution  (section 4), covering measures take n by national resoluti on authorities to 
manage a crisis in a banking institution, to contain its impact on financial stability and, 
where appropriate, to facilita te an orderly winding up of the whole or parts of the 
institution. These measures take place outside  of the framework of banking supervision, 
and may be taken by authorities other than  supervisors, although it is by no means 
precluded that supervisors might be involved. 
3.  Insolvency  (Section 5), covering re organisation and winding up that takes place under 
the applicable insolvency regime.  
Although these measures are presented as con ceptually distinct, th ey do not necessarily 
constitute separate and sequential 'phases' of a crisis.  In practice, there may be considerable 
overlap between resolution and insolvency, in pa rticular, and supervisor y early intervention 
may move rapidly into resolution measures.   
 
 
EN 72   EN Õ    Scope of the Crisis Management Communication     Ö  
 Going concern 
supervision/Crisis 
prevention Early intervention Bank resolution Insolvency framework 
Current 
situation Capital Requirements 
Directive 3 pillar approach (CRD) 
Colleges National authorities Committee of European 
Banking Supervisors (CEBS) 
Stress testing CRD (Art. 130 + 136) 
Colleges 
Emergency Liquidity Assistance  
by National Central Banks (NCBs)
2008 MoU 
 2008 MoU – determines who 
(e.g. finance ministries, NCBs) 
coordinates actions with other 
competent authorities 
(coordination  via cross-border 
stability groups) 
 Winding up Directive:  
Winding-up of a cross-border 
branches takes place under 
insolvency procedures of country 
of parent bank.  
Winding up of cross-border 
subsidiaries takes place 
according to procedures where 
subsidiary is licensed. 
Possible 
changes for 
consideration  Establish European Systemic 
Risk Board (ESRB) and 
European Banking Authority (EBA) 
Leverage ratio Management of risks 
(remuneration structures) 
Quantity and Quality of capital 
Enhanced capital 
requirements 
Supervision of liquidity 
Preparation of Wind-down 
plans European Banking Authority  
New powers towards bank 
management 
Joint assessment framework 
Restoration plans 
Asset transferability framework 
Expanded common tools for 
supervisors (CEBS) 
Clarify home/host branch 
supervision (Art. 33 CRD) 
 New bank resolution tools 
New framework for cooperation
Broader changes to the legal 
framework in support of new 
bank resolution tools 
Mechanisms to finance cross-
border resolutions (including 
possible role for DGS) 
Application of wind-down plansFacilitate integrated winding up o f 
a group: 
− Coordination framework for 
insolvency proceedings 
− Lead insolvency administrator
− Integrated resolution by a 
single authority 
− Asset transfers under post 
commencement financing 
  
  
 
EN 73   EN 8. ANNEX IV. SUMMARY OF THE PUBLIC CONSULATION CONCERNING DIRECTIVE ON 
THE REORGANISATION AND WINDING UP OF CREDIT INSTITUTIONS (2001/24/EC). 
 
Main results of the consultation106 
 
In May 2007, the Commission launched a public  consultation on: (i) whether Directive 
2001/24/EC on the reorganisation and winding up of  credit institutions  leaves gaps or 
ambiguities that need to be removed; and (ii)  issues arising in the context of crisis 
management and resolution for banking groups (i.e. parent credit institutio ns with subsidiaries 
in other Member States). The purpose of the publ ic consultation was to take stock of Member 
States’ legal frameworks relating to the reor ganisation of banking gro ups, and to identify 
possible problems preventing smooth crisis ma nagement, which may involve asset transfers 
within banking groups.  In response to its consultation, the Commission received 51 answers to the consultation; 39 
were from Member States’ na tional authorities and 12 fro m industry. The Commission's 
report on the pubic consultation su mmarised the responses and pr esented an overview of the 
policy issues raised by res pondents (Ministries of Finance,  Justice, Economic Affairs, 
financial supervisors, national and internat ional industry associations, deposit guarantee 
schemes, central banks).  
 
Problems, ambiguities in the current text 
 
Even though the Directive’s rules have never b een applied in practice, respondents expressed 
their views on a number of pr ovisions that might need cl arification or amendment. 
Respondents asked for more clarity on issues related to the role of host authorities, 
equivalence of claims, form of publicati on, deadlines, and provisions on information 
exchange.  Respondents also called for new legislation catering for the insolvency of cross-border 
branches of investment firms and payment inst itutions, which are at present not covered by 
any directives. A more precise re ference to e-money institutions in this context would also be 
welcomed by some respondents.  
Extension of the Directive — winding -up of cross-border banking groups 
 
Member States and the industr y broadly supported a legal fram ework tailored to the winding-
up and reorganisation of cross-border banking  groups. This would c ontribute to further 
enhancing the financial stability arrangements given the increased activity of cross-border financial groups.  Respondents proposed a set of  possible solutions regard ing both the winding-up and 
reorganisation of cross-borde r banking groups and the reduc tion of obstacles to asset 
                                                
 
106 All consultation documents are available on the following website: 
http://ec.europa.eu/internal_market/bank/windingup/index_en.htm 
 
EN 74   EN transferability. Some of these solutions might be mutually exclusive, while others might be 
applied cumulatively.  Possible options/solutions suggest ed by respondents could include: 
(i) Full harmonisation across Member States; (ii) Harmonisation limited to specific circum stances (e.g. in case of intermingled assets, 
confusion of proceedings, cases of mismanagement); (iii) Coordination of multiple insolvency procee dings by a “lead” insolvency administrator 
governed by the law of each Member State; (iv) Possibility for all creditors to file clai ms against any insolvent entities of the group; 
(v) Mere cooperation (require ment for administrators to cooperate and for the 
judicial/administrative authoritie s to consult the aut horities of the home country of the parent 
company).  
Asset transferability within a cross-border banking group 
 
The following solutions might be considered to a ddress legal obstacles to asset transferability: 
(i) Full harmonisation to overcom e obstacles in terms of co mpany law, banking law and 
insolvency law; (ii) Harmonisation with respect to some key i ssues (e.g. group’s interest in company law); 
(iii) Supervisory arrangements for asset tran sferability (e.g. agreem ent of home and host 
banking supervisory authorities) and condi tions to allow asset transferability; 
(iv) Mutual intra-group agreemen t (i.e. intra-group guarantees). 
 However, in the interest of fina ncial stability, such asset transf er should not be detrimental to 
entities from which assets have been transf erred. The overall benefit of stakeholders 
(shareholders, creditors, governments, and employees) needs to be assured. Adequate 
safeguards could include: 
• guarantees provided by the parent or  another entity of the group; 
• access to all proceedings for cred itors with a priority right; 
• cooperation and agreement of national au thorities to transfer of assets; 
• protection of minority shareholders , creditors and the entity tran sferring assets as part of a 
group’s winding-up or reor ganisation process. 
Powers of supervisors 
 
Any EU-wide approach to winding-up and asset transferability may require similar specific 
powers for authorities to fully and effectively c ooperate. In this respect, the consultation has 
demonstrated that the EU legal framework is fragmented. The extent of banking supervisory 
authorities’ involvement in crisis resolution and management varies from one country to 
another. Future work needs to address this s ituation in order to enable banking supervisory 
authorities (hereinafter “compet ent authorities”) and other authorities to work together 
effectively.