REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the application and review of Directive 2014/59/EU (Bank Recovery and Resolution Directive) and Regulation 806/2014 (Single Resolution Mechanism Regulation)
Date: 2019-04-30
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: aid for restructuring, application of EU law, bank, banking supervision, company in difficulties, credit institution, economic stabilisation, financial aid, financial intervention, financial solvency

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 30.4.2019  COM(2019) 213 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the application and review of Directive 2014/59/EU (Bank Recovery and Resolution Directive) and Regulation 806/2014 (Single Resolution Mechanism Regulation)          
 
 
I. 

INTRODUCTION  

The  Union  regulatory  framework  in  the  area  of  financial  services  has  developed 
substantially, following the financial crisis. Several pieces of legislation were adopted to 
introduce  rules  in  previously  unregulated  areas  and  to  revise  existing  legislation.  The 
overall  aim  was  to  address  the  concerns  and  weaknesses  which  emerged  during  the 
financial crisis and to reduce the risk of resurgence of (systemic) crises. 

In this context, a minimum EU harmonised legal framework applicable in case of bank1 
crises  has  been  introduced  in  2014,  consisting  of  the  Bank  Recovery  and  Resolution 
Directive  (“BRRD”).2  The  Single  Resolution  Mechanism  Regulation  ("SRMR") 
complements that harmonised framework.3 These legislative acts provide effective tools 
to  resolve  banks  that  are  “failing  or  likely  to  fail”.  Whereas  the  BRRD  had  to  be 
transposed  into  national  law  by  each  EU  Member  State,  the  SRMR  is  a  directly 
applicable regulation which centralises certain resolution functions and decisions for the 
Banking Union. Hence, both instruments jointly establish the EU resolution framework. 

The BRRD and SRMR established the principle that when a bank is failing or likely to 
fail, the resolution authority may conclude that there is  a public interest  in putting the 
bank under resolution, rather than applying insolvency under national law. Such public 
interest might for example be due to the fact that the bank provides functions considered 
critical  for  the  economy,  which  cannot  be  interrupted  without  negative  effects  on 
financial  stability.  If  there  is  no  public  interest  in  using  resolution,  the  bank  must  be 
wound up, following insolvency rules pursuant to national laws. 

As  a  general  rule,  a  bank  must  be  declared  failing  or  likely  to  fail  when  it  needs 
extraordinary public financial support to preserve its viability, liquidity or solvency, and 
only in specific exceptional cases a bank can receive public support without triggering 
that  determination.  These  exceptional  cases  include  precautionary  recapitalisation,  as 
well as State guarantees to back liquidity facilities provided by central banks and State 
guarantees on newly issued liabilities.4 

The  framework  ensures  that  shareholders  and  creditors  effectively  support  losses  and 
establishes  a  number  of  resolution  tools  for  the  authorities  to  deal  with  banks  in 
resolution.  Depending  on  the  specific  case,  authorities  may  decide  to  use  the  sale  of 
business tool, to create a bridge bank or an asset management vehicle, and to carry out 
bail-in.5  

The  framework  also  provides  for  rules  concerning  the  provision  of  external  public 
financial support to banks in resolution. In order to reduce the risk of bail-out measures 

1 BRRD and SRMR apply to credit institutions, investment firms and other categories of financial entities as provided 
for in Article 1 BRRD and 2 SRMR. However, in the present Report the generic term “bank” is used for short to 
designate all entities falling into the scope of these legislative acts 

2 Directive 2014/59/EU, of the European Parliament and of the Council of 15 May 2014 establishing a framework for 

the recovery and resolution of credit institutions and investment firms (OJ L 173, 12.6.2014, p. 190–348) 

3 Regulation 806/2014/EU of the European Parliament and of the Council of 15 July 2014 establishing uniform rules 
and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a 
Single Resolution Mechanism and a Single Resolution Fund (OJ L 225, 30.7.2014, p. 1–90) 

4 Article 32(4)(d) BRRD. 
5  Bail-in  is  defined  in  BRRD/SRMR  as  “the  mechanism  for  effecting  the  exercise  by  a  resolution  authority  of  the 
write-down  and  conversion  powers  in  relation  to  liabilities  of  an  institution  under  resolution  […]”.  See  Article 
2(1)(57) BRRD and Article 3(1)(33) SRMR. 

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financed  by  taxpayers,  it  requires  the  creation  of  national  resolution  financing 
arrangements and the Single Resolution Fund (SRF) – to be funded by all banks on the 
market – which are the main source of external financial support for banks in resolution.   

In addition, the SRMR establishes the Single Resolution Board (SRB), which is tasked 
with  preparing  and  carrying  out  the  resolution  of  banks  established  in  the  Member 
States participating in the Banking Union, as well managing the SRF.6 

Article  129  of  the  BRRD  and  Article  94  of  the  SRMR  require  the  Commission  to 
review  the  application  of  the  resolution  framework  and  to  submit  a  Report  to  the 
European  Parliament  and  the  Council.  The  reports  on  the  application  of  these  legal 
instruments were due by June and December 2018 respectively. Due to the close links 
between  these  instruments  it  is  appropriate  to  carry  out  the  review  jointly  for  both  of 
them.  Moreover,  in  order  to  carry  out  the  review,  it  was  necessary  to  wait  for  the 
adoption  of  the  Banking  Package  (described  more  in  detail  below),  which  amended 
some  important  elements  of  the  resolution  framework,  and  particularly  the  rules 
concerning the Minimum Requirement for own funds and eligible Liabilities or MREL.  

II.  OVERVIEW OF THE STATE OF PLAY IN THE APPLICATION AND COMPLETION OF 

THE RESOLUTION FRAMEWORK  

A.  State of play of transposition of BRRD 

The  transposition  deadline  for  the  BRRD  was  set  on  31  December  2014.  Only  two 
Member States notified complete transposition of the BRRD within that deadline so that 
infringement cases for non-communication against the remaining ones were opened.   

To date, all Member States have notified complete transposition. The Commission has 
verified  that  the  BRRD  is  fully  transposed  in  all  Member  States  and  has  closed  the 
respective non-communication infringement cases.  

The  Commission  is  currently  verifying  the  correctness  of  national  transposition 
measures.  

B. 

 State of play of the implementation of the resolution framework by resolution 
authorities 

The implementation of BRRD is ongoing in the EU. A number of Member States have 
set  resolution  strategies  and  MREL  targets  for  all  the  banks  under  their  direct  remit. 
This has allowed banks to start removing impediments to these strategies and build-up 
MREL  resources.  Since  the  introduction  of  BRRD,  a  number  of  resolution  colleges 
have been set up aiming to agree resolution plans, resolvability assessments and MREL 
between home and host authorities in charge or resolving banking groups in the EU.7 

In  the  Banking  Union,  the  Single  Resolution  Board  (SRB)  is  carrying  out  the  process 
for  the  preparation  of  resolution  plans  for  banks  under  its  remit.  In  addition,  the  SRB 
has developed guidance on critical functions and the operationalisation of bail-in and it 

6 In the Banking Union, each national resolution authority is responsible for collecting contributions to the relevant 
national  resolution  fund.  These  are  then  transferred  to  the  Single  Resolution  Fund,  which  is  administered  by  the 
Single Resolution Board 

7 See EBA report on resolution colleges:  

https://eba.europa.eu/documents/10180/2087449/EBA+Report+on+the+functioning+of+resolution+colleges+-
+July+2018.pdf  

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is  still  working  on  a  number  of  topics,  in  particular  on  operational  continuity  and 
management  information  systems.  The  SRB  previously  published  an  “Introduction  to 
Resolution Planning” and is developing a more detailed resolution planning manual for 
external publication.  

With respect to MREL, the SRB approach has evolved from being based on informative 
targets  in  2016,  to  the  inclusion  in  2017  of  binding  requirements  for  the  largest  and 
most complex banks, as well as bank-specific adjustments addressing both quality and 
quantity of the MREL. The 2018 MREL guidance on the application by the SRB of the 
legislative provisions on  MREL,8 was issued by the SRB at  the end of 2018. Overall, 
banks  are  in  a  transitional  phase  and,  while  some  banks  at  present  still  face  MREL 
shortfalls, they are on their path towards fulfilling the objectives within the timeframes 
specified by SRB.  

C.  Amendments to MREL contained in the Banking Package 

In April 2019, the European Parliament and the Council of the European Union adopted 
the Banking Package,  which included amendments  to  certain  provisions of the BRRD 
and  SRMR  but  also  to  the  Capital  Requirements  Directive  (CRD)  and  the  Capital 
Requirements  Regulation  (CRR).9  In  light  of  the  deadlines  in  the  legislative  texts,  the 
new rules are likely to become applicable in the Member States during 2020. 

A  part  of  the  provisions  in  the  package  relates  to  MREL.  In  particular,  it  provides 
measures  to  align  the  existing  legislative  framework  with  the  relevant  international 
standard issued by the Financial Stability Board on the Total Loss Absorbing Capacity 
(TLAC) and includes significant changes to the calibration, eligibility criteria and group 
allocation  of  the  MREL  requirement,  and  the  consequences  of  its  breach.  In  addition, 
the text tackles the issue of contractual recognition of bail-in for liabilities issued under 
third-Country laws, as well as the powers of resolution authorities to suspend payments 
(moratorium powers). 

8 The relevant documents can be found at https://srb.europa.eu/sites/srbsite/files/srb_2018_mrel_policy_-
_first_wave_of_resolution_plans.pdf and https://srb.europa.eu/sites/srbsite/files/public_mrel_policy_2018_-
_second_wave_of_plans.pdf  

9 The European Parliament in its plenary session of 16 April 2016 adopted the legislative texts which compose the so 
called  “Banking  Package”.  The  text  voted  are  comprised  of  the  following:  -  European  Parliament  legislative 
resolution of 16 April 2019 on the proposal for a directive of the European Parliament and of the Council amending 
Directive  2014/59/EU  on  loss-absorbing  and  recapitalisation  capacity  of  credit  institutions  and  investment  firms 
and amending Directive 98/26/EC, Directive 2002/47/EC, Directive 2012/30/EU, Directive 2011/35/EU, Directive 
2005/56/EC,  Directive  2004/25/EC  and  Directive  2007/36/EC 
(COM(2016)0852  –  C8-0481/2016  – 
2016/0362(COD)) (Ordinary legislative procedure: first reading); - European Parliament legislative resolution of 16 
April 2019 on the proposal for a regulation of the European Parliament and of the Council amending Regulation 
(EU)  No  806/2014  as  regards  loss-absorbing  and  Recapitalisation  Capacity  for  credit  institutions  and  investment 
firms  (COM(2016)0851  –  C8-0478/2016  –  2016/0361(COD))  (Ordinary  legislative  procedure:  first  reading);  - 
European  Parliament  legislative  resolution  of  16  April  2019  on  the  proposal  for  a  regulation  of  the  European 
Parliament and of the Council amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable 
funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to 
central  counterparties,  exposures  to  collective  investment  undertakings,  large  exposures,  reporting  and  disclosure 
requirements  and  amending  Regulation 
(COM(2016)0850  –  C8-0480/2016  – 
(EU)  No  648/2012 
2016/0360A(COD)); - European Parliament legislative resolution of 16 April 2019 on the proposal for a directive 
of  the  European  Parliament  and  of  the  Council  amending  Directive  2013/36/EU  as  regards  exempted  entities, 
financial holding companies, mixed financial holding companies, remuneration, supervisory measures and  powers 
and capital conservation measures (COM(2016)0854 – C8-0474/2016 – 2016/0364(COD)).  

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D.  Cases of application of provisions in the resolution framework 

So  far,  there  is  limited  experience  on  the  application  of  the  framework  to  failing  or 
likely to fail banks.  

The case of Banco Popular (June 2017) is the only resolution carried out after entry into 
force  of  all  the  provisions  of  the  SRMR.10  The  resolution  scheme  of  Banco  Popular 
entailed the write down and conversion of the institution’s own funds and the sale of the 
entity under the sale of business tool. In this context, Banco Santander was identified as 
suitable  buyer.  No  bail-in  of  liabilities  beyond  subordinated  debt  was  enacted  in  this 
case and support from the Single Resolution Fund was not necessary.11  

Before the case of Banco Popular, the BRRD was applied in November 2015, when the 
Italian  authorities  placed  into  resolution  four  banks  (Banca  delle  Marche,  Banca 
Popolare dell'Etruria e del Lazio, Cassa di Risparmio di Ferrara and Cassa di Risparmio 
della Provincia di Chieti). These cases, however, occurred before the date of application 
of  the  bail-in  provisions.12  Therefore,  only  State  aid  rules  on  burden  sharing  (which 
require write down of equity and subordinated debt) were applied, but no bail-in under 
the BRRD.13   

In addition, certain provisions of the resolution framework have been applied in recent 
cases of banks in distress, which however did not entail the resolution of the institution:  
-  Certain  banks  received  precautionary  liquidity  support.14  Such  support  was 
provided to two Greek banks (National Bank of Greece and Piraeus Bank) in April 
2015.15  In  December  2016,  Monte  dei  Paschi  di  Siena  was  granted  it,16  and  in 
January  and  April  2017,  two  mid-sized  Italian  banks,  Banca  Popolare  di  Vicenza 
and Veneto Banca, also benefited from the same type of support; 17 

- 

-  National Bank of Greece and Piraeus Bank received precautionary recapitalisations 
in  November  2015.18  The  same  type  of  support  was  granted  by  the  Italian 
authorities to Banca Monte dei Paschi di Siena in June 2017.19  
In June 2017 Banca Popolare di Vicenza and Veneto Banca were declared failing 
or likely to fail by the ECB and the Single Resolution Board found that resolution 
action  was  not  in  the  public  interest.20  The  resolution  framework  provides  that  in 
this  circumstance  insolvency  rules  under  national  law  apply.  Hence,  the  two 
institutions were put under compulsory administrative liquidation under Italian law. 

10 The deadline for the application of the provisions concerning the bail-in tool set out in BRRD was 1 January 2016, 

while for the other provisions the deadline for application was 1 January 2015 

11 The measures were taken pursuant to the SRB Resolution Decision of 7 June 2017 (SRB/EES/2017/08), which was 

endorsed by the Commission Decision (EU) 2017/1246 of 7 June 2017 

12 Article 130 BRRD required Member States to apply certain provisions, including those concerning bail-in, starting 
from 1 January 2016 at the latest  
13  Bail-in  provisions  under  BRRD  require  write  down  and  conversion  of  shares  and  eligible  liabilities  up  to  a 

minimum of 8% of the bank’s total liabilities before allowing access to external financial support 

14 Liquidity in the form of State guarantees on central bank facilities or newly issued liabilities pursuant to Article 

32(4)(d)(i) and (ii) BRRD and Article 12(4)(d)(i) and (ii) SRMR. 

15 Case SA 41503 
16 Case SA. 47081 
17 Case SA.47149 
18  The  aid  was  authorised  by  the  Commission  in  Cases  SA.43364  and  SA  43365.  The  term  “precautionary 
recapitalisation”  designates  the  provision  of  own  funds  to  a  solvent  institution  pursuant  to  Article  32(4)(d)(iii) 
BRRD/18(4)(d)(iii) SRMR). 

19 The aid was authorised by the Commission in Case SA 47677.  
20 Case SA 45664 

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-  Concerning  the  Latvian  bank  ABLV,  AS  and  its  subsidiary  ABLV  Bank 
Luxembourg S.A., after the ECB determined that the banks were failing or likely to 
fail in  February 2018, the SRB took the decision not  to  initiate resolution  action, 
given the absence of public interest. Subsequently, ABLV AS applied for voluntary 
liquidation  under  Latvian  law  and  ABLV  Luxembourg  AS  remained  in  a 
suspension of payments regime under Luxembourg law.  

Where applicable, the Commission assessed the measure notified by the Member State 
under  the  State  aid  rules  for  the  financial  sector,  which  for  capital  support  require 
burden sharing of shareholders and subordinated creditors, as well as other provisions, 
including the submission of a restructuring plan where relevant. 

III.   Items for further assessment  

A.  Application of BRRD and SRMR  

Precautionary recapitalisation  

Precautionary  recapitalisation  allows  in  exceptional  circumstances21  to  recapitalise  a 
bank with public money, to address in a timely fashion difficulties which may arise in 
the context of an unlikely economic scenario (as identified in the adverse scenario of a 
stress  test)  and  that  may  affect  the  financial  conditions  of  solvent  institutions.  This 
contributes  to  creating  a  forward-looking  approach  to  financial  stability  and  avoiding 
potential  deteriorations  that  may  lead  to  a  bank  failure.  To  ensure  that  precautionary 
recapitalisation is used appropriately and within the logic of the resolution framework, 
BRRD and SRMR require several conditions to be met. These include that the bank is 
solvent,  that  public  financial  support  is  not  used  to  cover  losses  that  are  incurred  or 
likely to be incurred, and that the precautionary recapitalisation is necessary to address a 
capital shortfall established in a stress test or an asset quality review. Also, the measure 
must  be  of  temporary  nature  and  proportionate  to  remedy  the  consequences  of  the 
serious  disturbance  in  the  economy  of  a  Member  State.  Finally  the  measure  is 
conditional on final approval under the Union State aid framework. 

The Commission has observed that there may be a need for further clarification of the 
conditions  and  the  procedure  to  grant  precautionary  recapitalisation,  with  a  view  to 
ensure  timeliness  and  coordination  between  the  relevant  actors.  For  example,  the 
framework does not specify which authority should confirm that the bank is “solvent” 
before  it  receives  precautionary  recapitalisation  (nor  does  it  provide  a  definition  of 
solvency for the purpose of precautionary recapitalisation) and does not indicate which 
authority should identify the losses that the entity has incurred or is likely to incur in the 
near future, which cannot be covered via precautionary recapitalisation.  

Based on the lessons learnt from the first cases, and in cooperation with  the ECB and 
the  SRB,  the  Commission  has  developed  best  practices  on  certain  aspects  of  the 
procedure, including the role of the stress tests and their interaction with an asset quality 
review. The Commission will continue working in this direction.  

21 The measure is allowed in order to remedy a serious disturbance in the economy of a Member State and preserve 

financial stability.  

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Early intervention measures 

The BRRD provides supervisory authorities with early intervention powers, which are 
intended to prevent further deterioration of the financial conditions of an institution and 
to  reduce,  to  the  extent  possible,  the  risk  and  impact  of  a  possible  resolution.    These 
powers  are  activated  when  certain  specific  triggers22  are  met,  to  allow  competent 
authorities to take measures such as requiring the institution’s management to draw up 
an  action  programme  or  to  change  the  institution’s  business  strategy  or  its  legal  and 
operational  structure.  Competent  authorities  can,  in  this  context,  also  replace  the 
institution’s management.23  

The application of early intervention measures so far has been extremely limited, so that 
only  few  tentative  conclusions  can  be  drawn.  The  interaction  between,  and  potential 
overlap of, early intervention powers conferred to competent authorities on the basis of 
national  laws  implementing  the  BRRD  and  the  supervisory  powers  which  they  can 
exercise  based  on  the  CRD  and  the  Single  Supervisory  Mechanism  Regulation  could 
merit further analysis.24 Also, with respect to the  banking Union, it could  be useful to 
reflect  on  replicating  the  provisions  on  early  intervention  powers  contained  in  the 
BRRD  also  into  the  SRMR,  to  avoid  recourse  to  diverging  national  transposition 
measures.  

Common backstop to the SRF and the Intergovernmental Agreement25 

In  accordance  with  past  political  agreements  by  Ministers  of  Finance,26  and  as  also 
confirmed in the outcome of the December 2018 Euro Summit,27 the common backstop 
to  the  SRF,  essential  to  enhance  the  credibility  of  the  Single  Resolution  Mechanism 
(SRM)  in  the  Banking  Union,  will  be  established  at  the  latest  by  the  end  of  the 
transitional period for the mutualisation of the means in the SRF. 

The  Commission  has  repeatedly  called  for  the  common  backstop  to  be  put  in  place 
sooner.28 In December 2018, the Euro Summit agreed that the early introduction of the 
backstop  would  be  conditional  on  sufficient  progress  in  terms  of  risk  reduction  to  be 
assessed in 2020.  

22  In  particular  Article  27  BRRD  provides  for  the  power  of  competent  authority  to  activate  early  intervention 
measures when “an institution infringes or, due, inter alia, to a rapidly deteriorating financial condition, including 
deteriorating liquidity situation, increasing level of leverage, non-performing loans or concentration of exposures, 
as assessed on the basis of a set of triggers, which may include the institution’s own funds requirement plus 1,5 
percentage  points,  is  likely  in  the  near  future  to  infringe  the  requirements  of  Regulation  (EU)  No  575/2013, 
Directive 2013/36/EU, Title II of Directive 2014/65/EU or any of Articles 3 to 7, 14 to 17, and 24, 25 and 26 of 
Regulation (EU) No 600/2014 […]” 

23  Such  a  decision  was  taken  recently  by  the  ECB  with  respect  to  Carige  bank  (Cassa  di  Risparmio  di  Genova  e 

Liguria). See https://www.bankingsupervision.europa.eu/press/pr/date/2019/html/ssm.pr190102.en.html  

24 Specifically, Article 16 SSMR 
25 Agreement on the transfer and mutualisation of contributions to the Single Resolution fund, 14 May 2014, 8457/14: 

http://data.consilium.europa.eu/doc/document/ST-8457-2014-INIT/en/pdf.  

26  Statement  of  Eurogroup  and  ECOFIN  Ministers  on  the  SRM  backstop,  20  December  2013,  18137/13: 

http://data.consilium.europa.eu/doc/document/ST-18137-2013-INIT/en/pdf.  

27 Statement of the Euro Summit, 14 December 2018 and Terms of reference of the common backstop to  the Single 

Resolution Fund. 

28  See,  for  example,  Communication  from  the  Commission  to  the European Parliament,  the  European  Council,  the 
Council  and  the  European  Central  Bank  –  Further  steps  towards  completing  Europe’s  Economic  and  Monetary 
Union: A Roadmap, 6.12.2017, COM/2017/0821 final and Commission to the European Parliament, the Council, 
the European Central Bank, the European Economic and Social Committee and the Committee of the Regions on 
completing the Banking Union, 11.10.2017, COM(2017) 592 final. 

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It  appears  to  be  a  broadly  shared  view  among  the  Member  States  participating  in  the 
Banking Union that repayment of the common backstop by the SRF would be confined 
only to the concerned national compartment(s) in the event that the backstop was to be 
used before the end of the transitional period.29 This has an impact on the amounts that 
can be repaid,  and thus  borrowed from the common backstop.  In order to  ensure that, 
during the transitional phase, full access to the backstop can also be had, where needed,  
limited changes to the Intergovernmental Agreement (IGA) will need to be agreed soon 
(in particular because without a rapid change to the IGA there may be limited benefit in 
early implementation).  

One  of  the  available  options  would  be  the  mutualisation  of  ex-post  and  ex-ante 
contributions,  starting from  2021 in  order to  deliver a common backstop  of a credible 
size and increase the Banking Union resilience. 

Liquidity in resolution  

Ensuring  that  a  resolved  bank  continues  to  have  sufficient  liquidity  to  meet  its 
obligations is an essential part of an effective resolution. Liquidity can come from the 
market or from the normal central bank facilities. When those resources are temporarily 
insufficient, the SRF might be used to provide liquidity in resolution. 
However, given the extent of the potential liquidity needs in resolution, the resources of 
the SRF, even when supplemented by a backstop of the same or similar size, may not be 
sufficient to adequately address these needs.30  

In  accordance  with  Article  73  SRMR,  the  SRB  may  contract  external  borrowings  in 
order to ensure the availability of resources for resolution,  when  contributions  are not 
(yet) available for such purposes. The Commission considers that the provision allows 
the SRB to take appropriate means to ensure its workability, including by contracting a 
limited amount of borrowings outside of a resolution context. 

In  addition,  in  Member  States  outside  the  Banking  Union  as  well  as  third  country 
jurisdictions,31 the provision of liquidity support in resolution is foreseen either with no 
limits or with limits well above those possible within the Banking Union, often with the 
possibility of increases.  

29 Art. 5(1)(e) Intergovernmental Agreement. 
30  See, 

example:  Eurogroup 

for 

report 

to  Leaders  on  EMU  deepening,  4  December  2018, 

https://www.consilium.europa.eu/fr/press/press-releases/2018/12/04/eurogroup-report-to-leaders-on-emu-
deepening/;  “Financing  bank  resolution:  An  alternative  solution  for  arranging  the  liquidity  required”,  November 
2018, W.P. de Groen, In-depth analysis requested by the ECON committee of the European Parliament, available 
at:  http://www.europarl.europa.eu/RegData/etudes/IDAN/2018/624423/IPOL_IDA(2018)624423_EN.pdf  ;  “How 
to  provide  liquidity  to  banks  after  resolution  in  Europe’s  banking  union”,  November  2018,  M.  Demertzis,  I. 
Gonçalves  Raposo,  P.  Hüttl,  G.  Wolff,  In-depth  analysis  requested  by  the  ECON  committee  of  the  European 
Parliament, 
at: 
http://www.europarl.europa.eu/RegData/etudes/IDAN/2018/624422/IPOL_IDA(2018)624422_EN.pdf  

available 

31 See, for example, the United States’ Orderly Liquidation Fund (12 U.S.C. § 5390 (Dodd-Frank Act § 210(n)). 

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The  Commission  therefore  strongly  supports  the  ongoing  reflections  on  other  sources 
and solutions for the provision of liquidity support in resolution and calls for these to be 
agreed  upon  and  implemented  in  the  course  of  2019.  It  is  important  that  resources  of 
sufficient scale are available to provide short-term liquidity support, where needed. 

Other issues 

Article 129 BRRD requires the Commission to carry out a reflection on the basis of the 
conclusions  of  the  Report  of  the  European  Banking  Authority  (EBA)  on  simplified 
obligations, issued in December 2017 pursuant to Article 4(7) of the Directive32 as well 
as the EBA report on the Minimum Requirement of Eligible Liabilities (MREL) issued 
pursuant to Article 45(19) BRRD in December 2016.33  

The EBA report on simplified obligations provides an overview of the application of the 
BRRD  provisions,  which  allow  competent  and  resolution  authorities  to  require 
simplified recovery and  resolution  plans from  eligible banks. Eligibility  for simplified 
obligations must be determined based on several factors, as outlined in Article 4 BRRD 
and  the  Delegated  Regulation  on  Simplified  obligations.34  The  report  highlights  the 
different  practices  and  approaches  used  by  competent  and  resolution  authorities  with 
respect to the application of simplified obligations. Against this background, the report 
recommends continuous monitoring of the remaining divergences.  

The Commission takes stock of the report and considers that simplified obligations are 
an important element of the framework, to ensure efficiency and proportionality of the 
requirement  to  develop  recovery  and  resolution  plans,  as  well  as  to  reduce,  where 
appropriate,  the  administrative  burden  of  competent  and  resolution  authorities.  The 
Commission  may  therefore  reflect  on  the  need  for  improvements  of  the  framework  in 
this respect, taking into account the outcome of the monitoring of simplified obligations 
by the EBA.   

The Banking Package, adopted by the co-legislators on 16 April 2019, includes several 
measures to amend the MREL regime and has therefore superseded the requirement for 
a review based on the EBA report.  

B.  Interaction between resolution and insolvency and reflection on possible further 

harmonisation of insolvency 

The  resolution  regime  constitutes  a  “carve-out”  from  general  insolvency  proceedings 
applicable under national laws. In particular, when a bank is determined to be failing or 
likely  to  fail,  if  there  is  no  alternative  private  sector  measure  and  it  is  in  the  public 
interest  to  put  that  institution  in  resolution,  the  harmonised  rules  contained  in 

32https://www.eba.europa.eu/documents/10180/1720738/EBA+Report+on+the+Application+of+Simplified+Obligati

ons+and+Waivers+in+Recovery+and+Resolution+Planning.pdf  

33 https://eba.europa.eu/documents/10180/1695288/EBA+Final+MREL+Report+%28EBA-Op-2016-21%29.pdf  
34 Commission Delegated Regulation (EU) 2016/1075 of 23 March 2016 supplementing Directive 2014/59/EU of the 
European Parliament and of the Council with regard to regulatory technical standards specifying the content of 
recovery plans, resolution plans and group resolution plans, the minimum criteria that the competent authority is to 
assess as regards recovery plans and group recovery plans, the conditions for group financial support, the 
requirements for independent valuers, the contractual recognition of write-down and conversion powers, the 
procedures and contents of notification requirements and of notice of suspension and the operational functioning of 
the resolution colleges, available at:  https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32016R1075  

8 

 
 
 
                                                           
BRRD/SRMR  apply.  In  absence  of  a  public  interest  to  put  the  bank  in  resolution,  the 
bank is wound up according to insolvency rules pursuant to the applicable national law. 

At  present,  national  insolvency  laws  applicable  to  failing  banks  are  largely  not 
harmonised, and the application of the insolvency rules at national level  vary between 
Member  States.  BRRD/SRMR  so  far  only 
limited  element  of 
harmonisation. In particular, BRRD mandates that certain non-covered eligible deposits 
have  a  higher  ranking  in  national  insolvency  than  other  ordinary  unsecured  non-
preferred  liabilities  and  that  covered  deposits  rank  in  insolvency  higher  than  non-
covered  eligible  ones.35  The  insolvency  ranking  has  been  further  harmonised  through 
the Bank Creditor Hierarchy Directive amending the BRRD.36 The Directive created a 
new  class  of  debt  (senior  non-preferred  debt),  which  ranks  in  insolvency  above 
subordinated liabilities, but below senior liabilities.  

introduced  a 

The review clause of the SRMR requires the Commission to assess whether to further 
harmonise insolvency proceedings for failing or likely to fail institutions. 
The differences between insolvency regimes across the Banking Union may be a source 
of challenges and complexity for the resolution authority, particularly when insolvency 
is used as counterfactual in the context of measures on cross-border banks in resolution 
(to  meet  the  “no  creditor  worse  off”  principle37).  More  experience  is  needed  to 
understand  whether  and  how  these  issues  should  be  addressed.  However,  the 
Commission  can  already  identify  some  elements  of  bank  insolvency  laws  for  failing 
banks,  which  may  deserve  further  reflection.  These  include  an  assessment  on  the 
applicable  ranking  of  claims  in  national  insolvency  in  different  Member  States,  also 
with a view to determine whether further alignment between the ranking in insolvency 
and resolution is desirable.38 More clarity could be needed on the procedures available 
at  national  level  for  the liquidation  or  wind  up  of  banks  which  are  declared  failing  or 
likely  to  fail  but  for  which  there  is  no  public  interest  in  taking  resolution  action.  The 
BRRD/SRMR is not specific about how insolvency procedures for these banks should 
unfold,  as  these  elements  are  not  harmonised  and  are  left  to  the  national  legislator  to 
determine.  
The Commission launched a study to get  a better understanding of these issues.39 The 
aim  of  the  study  will  be  to  provide  a  basis  for  the  analysis  of  divergences  in  the 
insolvency  frameworks  for  banks  under  different  national  laws  and  to  assess  the 
interactions between these frameworks and the resolution rules. The study should also 
identify potential policy  options for harmonisation, including the possible introduction 
of administrative liquidation proceedings in the EU.   

35 Article 108 BRRD 
36  Directive  (EU)  2017/2399  of  the  European  Parliament  and  of  the  Council  of  12  December  2017  amending 

Directive 2014/59/EU as regards the ranking of unsecured debt instruments in insolvency hierarchy 

37  The  principle  is  codified  in  Article  34  BRRD  and  requires  that  shareholders  and  creditors  do  not  incur  greater   

losses in resolution than insolvency 

38 In case of harmonisation of the ranking of claims in insolvency, due consideration should be given to the status of 
certain privileged creditors such as tax authorities, social security institutions, workers/employees 
39 The study was launched further to a request and budget provision made available by the EP for a Pilot Project on 
see 

the  Banking  Union.  A 
https://ted.europa.eu/TED/notice/udl?uri=TED:NOTICE:389651-2018:TEXT:EN:HTML&ticket=ST-35512292-
rGDZ9PTvzUdNJZvojeKKI1EdXBHdQdHshD8PU99JSVKIfmyXIsA4zPHRCzeoTNQsdCLBE7Iu53KzhFMVrsz
sG9zW-jpJZscgsw0KeumEE0mYyCS-1dilRzzzQczGl03GpkcVaEJS1fqVDK0xcTDelqmAExgb  

tender  was 

September 

published 

2018, 

call 

for 

on 

7 

9 

 
 
                                                           
C.  Functioning of the SRM and SRB 

The SRMR review clause provides that the Commission should carry out an assessment 
of  several  aspects  related  to  the  governance  and  functioning  of  the  Single  Resolution 
Mechanism (SRM) and the SRB. 

The items listed for review, which are grouped below for convenience, include: 
-  assessing the interactions of the SRB (and the SRM in general) with other actors in 
the  resolution  process  as  well  as  the  EBA,  the  European  Securities  and  Market 
Authority  (ESMA),  and  the  European  insurance  and  Occupational  Pensions 
Authority (EIOPA);  

-  assessing  whether  the  target  level  or  the  reference  point  of  the  SRF  should  be 

revised; 

-  assessing  the  internal  governance  arrangements  of  the  SRB  and  other  operational 

issues, and particularly the investment portfolio of the SRB;  
-  assessing the legal status of the Board as an agency of the Union. 

As  a  preliminary  remark,  the  Commission  notes that  the  SRB  assumed  full  resolution 
powers  in  2016  and  it  needed  time  to  establish  its  internal  functioning  and  reach  full 
staffing.  There  is  not,  therefore,  a  sufficient  amount  of  information  or  experience  to 
carry out an in-depth review.  

It is, however, possible to provide a few preliminary considerations. 

Concerning  the  procedure  established  in  the  SRMR  for  the  adoption  of  a  resolution 
scheme40,  this  entails  several  steps  and  requires  coordination  between  various  actors, 
including the SRB, national resolution authorities, the European Central Bank, and the 
Commission.  In  addition,  the  procedure  requires  that,  in  order  to  preserve  financial 
stability  and  avoid  a  negative  impact  on  the  market,  the  resolution  scheme  must  be 
adopted and executed in a very short timeframe. Although the procedure poses certain 
challenges,  it  ensures  that  decisions  on  bank  resolution  are  taken  quickly,  while 
preserving the roles and prerogatives of all actors involved.  

Outside  the  resolution  procedure,  the  SRB  has  worked  with  national  authorities,  in 
accordance  with  the  procedures  set  out  in  the  framework.  In  the  2017  resolution 
planning cycle, the SRB set binding MREL targets at consolidated level for the majority 
of  the  largest  banking  groups  within  the  SRB’s  remit,  and  the  SRB  intends  to  set 
binding targets for all groups within its remit by 2020. 

Concerning  EBA,  on  27  November  2017,  the  Commission  published  a  Report  on  the 
role  of  the  EBA  with  respect  to  mediation  procedures  in  resolution.41  The  Report 
addressed  some  issues  that  the  EBA  brought  to  the  Commission’s  attention.  All  these 
issues concern provisions of the EBA founding regulation,42 which is being amended in 
the context of ESAs review.43  

40 Article 18 SRMR 
41 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52017DC0661  
42  Regulation  1093/2010  of  the  European  Parliament  and  of  the  Council  of  24 November  2010  establishing  a 

European Supervisory Authority (European Banking Authority) 
43 Commission proposal COM(2017) 536 final of  20 September 2017  

10 

 
 
                                                           
Concerning the revision of the target level and reference point for the SRF, the SRMR 
lays down that by the end of an initial period of eight  years from 1 January 2016, the 
available financial means of the SRF shall reach at least 1% of the amount of covered 
deposits  of  all  credit  institutions  authorised  in  all  participating  Member  States.44 
Similarly, the BRRD provides that by 31 December 2024, the available financial means 
of  Member  States’  financing  arrangements  shall  reach  at  least  1%  of  the  amount  of 
covered deposits of all the institutions authorised in their territory.45 Member States may 
set target levels in excess of that amount, an option that some Member States have used 
in transposing the BRRD. 

A number of Delegated and Implementing Regulations have been adopted since 2014, 
laying  down  the  modalities  related  to  the  ex-ante46  and  ex-post47  contributions  to  be 
collected  for  the  Single  Resolution  Fund  and  the  national  financing  arrangements. 
Subsequently,  within  the  Banking  Union,  the  SRB  calculated  and,  through  national 
resolution  authorities,  started  collecting  ex-ante  contributions  to  the  Single  Resolution 
Fund.48  Outside  the  Banking  Union,  banks  are  now  contributing  to  the  national 
financing arrangements. 

The EBA adopted a report in October 2016 on the reference point for setting the target 
level  for  resolution  financing  arrangements.49  The  report  recommended  changing  the 
base for the target level for resolution financing arrangements from covered deposits to 
total  liabilities  less  covered  deposits,  in  order  to  reach  more  consistency  with  the 
regulatory  framework.  However,  it  also  emphasised  that  resolution  authorities  and 
institutions must have certainty about the contributions during the build-up of resolution 
financing arrangements, and that volatility in the target level during that period should 
be avoided.  

At this stage, the SRF is still being built up and has never been used for any resolution 
action.  The  focus  should  therefore  be  on  reaching  the  target  level  and  ensuring  full 
implementation of the existing legal provisions. Changes to the target level itself or the 
reference  point  and  the  contributions  do  not  appear  necessary  at  this  stage  in  the 
process. 

Any further assessment could only be undertaken once the entire mechanism to provide 
funding  in  resolution  will  be  complete  and  potentially  put  to  test  in  concrete  cases.  It 
suffices  to  say  at  this  stage  that  increased  private  sector  loss-absorbing  capacity, 

44 Article 69(1) SRMR. 
45 Article 102(1) BRRD. 
46 Commission Delegated Regulation (EU) 2015/63 of 21 October 2014 supplementing Directive 2014/59/EU of the 
European Parliament and of the Council with regard to ex ante contributions to resolution financing arrangements, 
and  Council  Implementing  Regulation  (EU)  2015/81  of  19  December  2014  specifying  uniform  conditions  of 
application of Regulation (EU) No 806/2014 of the European Parliament and of the Council with regard to ex ante 
contributions to the Single Resolution Fund. 

47 Commission Delegated Regulation (EU) 2016/778 of 2 February 2016 supplementing Directive 2014/59/EU of the 
European Parliament and of the Council with regard to the circumstances and conditions under which the payment 
of extraordinary ex post contributions may be partially or entirely deferred, and on the criteria for the determination 
of the activities, services and operations with regard to critical functions, and for the determination of the business 
lines and associated services with regard to core business lines. 

48 https://srb.europa.eu/en/content/ex-ante-contributions-0.  
49  In  accordance  with  Article  102(4)  BRRD.  Report  on  the  appropriate  target  level  basis  for  resolution  financing 
at: 

arrangements, 
http://www.eba.europa.eu/documents/10180/1360107/Report+on+the+appropriate+target+level+basis+for+resoluti
on+financing+arrangements+%28EBA-OP-2016-18%29.pdf 

EBA-OP-2016-18, 

available 

October 

2016, 

28 

11 

 
 
                                                           
particularly as a result of the rules on MREL contained in the Banking Package, and the 
growth of the SRF can be considered as valid means to reduce the possible exposure of 
sovereigns to the banking sector. 

With respect to the issue of the governance of the SRB and the change of its legal status 
from  agency  to  EU  institution,50  given  its  recent  creation  and  the  limited  practical 
experience  gathered  so  far,  there  are  not  sufficient  elements  at  this  stage  to  suggest 
changes to the current provisions. In this respect, the Commission underlines that such a 
change of legal status would require a modification of the Treaty on the Functioning of 
the European Union (TFEU). 

Finally,  in  view  of  the  potential  accession  to  the  Banking  Union  of  non-participating 
Member States, there may be scope to reflect on the modalities for an acceding Member 
State to participate in the SRM. 

IV.  CONCLUSION  

The  Commission  takes  stock  of  the  issues  discussed  above,  which  are  based  on  the 
limited  experience  the  Commission  gained  from  the  application  of  the  resolution 
framework so far.  

The framework has been applied only in a limited number of cases. Out of those, only 
one  case  concerned  the  resolution  of  an  institution  under  SRMR.  It  is  also  worth 
noticing  that  a  number  of  these  cases  dealt  with  “legacy  issues”  which  accumulated 
during the financial crisis or before. 

In  addition,  the  provisions  concerning  the  bail-in  tool  and  the  establishment  of  the 
Single Resolution Board became applicable only as of 1 January 2016. Other elements - 
such  as  resolution  planning  for  larger  and  complex  institutions  and  the  provisions 
concerning MREL – require a phasing in to be fully implemented. 

Moreover, certain crucial parts of the framework – including the provisions on MREL, 
moratorium powers and the recognition of liabilities governed by third-country law - are 
in the process of being amended and, once in place, transition periods will apply. 

In light of this, it is premature to design and adopt legislative proposals at this stage.  

The  Commission  will,  however,  continue  monitoring  the  application  of  the  resolution 
framework  and  further  assess  the  issues  identified  above,  also  in  light  of  additional 
elements  provided  by  the  recently  launched  study  on  the  harmonisation  of  national 
insolvency  laws  and  experience  stemming  from  possible  future  application  of  the 
resolution framework. 

To  this  end  the  Commission  will  also  engage  in  a  comprehensive  discussion  of  the 
topics identified in this report with respect to BRRD/SRMR (as well as issues that may 
emerge  from  application  of  the  resolution  framework)  with  experts  appointed  by  the 
European Parliament,  Member States and all relevant stakeholders. 

50 Article 94(1)(a)(i) SRMR requires that, as part of the review of the legislation, the commission assesses whether 
”there is a need that the functions allocated by this Regulation to the Board, to the Council and to the Commission, 
be exercised exclusively by an independent Union institution and, if so, whether any changes of the relevant 
provisions are necessary including at the level of primary law”  

12 

 
 
                                                           
In  this  context  the  Commission  will  also  take  into  account  the  interaction  with  policy 
developments  in  relation  to  deposit  insurance,  including  the  work  of  the  High  Level 
Group established by the Eurogroup,51 and the review of the Deposit Guarantee Scheme 
Directive.52  

51 Eurogroup report to Leaders on EMU deepening of 4 December 2018.  
52 Directive 2014/49/EC. 

13