Bank Recovery and Resolution Directive (BRRD)

Commission proposal published Publication of the Directive in the Official Journal

June 2012 12 June 2014

Directive

Entry into force

1 January 2015

Latest possible date for introduction of bail-in tool.

2018 Next steps

The Council adopted the BRRD at the Economic and Financial Affairs meeting(ECOFIN) on 6 May 2014. Following this, the Directive was published in the Official Journal of the EU on 12 June 2014 and will enter into force on 1 January 2015. Member States will have to transpose the Directive by 31 December 2014.

Under the Directive, the European Banking Authority is obliged to draft approximately 30 binding technical standards and guidelines over the next 12-18 months, a number of which are already under consultation. Under the Directive, Banks and national competent authorities, i.e the Central Bank of Ireland, are required to draw up recovery and resolution plans on how to deal with situations which might lead to financial stress or the failure of a bank. If authorities identify obstacles to resolvability during the course of this planning process, they can require a bank to take appropriate measures, including changes to corporate and legal structures, to ensure that it can be resolved with the available tools in a way that does not threaten financial stability and does not involve costs to taxpayers.

The EBA previously adopted a formal

Recommendation

in January 2013 to ensure that major EU cross-border banks develop group recovery plans by the end of 2013.

Overview

On 6 June 2012, the European Commission published a proposal for a Directive establishing a framework for the recovery and resolution of credit institutions and investment firms.

The Directive will provide national authorities with common powers and instruments to pre-empt bank crises and to resolve any financial institution in an orderly manner in the event of failure, whilst preserving essential bank operations and minimising taxpayers‘ exposure to losses.

The main resolution measures include: • the sale of (or part of a) business; • establishment of a bridge institution (the temporary transfer of good bank assets to a publicly controlled entity); • asset separation (the transfer of impaired assets to an asset management vehicle) • bail-in measures (the imposition of losses, with an order of seniority, on shareholders and unsecured creditors).

In December 2013, the Council and European Parliament reached agreement on a final compromise text of the proposed Directive in trilogue negotiations. Some of the most contentious issues in negotiation were the bail-in tool and resolution fund. It was agreed that the bail-in provisions which enter into force in January 2016, will enable resolution authorities to write down or convert into equity the claims of the shareholders and creditors of banks that are failing or likely to fail.