On 15 May 2014, the Bank Recovery and Resolution Directive (BRRD) was adopted in order to provide authorities with comprehensive and effective powers for dealing with failing banks at national level. This framework enhances both the resilience and the resolvability of EU institutions and in-scope investment firms, which will be better prepared to deal with, and recover from, a crisis situation. Moreover, in the event that an institution does fail, the impact associated with that failure should be minimised.
Specifically, the framework brings about the following changes:
- Credit institutions and in-scope investment firms are required to prepare recovery plans, which identify appropriate options that can be executed in the event of a significant financial deterioration of the institution, thereby reducing the likelihood of failure.
- In addition, the BRRD grants a new set of early intervention powers to supervisors. These powers include the requirement for institutions to execute recovery options, the removal of management and changing the structure of the institution.
- If required, the Central Bank and the SRB have at their disposal a set of resolution tools which can be used to resolve failing institutions in order to minimise the impact of failure on the financial system, the real economy, depositors and taxpayers.
- Both a domestic and a European resolution fund have been established to help finance the cost of resolution in the future.