Brussels, 06/01/2015 (Agence Europe) - In force since 1 January 2015, directive 2014/59, known as the 'BRRD', brings in harmonised rules at EU level, governing the restructuring and resolution of failing banks whilst allowing essential financial operations to continue (payments, deposit management) (see EUROPE 11061). Amongst other things, it obliges all banks with the competent national and/or European authority to develop a resolution plan ('living will'), detailing how the bank will be restructured, or even resolved, in the event of its failure.
'Bail-in'. To better protect taxpayers' money in the event of banking crisis, the directive rolls out the principle of the 'bail-in', establishing, from 2016, a hierarchy of investors who will be called upon to chip in, should the bank fail. First in line will be the shareholders, then the creditors of a bank. These will have to cover any loss to up to at least 8% of the total assets of the bank in question before any public money can be brought in. At the bottom of the chain, unsecured claims and private deposits above a threshold of €100,000 may also be mobilised. Deposits of individuals of less than €100,000 will in all cases be protected by national deposit guarantee schemes.
Each member state must build up a national resolution fund, to which the banks will contribute in proportion to their size and risk profile, in line with a calculation methodology decided upon in December 2014 (see EUROPE 11214). If necessary, loans between national resolution funds will be possible.
Readers may recall that in the framework of banking union in the eurozone, a European single resolution board (SRB) also became operational at the start of January 2015. Chaired by Germany's Elke König, previously the head of BaFin, it will enforce the rules of the directive on the resolution plans. From 2016, it will manage the single resolution fund (SRF) which will replace the national funds. The SRF will be fully mutualised and have an envelope of around €55 billion following a transitional period of eight years. (MB)