The main aim of the European framework for recovery and resolution of bank failures is to enable the management of failures of credit institutions, whatever their category or size, and of systemically important institutions in particular, without compromising the stability of the financial system and without making taxpayers bear the cost.
Recovery and resolution
The European framework comprises:
- preparatory and preventive measures, such as the obligation for institutions and authorities to prepare recovery plans (i.e. to prepare for the possibility of a bank facing serious difficulties) and resolution plans to avert financial difficulties or a bankruptcy situation;
- powers of early intervention to remedy problems before they become severe, such as powers for supervisors to require the replacement of management or to require an institution to implement a recovery plan or to divest activities or business lines that pose an excessive risk to its financial soundness;
- resolution tools, such as powers to facilitate the takeover of a failing bank or firm by a sound institution, or to transfer all or part of its business to a temporary bridge bank, which would enable authorities to ensure the continuity of essential services and to manage the failure in an orderly way.
With respect to other financial institutions, the European Commission has organized a consultation of the sectors on the opportunity of managing recovery and resolution of failing institutions through specific measures, in particular for central counterparties, central securities depositories and systemically important insurance companies, following the framework laid down for the banking sector.
The Resolution Board, a body of the NBB, is designated as the national resolution authority authorized to apply the resolution tools and to exercise the resolution powers vis-à-vis the credit institutions in accordance with the Law of 25 April 2014 on the legal status and supervision of credit institutions.