Institution Resolution [EU]

Restructuring and Bank Rescue

The European Commission produced  State aid rules to assess public support of financial institutions during the financial crisis.   The framework provides common conditions at EU level for access to public support and requirements for such aid to be compatible with the internal market.   The Commission may approve State support to remedy a serious disturbance in the economy of a State.

The post-crisis changes provide that

Banks may not receive recapitalisations or asset protective measures before the restructuring plan is approved by the Commission;
In the case of capital shortfalls, bank owners and junior creditors will be required to fully contribute as a first resort before injection of public money;
Failed banks are subject to strict executive remuneration policies.
Bank Resolution Funds

The EU has indicated that resolution funds should contribute to the orderly resolution of distressed banks.  This may be done by

financing a bridge bank;
financing a total or partial transfer of assets from the entity in distress;
financing a good bank/bad bank split.

The commission is of the view that agreements for a fund should procure necessary resources while not incentivising inappropriate behaviour.  The commission has considered criteria which may be used for the financing of resolution funds.  This would include levies measurable by reference to criteria of size or profitability.

Bank resolution funds should be separated from the national budget and entrusted to authorities responsible for resolution acting as independent agents.  They should respect EU state aid rules.

Reorganisation and Winding up of Credit Institution

There is an EU directive on the reorganisation and winding up of credit institutions.  The purpose is to ensure a single unified winding up and reorganisation on the basis of home country control.

The reorganisation and winding up measures must be published in third-party states affected.  It must be published in the official journal of the EU and national newspapers in each EU state.

Creditors in other states must be informed in good time in the official language of the home state.  The heading of the form must be in all the official languages and creditors may submit claims in the official language of their member state.  Members have rights to be informed of the progress of the winding up.

The administrative and judicial authorities of the home state must notify the regulators of the other states without delay of the opening up or winding up proceedings.  The law of the home state applies.

There are some exceptions to the principle that the home state law applies in respect for example of employment contract, immovable property, and other such methods.