TOWARDS A NEW REGULATORY FRAMEWORK FOR BANKING RECOVERY AND RESOLUTION IN THE EU

ABSTRACT: The aim of this article is to provide an analysis of the main elements and principles of the new EU regulatory framework for recovery and resolution of ailing firms that is going to be developed as part of the establishment of the more integrated financial framework making up the so‐called EU Banking Union. Specific relevance is given to the analysis of the impact of such new EU resolution framework on State aid control in the financial sector. Indeed, so far State aid rules have served also as a contingent de facto EU-wide resolution framework, while the European Commission has act as a de facto crisis-management and resolution authority at EU level. However, the scale and severity of the crisis of the EU financial sector have shown the importance of establishing a specific and comprehensive EU framework for resolving failing financial institutions. In this respect, the proposal for a “Bank Recovery and Resolution Directive” (BRRD) seems to confirm the idea that the EU is resolutely and formally moving towards a harmonized “non-zero failure approach” to crisis management in the financial sector based on the paradigm that no financial institutions shall be unconditionally protected from an orderly market exit and the overarching policy principle of “more bail-in, less bail-out”. Indeed, all the crisis management tools, measures and arrangements envisaged in the BRRD proposal are essentially aiming at avoiding financial instability, and minimizing costs for tax payers. The most debated resolution tools is the so-called "bail-in" tool, allowing resolution authorities the power to write-down the claims of unsecured creditors of a failing institution and to convert debt claims to equity. In order to enhance cooperation and overcome the fragmentation existing among EU Member States in the field of crisis management of financial intermediaries the BRRD proposal envisages the establishment of a system of "Resolution colleges". Nevertheless, considering that once the Single Supervisory Mechanism (SSM) is in place a more integrated EU institutional framework will be even more needed also for recovery and resolution, the Council supported the Commission’s initiative to also establish a Single Resolution Mechanism (SRM) and a Single Bank Resolution Fund (SBRF). The scope of the SRM’s jurisdiction shall be limited to Member States participating in the SSM. Additional cooperation mechanisms and institutional arrangements with national resolution authorities in non‐participating Member States will need to be implemented to maintain the level playing field in the EU internal market. Under the latest Commission proposal, such SRM shall consists of uniform rules and procedures to be applied by the Single Resolution Board (SRB) – a newly established EU Agency with legal personality – together with the Commission and the resolution authorities of the participating Member States. The SRB will own, administer and use for resolution purposes a newly established SBRF financed by contributions levied on the banking sector. The SRB will normally prepare decisions to initiate the resolution of banks which shall however be adopted only by the Commission. In this respect, it appears that this decision making process of the SRM has been designed to avoid any delegation of “wide margin of discretion” to the SRB that may lead to “policy choices” by the SRB and so to ultimately avoid any potential legal issues under the “Meroni doctrine”. A key legal safeguard is to be identified (for the time being) in the provision of the SRM regulation proposal stating that the Commission's approval under Article 107 of the TFEU (either because State aid is present or only "by way of analogy" when the use of the SBRF is involved) shall be considered as a precondition for the following separate and independent Commission's decision on resolution. In order to contribute to further streamline the resolution process and increase its legal certainty, it might also worth considering the introduction of ad hoc harmonized procedural and substantive rules for the judicial review at national level of any act and decision taken by national resolution authorities.