BRRD
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| BRRD | |
|---|---|
| Name | BRRD |
| Long name | Bank Recovery and Resolution Directive |
| Type | Directive of the European Union |
| Adopted | 2014 |
| Jurisdiction | European Union |
| Purpose | Recovery and resolution framework for banks |
BRRD
The Bank Recovery and Resolution Directive establishes a harmonized European Union framework for resolving failing banks across the Eurozone and wider Union members. It aims to protect taxpayers, preserve financial stability, maintain critical payment systems, and ensure continuity for depositors while minimizing contagion effects across markets such as the European Central Bank, Deutsche Bundesbank, and Banque de France. The Directive complements instruments developed by actors including the International Monetary Fund, the Financial Stability Board, and the European Banking Authority.
Background and Objectives
The Directive emerged after the 2008 financial crisis and high-profile resolutions like the interventions involving Royal Bank of Scotland, Banco Santander, and Hypo Real Estate. Legislators in the European Parliament and the Council of the European Union sought to create tools similar to those proposed by the Financial Stability Board and reflected in frameworks by the Federal Deposit Insurance Corporation and the Dodd–Frank Act. Objectives included reducing reliance on bail-outs exemplified by the rescue of Northern Rock and coordinating cross-border action among authorities such as the Single Resolution Board, the European Commission, and national competent authorities like the Prudential Regulation Authority and the Financial Conduct Authority.
Scope and Key Instruments
The Directive applies to credit institutions and investment firms supervised under the Capital Requirements Directive and related Basel III implementation efforts. Key instruments include bail-in powers affecting holders similar to those in resolutions of Banco Popular Español and tools mirroring measures used by the Resolution Trust Corporation and the Irish Government during the 2008–2013 Irish banking crisis. It mandates recovery planning akin to the contingency measures advocated by the Bank for International Settlements, and requires institutional cooperation with entities such as the European Investment Bank and national resolution funds inspired by the Savings and Loan crisis reforms in the United States.
Resolution Process and Mechanisms
The resolution toolkit incorporates write-down and conversion of liabilities, sale of business, bridge institution creation, and asset separation modeled after precedents like the Sareb asset management vehicle and the Bridge Bank approach used in United States resolutions. Resolution plans must align with actions taken by the Single Supervisory Mechanism and coordinate cross-border measures with authorities including the Swiss Financial Market Supervisory Authority, the Bank of England, and the Federal Reserve. Mechanisms emphasize creditor hierarchy, depositor preference, and use of resolution funds similar to schemes in Spain and Italy, while preserving access to central bank liquidity facilities administered by institutions like the European Central Bank and the De Nederlandsche Bank.
Governance, Supervision, and Legal Framework
Governance requires cooperation among the Single Resolution Board, national resolution authorities such as the Bundesanstalt für Finanzdienstleistungsaufsicht, and supervisory bodies including the European Banking Authority and the European Central Bank. Legal adjustments drew on case law from courts like the Court of Justice of the European Union and were reconciled with national insolvency regimes in states such as France, Germany, Spain, Italy, and Ireland. Compliance interfaces with directives like the Markets in Financial Instruments Directive and the Deposit Guarantee Schemes Directive, and involves stakeholders from institutions including the International Monetary Fund, the Organisation for Economic Co-operation and Development, and domestic ministries of finance.
Impact on Financial Stability and Case Studies
Implementation affected notable episodes including the resolution of Banco Popular Español, the restructuring of Banca Monte dei Paschi di Siena, and actions relating to lenders in Cyprus and Ireland. Analyses by agencies such as the European Court of Auditors and the International Monetary Fund assessed impacts on systemic risk, market confidence, and cross-border credit flows to sectors like Small and Medium-sized Enterprises and municipal finance. The Directive influenced market discipline similar to reforms after the Lehman Brothers collapse and shaped policy debates in forums such as the G20 and the European Council about burden-sharing, depositor protection, and the balance between resolution and insolvency approaches.