Bail-in Tool and Bank Insolvency: Theoretical and Empirical Discourses around a New Legal (or Illegal) Concept

Abstract

In 2014, half a decennium after the eruption of the financial crises, the bail-in mechanism was introduced as a new pan-European legal tool in order to avoid the financial inefficiencies of the public bail-out of banks and financial institutions. Yet the system is still not immune from criticism. The dilemma that the new EU legislation has left unsolved relates to the excessive level of discretion still left to the resolution authority regarding the way in which the rights of stakeholders of the bailed-in bank (shareholders and bondholders) can be sacrificed. Against this background, the paper attempts to discuss and analyse, via a methodology which is both theoretical and empirical, the legal provisions encompassed by the Bank Recovery and Resolution Directive and its applications to credit institutions within the context of recent crises. From a more epistemological point of view, the contribution aims to shed light on whether the new resolution tools still lie within the macro-area of the insolvency or, by contrast, they represent a new genus of crisis. More philosophically and intriguingly, the research examines whether, in light of the extensive powers granted to the resolution authority by the recent EU legislation, banking activity may still be regarded in Europe as business of a private nature.