European Union Bank Resolution Framework: can the objective of financial stability ensure consistency in resolution authorities\u2019 decisions?

Abstract

The Bank Recovery and Resolution Directive (BRRD), agreed in 2014 and transposed into national law by now, equipped EU resolution authorities with a number of tools and powers to deal with EU failing institutions. To use these tools and powers, and to act swiftly prior to institutions reaching the state of insolvency, resolution authorities must undertake appropriate planning (resolution planning) in accordance with a number of rules and processes under the Directive.Resolution planning should enable authorities to “handle situations involving both systemic crises and failures of individual institutions”. The resolution plan must take into consideration the resolution scenarios “including that the event of failure may be idiosyncratic or may occur at a time of broader financial instability or system wide events”. The protection of financial stability has a central place in the BRRD, albeit in some instances it should also be balanced against other considerations, for example the other ‘resolution objectives’. The term ‘financial stability’ is not defined in the Directive; it is further qualified, however, in the context of a number of assessments that the resolution authorities must undertake.The paper discusses the notion of ‘financial stability’ through the lenses of a number of tasks that EU resolution authorities must perform. It argues that although the financial stability objective should be necessarily broad to provide discretion to resolution authorities, it is hard to ensure consistency in resolution decisions and actions.