Proportionality at the Resolution Stage: Calibration of Resolution Measures and the Public Interest Test

Abstract

By their very nature, resolution actions under the legal framework for the management of bank insolvencies created by the European Bank Recovery and Resolution Directive (BRRD) and the Regulation establishing the Single Resolution Mechanism (SRMR) come with infringements of rights of shareholders and creditors. Just as any expropriation of private property by public authorities, resolution actions therefore have to comply with the principle of proportionality, as required by the applicable provisions of the EU Charter on Human Rights and the European Convention of Human Rights. Analysing parallels and differences between general insolvency law on the on hand and the special resolution framework on the other hand, the present Chapter explores the functions and operationalisation of the principle of proportionality in bank resolution. Special attention is given to the ‘public interest test’ which, as part of the statutory ‘conditions for resolution’ under both the BRRD and the SRMR translates general proportionality considerations into a clear-cut set of requirements designed to prevent the application of the resolution tools to cases that do not give rise to systemic stability considerations.