The New European Union Framework for Banking Crisis Management: Rules versus Discretion

Abstract

What Tolstoy says about families also applies to banks: sound banks are all alike, but every failing bank fails in its own way. This is the reason why broad discretion is needed to manage banking crises. This paper studies the Bank Recovery and Resolution Directive to assess whether it grants the competent authorities enough discretionary powers to deal with banking crises in the most efficient way. The new EU legal framework for banking resolution is marked by a very complex system of rules, with numerous constraints on the discretionary choices of the competent authorities, which could make it difficult to reach the goals underlying the BRRD, i. e., ensuring long term financial and economic stability and reducing the public cost of banking crises.