The Relevance of the Resolution Tools Within the SRM

Abstract

In addition to, and complementing the, new regime on recovery and resolution planning, the introduction of a harmonised, in part innovative set of new resolution tools and corresponding powers for the resolution of systemically important banking institutions with the BRRD and the SRMR was intended, and expected by many observers, to be no less than a game changing event. For most EU Member States, the BRRD has triggered relevant legislation for the first time ever, while for some (including, in particular, the United Kingdom, Germany, and Denmark), the new framework followed up on similar innovations in earlier domestic legislation. Within the Eurozone, the creation of the Single Resolution Mechanism has complemented the substantive and procedural rules established by the BRRD with an institutionalised framework for central-ised decision-making as well as national execution and implementation of supra-national resolu-tion decisions. To a considerable extent, the SRMR even substitutes national legislation transpos-ing the BRRD, thus facilitating even further harmonisation of applicable laws, but also necessi-tating a rather complex interplay of directly applicable EU law and national legislation. This pa-per assesses the relevance of the resolution tools provided by the BRRD and the SRMR (sale of business, bridge institution, asset separation, and bail-in) in the light of the first cases decided under the auspices of the Single Resolution Board (SRB). Specifically, three dimensions are ex-plored: First, taking into account both the historic roots of each resolution tool and the recent case law, the paper assesses potential scenarios and preconditions for successful, effective im-plementation. Second, and related to the foregoing, the examines operational issues pertaining to the implementation of the resolution toolbox. Thirdly, and in the light of the aspects discussed before, the paper examines the suitability of the new resolution tools for application in extraor-dinary cases of macro-economic distress, where adverse market conditions and mounting non-performing loans affect large numbers of credit institutions at the same time.