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Bank Recovery and Resolution Directive – Key Component of the Banking Union

Union financial markets are highly integrated and interconnected with many institutions focused on cross-border activity. The collapse of cross-border institutions affects the stability of financial markets in different Member States in which it operates, and the inability of Member States to control and repair decaying institutions negatively affect the stability of the financial markets - the basis of the functioning of the internal market. Existing national regulations to prevent the insolvency of credit institutions have proven to be insufficient in times of financial crisis, and a single regulatory framework at European level was more than needed. The paper analyses the regulatory framework for the recovery and resolution of credit institutions and certain investment firms throughout the European Union as a third pillar of Bank Union. Harmonised instruments for the resolution of banking institutions, significantly widens the range of policy options available to national resolution authorities in accordance with international best practice. The adoption of the Bank Recovery and Resolution Directive (BRRD) and its entry into force brings a clear and comprehensive bank recovery and resolution regime – that covers both national and cross- border bank failures – which is crucial for ensuring long term financial and economic stability. Also, shifting the cost of bank failure from taxpayers to shareholders and creditors of the institutions themselves Bank Recovery and ResolutionDirective reduces the potential public cost of possible future financial crises. The new rules provide authorities with the means to intervene decisively both before problems occur and early on in the process if they do. Bank Recovery and Resolution Directive applies to all 28 Member States and presents an essential piece of the financial regulatory framework forall banks of the European Union. Analysing the objectives, area of application and basic principles of BRRD, authors will also point out the main differences between the EU regime and the US approach in this area.

Banking Union, Bank Recovery and Resolution Directive, EU legal framework, insolvency

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