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New ‘single rulebook’ to boost measures for tackling EU bank crises


The European Commission has welcomed the entry into force of a “single rulebook” for the resolution of failing banks and large investment firms in all EU member states.

The Commission said the Bank Recovery and Resolution Directive (BRRD) “will harmonise and improve the tools for dealing with bank crises across the EU”.

The initiative will “also ensure shareholders and creditors of the banks pay their share of the costs through a ‘bail-in’ mechanism”, the Commission said.

Banking specialist Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said: “For UK banks in particular, ensuring that their recovery and resolution plans as well as their ring-fencing plans under the banking reform legislation are compatible with the single rulebook, will be a daunting challenge. It will also create challenges for home and host authority co-operation where UK banks are operating in the Eurozone. The single rulebook however, must be seen as a welcome development in safeguarding EU banks.”

The BRRD was adopted by the Commission last spring to provide authorities with comprehensive and effective arrangements to deal with failing banks at national level, as well as cooperation arrangements to tackle cross-border banking failures.

Banks in all EU member states will be required to draw up recovery plans “to overcome financial distress”. The Commission said authorities also have powers to intervene in the operations of banks to avert failure. “If they do face failure, authorities are equipped with comprehensive powers and tools to restructure them, allocating losses to shareholders and creditors following a clearly defined hierarchy... to implement plans to resolve failed banks in a way that preserves their most critical functions and avoids taxpayers having to bail them out,” the Commission said.

The Commission said the BRRD will be supported by technical rules developed by the European Banking Authority “including concrete information requirements for recovery and resolution plans and securing accurate valuations of assets and losses at the point of resolution”.

EU financial services commissioner Jonathan Hill said: “The BRRD equips public authorities for the first time across Europe with a broad range of powers and tools to deal with failing banks, while preserving financial stability. From now on, it will be the banks’ shareholders and their creditors who will bear the related costs and losses of a failure rather than the taxpayer.”

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