The EU legal framework for the recovery and resolution of credit institutions

Abstract

The recent financial crisis in the EU has shown that there is a significant lack of adequate tools in the Member States and at Union level to deal with distressed credit institutions. During the crisis, some Member States were too often forced to save banks using public funds. After a long debate on how to best deal with these issues, the EU Commission has approved a Proposal for a Directive establishing a framework for the recovery and resolution of credit institutions, which aims to provide an effective framework at Union Level for dealing with banking crises. The new framework establishes a regime that provides authorities with tools to intervene in an effective and timely manner in a distressed credit institution. In particular, bail-in is designed as a powerful resolution tool for allocating losses to shareholders and creditors, thus minimizing the recourse to public funds. This new tool raises several legal issues, especially that of the fair and equal treatment of creditors. This article focuses its attention on the legal analysis of the basic principles and provisions of the Commission’s Proposal.