7.6 Conclusion

This chapter discussed the restructuring process that takes place after a bank is put in resolution, with or without the assistance of public funding. Not all banks put in resolution go through a restructuring process; this depends on the resolution tool applied by the resolution authority and whether or not public funding is involved. The transfer tools normally involve the disappearance of the bank as an autonomous entity, while the bail-in tool aims at preserving the bank when used for recapitalisation purposes. The resolution framework only provides for a restructuring process when the bail-in tool is applied for recapitalisation purposes. In that case, a business reorganisation plan has to be prepared by the bank. In none of the cases of State aid awards after the introduction of the resolution framework has a restructuring process been triggered under the resolution framework. Restructuring is, in all cases, solely covered by the State aid regime for the banking sector. This can be explained by the fact that at the time of writing this dissertation, the bail-in tool has not yet been applied as a going concern solution. In addition, the resolution framework does not provide for a restructuring process when a transfer tool is actually applied as a going concern solution. An example can be found in the resolution of Banco Popular.

This chapter also discussed the new possibilities under the resolution framework to enforce ex ante restructuring on the basis of the recovery and resolution plans and their added value compared to restructuring under the State aid regime. Most notably, the resolution framework could be seen as being complementary to the State aid regime in so far it enables resolution authorities to enforce ex ante restructuring, even outside the situation in which State aid is granted.

It furthermore highlights the importance of the cooperation between the Commission and the resolution authorities in order to ensure an efficient restructuring process. With the introduction of the resolution framework, a new ‘restructuring authority’ was introduced, namely the resolution authorities. The cooperation between the Commission and the resolution authorities is, however, a topic that has not received a lot of attention. Although, there seems to be the premise of close liaison and some guidance is given in respect of the business reorganisation plan, uncertainty remains. For example, the resolution authority has no role in the restructuring of a bank subject to precautionary recapitalisation. In addition, no cooperation procedure is provided when both the restructuring process under the State aid regime for the banking sector and the resolution framework apply.

Lastly, the burden-sharing obligations of shareholders/creditors of a failing bank under the resolution framework have been compared with the obligations under the State aid regime for the banking sector. Although the State aid regime for the banking sector already provides for a burden-sharing principle, the resolution framework takes it one step further: it introduced the possibility to bail-in senior debt holders. In addition, it also introduced the requirement to bail-in 8% of total liabilities and own funds of a bank to have access to public funding in revolution, with some exceptions. The bail-in requirement under the resolution framework has met with great scepticism. The mandatory burden-sharing allocation may lead to undesirable outcomes that are both financially and politically untenable.1 This ties into the fact that there (still) are restrictions in the ability of the bail-in tool to perform as intended, especially those that are caused by retail debt holdings. Finally, the resolution framework does not seem to cater for the situation of a systemic crisis in which the use of public funding may be inevitable.