Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.6.2.1:4.6.2.1 Coordination between resolution authorities under the BRRD

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.6.2.1

4.6.2.1 Coordination between resolution authorities under the BRRD

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In case of a (cross-border) banking group, the group-level resolution authority (that is, the resolution authority in the Member State in which the consolidating supervisor is situated1) has to establish a resolution college to carry out the tasks in relation to drafting group resolution plans, assessing the group resolvability, setting the MREL and group resolution.2 The members of the resolution college are the resolution authorities of each Member State in which a subsidiary covered by consolidated supervision, a parent company or a significant branch is established, the consolidating supervisor and the competent authorities, the competent ministries and the authorities responsible for the deposit guarantee scheme of the Member States where the resolution authorities are a member of the resolution college, and the EBA.3

A significant branch is a branch that would be considered to be significant in a host Member State in accordance with Article 51(1) CRD IV.4 Relevant reasons in that respect are (a) whether the market share of the branch in terms of deposits exceeds 2% in the host Member State; (b) the likely impact of a suspension or closure of the operations of the institution on systemic liquidity and the payment, clearing and settlement systems in the host Member State; (c) the size and the importance of the branch in terms of number of clients within the context of the banking or financial system of the host Member State.

Where a group-level resolution authority decides that a parent undertaking for which it is responsible should be put in resolution, it has to notify the other members of the resolution college of the group in question thereof, including the resolution actions or insolvency measures that it considers to be appropriate.5

If resolution at the level of the parent company would not be sufficient or make it likely that the resolution conditions would also be fulfilled in relation to a group entity in another Member State, the resolution actions or insolvency measures that are proposed by the group-level resolution authority may include the implementation of a group resolution scheme.6 A group-level resolution authority can also decide to implement a group resolution scheme, where it is notified by a resolution authority of the decision that a bank that is a subsidiary of a group meets the resolution conditions, provided that it assesses that the resolution action or other measures would make it likely that the resolution conditions would be satisfied in relation to a group entity in another Member State.7 A group resolution scheme takes the form of a joint decision of the group-level resolution authority and the resolution authorities responsible for the subsidiaries that are covered by the group resolution scheme.8 If any resolution authority disagrees with or departs from this scheme or considers that it needs to take independent resolution actions or measures other than those proposed in the scheme for reasons of financial stability, it has to set out in detail the reasons for this disagreement or departure and notify the group-level resolution authority and the other resolution authorities that are covered by the group resolution scheme of the reasons and the actions or measures it will take.9 This has to be recognised as conclusive and applied by the resolution authorities in the Member States concerned.10

It is the author’s understanding that resolution actions cannot be taken against group entities, other than the entities set out in Article 1 BRRD or 2 SRMR (that is, institutions, parent companies and financial institutions). A banking group can, for example, have as a subsidiary, a credit intermediary. If this credit intermediary gets into trouble, it is the author’s understanding that it is not possible to apply the resolution tools to this credit intermediary. Group entities that cannot be put in resolution can, however, of course be affected by the resolution of a group entity that can be put in resolution. If, for example, the shares in the capital of the parent company of the credit intermediary are sold under the application of the sale of business tool, the credit intermediary will also, indirectly, have a new shareholder. The SRMR and the BRRD provide that the group recovery and resolution plan should take into account the financial position of other group entities.11 In addition, the resolution authorities should act in a way that minimises the impact on other group entities and on the group as a whole, when deciding on the application of resolution tools and the exercise of resolution powers.12

The BRRD provides that where a transfer tool is applied to assets located in a Member States other than the Member State of the resolution authority or to rights or liabilities under the law of this other Member State, the transfer has effect in or under the law of that other Member State. Shareholders, creditors and third parties affected by this transfer are not entitled to prevent, challenge or set aside the transfer under any provision of law of the Member State where the assets are located or of the law governing the shares, other instruments of ownership, rights or liabilities. Similar provisions apply to the exercise of the PONV conversion power and the application of the bail-in tool.13

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