8.5.1 Impact of the resolution framework

The restructuring process of a failing bank has been impacted at three different levels by the resolution framework.

The first impact is at the level of the applicable restructuring process. The resolution framework has introduced its own restructuring process besides the restructuring process under the State aid regime, but only in case the bail-in tool is applied as a ‘going concern’ solution (that is, for recapitalisation purposes). When resolution involves the use of another resolution tool, the resolution framework does not provide for a restructuring process (section 7.2.1.1). The resolution framework also does not provide for a restructuring process outside of resolution (e.g. in the case of precautionary recapitalisation) (section 7.2.1.2). The restructuring processes under the State aid regime for the banking sector and the resolution framework can take place simultaneously, namely, in case resolution involves the award of State aid and the bail-in tool is used for recapitalisation purposes. This may be the case when the GFST are used. At the time of writing this dissertation, there have been no examples yet of cases where the restructuring processes under the State aid regime for the banking sector and the resolution framework take place simultaneously (section 7.2.3.1). If the restructuring processes apply simultaneously, this may cause friction since these are not completely aligned (section 7.2.3.1 and 7.2.3.2).

In addition, the resolution framework has introduced the possibility for competent authorities and resolution authorities to impose ex ante restructuring measures on the basis of the recovery and resolution plans. These restructuring measures can be imposed before a bank experiences financial difficulties. This has a true added value compared to restructuring under the State aid regime, which always takes place on an ex post basis (sections 7.2.1.3 and 7.2.3.3).

The second impact is at the level of the competences of the authorities involved in the restructuring. With the introduction of the resolution framework, a new ‘restructuring authority’ – besides the Commission – is introduced in the form of the resolution authority (section 7.3.1.2). As a result of the resolution framework, the Commission has to work together with the resolution authorities and vice versa in order to ensure an efficient restructuring process. Although it may be presumed that the premise of close liaison applies with respect to the cooperation between the Commission and the resolution authorities, the resolution framework and the State aid regime for the banking sector do not provide for any specific guidance with respect to it (section 7.3.2).

In addition, the introduction of the resolution framework has significantly increased the number of decisions that a bank can be faced with, with respect to its restructuring process. These decisions can be both from national and European decision makers, which may make it necessary for the bank (or its shareholders or creditors) to start legal proceedings both at national and European levels (section 7.3.3).

Lastly, the resolution framework introduces some changes with respect to burden-sharing. First, it introduces the power for the resolution authorities to exercise the PONV conversion power or to use the bail-in tool to impose a burden-sharing requirement (section 7.4.2). Secondly, burden-sharing under the resolution framework can include senior debt (section 7.4.2.1). Thirdly, the resolution framework requires a bail-in of 8% of total liabilities and own funds of the bank when certain public funding sources are used. When the ESM DRI or alternative financing sources are used, all unsecured, non-preferred liabilities other than eligible deposits have to be written down or converted in full (section 7.4.2.2). Fourthly, the resolution framework does not provide for the possibility to deviate from the burden-sharing requirement when burden-sharing measures would endanger financial stability or lead to disproportionate results. However, certain eligible liabilities are excluded from the scope of the bail-in tool or may be excluded by the resolution authority (section 7.4.2.3).