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Summaries of EU Legislation

Addressing troubled financial institutions’ problems

Date of last review:
09/11/2024
Initial creation date:
04/08/2014
Summarised document(s):
Responsible entity(ies):
Directorate-General for Financial Stability, Financial Services and Capital Markets Union

Addressing troubled financial institutions’ problems

SUMMARY OF:

Directive 2014/59/EU on rules for the recovery and resolution of credit institutions and investment firms

WHAT IS THE AIM OF THE DIRECTIVE?

  • Directive 2014/59/EU sets out new rules covering troubled financial institutions because many European Union (EU) Member States had to inject public money into their banking systems to rescue banks in the wake of the 2008 financial crisis.
  • The directive aims to avoid bailouts that involve the use of taxpayers’ money in future cases of bank failure.
  • It establishes common EU rules for the recovery and restructuring of failing banks.

KEY POINTS

Banks in difficulties – prevention

  • Each bank has to prepare a recovery plan and submit it to the national competent authority.
  • The national resolution authority also has to draw up a resolution plan in case recovery is not effective and restructuring (resolution) is necessary.
  • Both plans set out the action to be taken if a bank runs into difficulties leading to its failure.

Banks in a difficult financial situation – early intervention

When a bank is in a difficult financial situation, the national competent authority has the power to intervene, for example by appointing a temporary administrator of the bank.

Failing banks – restructuring (resolution)

  • If the bank’s decline continues, the national resolution authority has a variety of powers to minimise the cost of its failure to taxpayers, including requiring the private sector to bear the costs first.
  • This bail-in mechanism, which marks a change of tack compared to the public bailout tool, had to enter into force by January 2016. Member States could decide to incorporate the bail-in tool into their legal systems before this date.
  • If a bank collapses, shareholders are first in line to cover the restructuring costs. Next, creditors are asked to contribute, with non-guaranteed depositors (holding deposits over €100,000) stepping in last. Amending Directive (EU) 2017/2399 harmonised the rules on bank creditors’ hierarchy through the creation of a new class of senior non-preferred debt that ranks in insolvency above own-funds instruments and subordinated liabilities but below other senior liabilities. This new statutory insolvency ranking for senior non-preferred debt aims to improve the application of the bail-in tool with respect to debt instruments that are eligible for the minimum requirement for own funds and eligible liabilities (MREL). It will also help with the implementation in the EU of the Total Loss-Absorbing Capacity standard for global systemically important financial institutions.
  • The shareholders and creditors have to contribute to the losses of the failing institution. They cover losses of not less than 8 % of the total liabilities (debts or obligations) of the bank undergoing a restructuring plan. If there are still losses to cover, the resolution fund (see below) can intervene. Other powers national authorities have include the possibility to sell the institution undergoing restructuring or merge it with another one.
  • To implement the Total Loss-Absorbing Capacity standard developed by the Financial Stability Board in November 2015, amending Directive (EU) 2019/879 introduced new rules concerning the loss-absorbing and recapitalisation capacity of credit institutions and investment firms.
  • Amending Directive (EU) 2022/2556 aligns the provisions of the directive, and several other related directives, with the requirements on ICT risk for financial entities set out in the digital operational resilience of the financial sector regulation, Regulation (EU) 2022/2554 (see summary).

National resolution funds to provide financial support for banks’ restructuring plans

Each Member State has to establish a national resolution fund financed in advance by credit institutions and investment firms established in its territory. This fund is to be used to finance the restructuring of a failing bank.

European single access point

Amending Directive (EU) 2023/2864 inserts an article in Directive 2014/59/EU requiring Member States, from , to ensure that, when making public any regulated information, the relevant entity submits that information at the same time to the collection body. They must also notify the European Securities and Markets Authority for the purpose of making it accessible on the European single access point, set up under Regulation (EU) 2023/2859.

Setting the internal MREL on a consolidated basis

Amending Directive (EU) 2024/1174 introduces rules allowing the resolution authorities to set the internal MREL on a consolidated basis, subject to certain conditions. This is to mitigate the possibility of a disproportionate, detrimental impact for certain banking group structures, namely those operating under a parent holding company and certain operating company structures – a scenario identified by the European Commission. Where a banking group is permitted by the resolution authority to apply this consolidated treatment, the intermediate subsidiaries will not be obliged to deduct their individual holdings of the internal MREL.

Implementing acts and delegated acts

Between 2015 and 2024, the Commission adopted a series of implementing and delegated acts in relation to Directive 2014/59/EU. These include:

  • Delegated Regulation (EU) 2015/63 on:
    • calculating and adjusting the risk profile of institutions and the contributions to be paid by banks to resolution funds, and
    • information that banks must provide so that their contribution to a resolution fund can be calculated;
  • Delegated Regulation (EU) 2016/778 on:
    • the circumstances and conditions under which an institution’s repayment contributions to a resolution fund may be partially or entirely postponed,
    • the criteria used to determine which of the institution’s activities, services and operations are essential to the economy, and
    • the criteria used to determine core business lines and associated services;
  • Delegated Regulation (EU) 2016/860 further specifying the circumstances in which exclusion from the application of write-down or conversion powers is necessary under Article 44(3) of Directive 2014/59/EU;
  • Implementing Regulation (EU) 2016/911 on the form and the content of the description of group financial support agreements;
  • Implementing Regulation (EU) 2016/962 on uniform formats, templates and definitions for the competent authorities to use when identifying and transmitting information from the competent authorities and resolution authorities to the European Banking Authority;
  • Delegated Regulation (EU) 2016/1075 on, among other things, standards for the content of recovery plans, resolution plans and group resolution plans;
  • Delegated Regulation (EU) 2016/1400 on the minimum elements of a business reorganisation plan and the minimum contents of the reports on its implementation;
  • Delegated Regulation (EU) 2016/1401 on standards for methodologies and principles on the valuation of liabilities arising from derivatives;
  • Delegated Regulation (EU) 2016/1450 on criteria relating to the methodology for setting the MREL;
  • Delegated Regulation (EU) 2016/1712 on standards for information on financial contracts;
  • Delegated Regulation (EU) 2017/867 on classes of arrangements to be protected in a partial property transfer;
  • Delegated Regulation (EU) 2018/344 on regulatory technical standards specifying the criteria relating to the methodologies for valuation of difference in treatment in resolution;
  • Delegated Regulation (EU) 2018/345 on regulatory technical standards specifying the criteria relating to the methodology for assessing the value of assets and liabilities of institutions or entities;
  • Delegated Regulation (EU) 2019/348 on regulatory technical standards specifying the criteria for assessing the impact of an institution’s failure on financial markets, on other institutions and on funding conditions;
  • Implementing Regulation (EU) 2021/622 on implementing technical standards with regard to templates, instructions and methodology for reporting on the MREL to the European Banking Authority;
  • Delegated Regulation (EU) 2021/1118 on regulatory technical standards specifying the methodology to be used by resolution authorities to estimate the requirement referred to in Directive 2013/36/EU and the combined buffer requirement for resolution entities at the resolution group consolidated level where the resolution group is not subject to those requirements under the directive;
  • Delegated Regulation (EU) 2021/1340 on regulatory technical standards determining the content of the contractual terms on recognition of resolution stay powers;
  • Delegated Regulation (EU) 2021/1527 on regulatory technical standards for the contractual recognition of write-down and conversion powers;
  • Delegated Regulation (EU) 2023/662 amending Delegated Regulation (EU) 2015/63 as regards the methodology for the calculation of liabilities arising from derivatives;
  • Implementing Regulation (EU) 2024/1618 amending Implementing Regulation (EU) 2021/763 with regard to the supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities; and
  • Delegated Regulation (EU) 2024/895 amending Delegated Regulation (EU) 2015/63 as regards the calculation of eligible liabilities and the transitional regime.

FROM WHEN DO THE RULES APPLY?

  • Directive 2014/59/EU had to be transposed into national law by , and the rules have applied since .
  • Amending Directive (EU) 2017/2399 had to be transposed into national law by , and the rules have applied since that date.
  • Amending Directive (EU) 2019/879 had to be transposed into national law by . Its rules have applied in the Member States since that date, with the exception of the rule on the public disclosure of the MREL, which has applied since , with later dates of application possible in certain circumstances.
  • Amending Directive (EU) 2022/2556 had to be transposed into national law by , and the rules have applied since that date.
  • Amending Directive (EU) 2023/2864 has to be transposed into national law by and will apply from that date.
  • Amending Directive (EU) 2024/1174 had to be transposed into national law by , and the rules have applied since .

BACKGROUND

For further information, see:

MAIN DOCUMENT

Directive 2014/59/EU of the European Parliament and of the Council of establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, , pp. 190–348).

Successive amendments to Directive 2014/59/EU have been incorporated into the original text. This consolidated version is of documentary value only.

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