(1)

The Union resolution framework for credit institutions and investment firms (‘institutions’) was established in the aftermath of the 2008-2009 global financial crisis and following the Key Attributes of Effective Resolution Regimes for Financial Institutions first published by the Financial Stability Board in October 2011. The Union resolution framework consists of Directive 2014/59/EU of the European Parliament and of the Council (4) and Regulation (EU) No 806/2014 of the European Parliament and of the Council (5). Both legislative acts apply to institutions and to other entities that fall under the scope of that Directive or of that Regulation (collectively ‘entities’). The Union resolution framework aims to deal in an orderly manner with failures of entities by preserving their critical functions and avoiding threats to financial stability, and at the same time protecting depositors and public funds. In addition, the Union resolution framework is intended to foster the development of the internal market in banking by creating a harmonised regime to address cross-border crises in a coordinated way and by avoiding issues of distortions of competition and risks of unequal treatment.

(2)

Several years into its implementation, the Union resolution framework does not deliver as intended with respect to some of those objectives. In particular, while entities have made significant progress towards resolvability and have dedicated significant resources to that end, in particular through the build-up of the loss absorption and recapitalisation capacity and the filling-up of resolution financing arrangements, the Union resolution framework is seldom resorted to. Instead, failures of certain smaller and medium-sized entities are typically addressed through unharmonised national measures. Taxpayers’ money is still used rather than industry-funded safety nets, such as resolution financing arrangements. That situation appears to arise from inadequate incentives. Those inadequate incentives are the result of the interplay of the Union resolution framework with national rules, whereby the broad discretion of resolution authorities when carrying out the public interest assessment is not always exercised in a way that reflects the intended application of the Union resolution framework. At the same time, the Union resolution framework has seen little use due to the risk for depositors of deposit-funded entities of having to bear losses to ensure that those entities can access external funding in resolution, in particular in the absence of other bail-inable liabilities. Finally, the fact that there are less stringent rules on access to funding outside resolution than in resolution has discouraged the application of the Union resolution framework in favour of other solutions, which often entail the use of taxpayers’ money instead of the use of own resources of entities or of industry-funded safety nets. That situation, in turn, generates risks of fragmentation, risks of suboptimal outcomes in managing entities’ failures, in particular in the case of smaller and medium-sized entities, and opportunity costs from unused financial resources. It is therefore necessary to ensure a more effective and coherent application of the Union resolution framework and to ensure that it can be applied whenever doing so is in the public interest, including for certain smaller and medium-sized entities which are primarily funded through deposits and do not have sufficient other bail-inable liabilities.

(3)

Pursuant to Regulation (EU) No 806/2014, Member States which have established a close cooperation between the European Central Bank (ECB) and the respective national competent authorities are to be considered participating Member States for the purposes of that Regulation. However, that Regulation does not contain any details on the process for preparing the start of the close cooperation on resolution-related tasks. It is therefore appropriate to lay down those details.

(4)

The intensity and level of detail of the resolution planning work needed with respect to subsidiaries that have not been identified as resolution entities varies depending on the size of the entities concerned, their risk profile, their role in the provision of critical functions, their core business lines, their importance for the operational continuity of the group after resolution and the group resolution strategy, and on the importance of the subsidiary in the Member State where it is established, including its potential systemic importance and its potential impact on the available financial means of the deposit guarantee scheme (DGS) in the event of winding up under normal insolvency proceedings. The Single Resolution Board (the ‘Board’) should therefore be able to consider those factors when identifying the measures to be taken in respect of such subsidiaries and follow a commensurate approach, where appropriate.

(5)

An entity that is being wound up under national law, following a determination that the entity is failing or is likely to fail and a conclusion by the Board that its resolution is not in the public interest, is ultimately heading towards market exit. In such cases a plan for resolving that entity is no longer needed, irrespective of whether the competent authority has already withdrawn the authorisation of that entity. The same applies with regard to a residual institution under resolution after the transfer of assets, rights, and liabilities in the context of a transfer strategy. It is therefore appropriate to specify that in such situations the adoption of resolution plans is not required.

(6)

The Board can currently decide to prohibit certain distributions where an entity, whether or not it is a resolution entity, fails to meet the combined buffer requirement when considered in addition to the minimum requirement for own funds and eligible liabilities (MREL). However, to ensure legal certainty and alignment with the existing procedures for the implementation of decisions taken by the Board, it is necessary to specify more clearly the roles of the authorities involved in the process for prohibiting such distributions. It is therefore appropriate to lay down that the Board should instruct the national resolution authority to prohibit such distributions, which should implement the Board’s instruction. In addition, in certain situations, an entity might be required to comply with the MREL on a different basis than the basis on which that entity is required to comply with the combined buffer requirement. That situation creates uncertainties as to the conditions for the exercise of the Board’s powers to prohibit distributions and for the calculation of the Maximum Distributable Amount related to the MREL. It should therefore be laid down that, in those cases, the Board should instruct national resolution authorities to prohibit certain distributions on the basis of the estimated combined buffer requirement resulting from the methodology set out in the delegated act adopted pursuant to Article 45c(4) of Directive 2014/59/EU. To ensure transparency and legal certainty, the Board should communicate the estimated combined buffer requirement to the entity, which should then make that estimated combined buffer requirement publicly available.

(7)

Directive 2014/59/EU and Regulation (EU) No 575/2013 of the European Parliament and of the Council (6) lay down powers to be exercised by resolution authorities, some of which are not included in Regulation (EU) No 806/2014. In the Single Resolution Mechanism (SRM), that can create uncertainty as to by whom and under what conditions those powers are to be exercised. It is therefore necessary to specify how national resolution authorities should exercise certain powers laid down only in Directive 2014/59/EU in relation to entities and groups that fall under the direct responsibility of the Board. The Board should therefore be able, where it deems it necessary, to instruct national resolution authorities to exercise those powers. In particular, the Board should be able to instruct national resolution authorities to require an entity to maintain detailed records of the financial contracts to which the entity is a party, to exercise the power to suspend some financial obligations pursuant to Article 33a of Directive 2014/59/EU, and to ensure the confidentiality of inside information pursuant to Article 84b of that Directive. However, given that the permissions for the reduction of eligible liabilities instruments granted on the basis of Regulation (EU) No 575/2013, which is also applicable to entities and to liabilities subject to the MREL, do not require the application of national legislation, the Board should be able to grant those permissions to entities directly, without having to instruct national resolution authorities to exercise that power.

(8)

Deposits that meet the conditions to qualify as eligible liabilities can be used towards compliance with the MREL. However, given the specific nature of deposits, as well as the role they play in the real economy and in sustaining confidence in the banking system, the inclusion of deposits in the scope of liabilities used to meet the MREL should be subject to stricter requirements, as the MREL-eligible resources should be usable in their entirety to bear the losses and contribute to the recapitalisation of a credit institution in the case of its failure. First, as is the case under the current rules, it should not be possible for the deposits used for the MREL to be held by natural persons or by micro, small and medium-sized enterprises. Second, it should be clarified that deposits that confer upon its owner a right to early reimbursement cannot be eligible for the MREL, including in those cases where the contractual provisions provide that early reimbursement is subject to the payment of a penalty. Third, to ensure transparency and minimise the risks of inappropriate placement of such deposits, the relevant contractual provisions should expressly refer to the credit institution’s intention to use those deposits for the purpose of complying with the MREL, as well as to the fact that they do not qualify as eligible deposits and that, therefore, no part of that deposit will be repaid by the DGS in the event of unavailability. Fourth, the use of deposits in the MREL should, as a rule, not be allowed, unless the Board has previously authorised their inclusion in the MREL-eligible resources on the basis of an assessment that such deposits would not need to be shielded from bearing losses in the event of resolution and would not give rise to a substantive impediment to resolvability. The Board should be able to authorise the use of deposits to meet the MREL on a general basis for each resolution entity, without an individual assessment of each deposit, as well as limit the inclusion of deposits to meet the MREL to fixed amounts. Structured deposits, despite being liabilities with embedded derivatives, can also qualify as eligible liabilities of a credit institution, provided all other conditions are met.

(9)

In order to avoid cliff-edge effects, it is necessary to grandfather the existing deposits qualifying as eligible liabilities. For deposits taken prior to 12 May 2028, the new eligibility criteria should be waived. The grandfathering should end on 11 May 2029.

(10)

Regulations (EU) 2019/876 (7) and (EU) 2019/877 (8) of the European Parliament and of the Council and Directive (EU) 2019/879 of the European Parliament and of the Council (9) implemented in Union law the international ‘Total Loss-absorbing Capacity (TLAC) Term Sheet’, published by the Financial Stability Board on 9 November 2015 (the ‘TLAC standard’), for global systemically important banks, referred to in Union law as global systemically important institutions (G-SIIs). Regulation (EU) 2019/877 and Directive (EU) 2019/879 also amended the MREL set out in Directive 2014/59/EU and in Regulation (EU) No 806/2014. It is necessary to align the provisions on the MREL set out in Regulation (EU) No 806/2014 with the implementation of the TLAC standard for G-SIIs with respect to certain liabilities that could be used to meet the part of the MREL that should be met with own funds and other subordinated liabilities. In particular, liabilities that rank pari passu with certain excluded liabilities should be included in the own funds and subordinated eligible instruments of resolution entities where the amount of those excluded liabilities on the balance sheet of the resolution entity does not exceed 5 % of the amount of the own funds and eligible liabilities of the resolution entity and no risks related to the ‘no creditor worse off’ principle arise from that inclusion.

(11)

For certain resolution entities, the preferred resolution strategy set out in the resolution plan or the group resolution plan primarily relies on the transfer of the business of the institution under resolution to a private purchaser or to a bridge institution. In such cases, it is possible that the DGS could be asked to make a contribution towards resolution action, potentially to ensure the protection of certain deposits that are not covered by the DGS. To minimise moral hazard, it should therefore be specified that, where the resolution plan envisages the application of the sale of business tool or of the bridge institution tool and the resolution entity’s exit from the market, the MREL for the resolution entity concerned should not be set at a level below certain thresholds. Where the application of the rules for the calibration of the MREL results in an amount higher than those thresholds, that higher amount should prevail. Those thresholds should not apply to the MREL set for resolution entities the preferred resolution strategy of which consists of the application of the bail-in tool for the purposes of its recapitalisation to an extent sufficient to restore its ability to continue to carry out the activities for which it is authorised, even where the preferred resolution strategy envisages the application of the bail-in tool in combination with other resolution tools, the latter being used in an ancillary manner.

(12)

Regulation (EU) No 806/2014 does not include dedicated rules on transitional arrangements and intermediate target levels for meeting the MREL after 2024. However, there are situations in which entities should not be immediately required to comply with a higher MREL set by the Board, including those cases where the increase of the MREL results from material changes to the entity due, for example, to mergers or acquisitions, or from changes to the preferred resolution strategy. In particular, where the preferred resolution strategy changes from a winding up under normal insolvency proceedings to the application of a resolution action, the entity might not be able to immediately meet in full the MREL as set by the Board. The Board should therefore be empowered to determine appropriate transitional periods for complying with the MREL. Moreover, the Board should have the power to determine binding intermediate target levels for such entities, to ensure that they build up their MREL-eligible resources in an appropriate way. To protect legitimate expectations, transitional periods previously determined by the Board on the basis of the rules applicable on the relevant date should not be affected by the new rules.

(13)

Pursuant to Article 4 of Council Regulation (EU) No 1024/2013 (10), the ECB is competent to carry out supervisory tasks in relation to early intervention. It is necessary to reduce the risks stemming from diverging transpositions into national laws of the early intervention measures set out in Directive 2014/59/EU and to facilitate the effective and consistent application by the ECB of its powers to take early intervention measures. Those early intervention measures were introduced to enable competent authorities to remedy the deterioration of the financial and economic situation of an entity and to reduce, to the extent possible, the risk and impact of a possible resolution. However, due to a lack of certainty regarding the triggers for the application of those early intervention measures and partial overlaps with supervisory measures, early intervention measures have seldom been used. The provisions of Directive 2014/59/EU concerning early intervention measures should therefore be mirrored in Regulation (EU) No 806/2014, thereby ensuring a single and directly applicable legal tool for the ECB, and the conditions for the application of those early intervention measures should be simplified and further specified. To dispel uncertainties concerning the conditions and timing for the removal of an entity’s management body and the appointment of temporary administrators, those measures should be explicitly identified as early intervention measures and their application should be subject to the same triggers. Under specific conditions, a gradual wind-down of activities can be a cost-effective solution facilitating an entity with a weak business model to exit the market, thus avoiding a protracted decline that culminates in the failure of the entity. The ECB should have the early intervention power to request the submission of a plan to be implemented in the case of a voluntary wind-down of an entity’s activities, while leaving the decision about the implementation of such plan to the entity concerned. When applying early intervention powers, the ECB should be required to choose the appropriate measures to address a specific situation in compliance with the principle of proportionality. To enable the ECB to take into account reputational risks or risks related to money laundering or information and communication technology, the ECB should assess the conditions for the application of early intervention measures not only on the basis of quantitative indicators, such as capital or liquidity requirements, level of leverage, non-performing loans or concentration of exposures, but also on the basis of qualitative triggers. The decision-making process in relation to early intervention measures should allow for their swift consideration and, if appropriate, their application, in order to avoid any further worsening of the situation of the entity.

(14)

It is necessary to ensure that the Board is able to prepare for the possible resolution of an entity. The ECB or the relevant national competent authority should therefore inform the Board of the deterioration of the situation of an entity sufficiently early, and the Board should have the necessary powers for the implementation of preparatory measures. Importantly, to enable the Board to react as swiftly as possible to a deterioration of the situation of an entity, the prior application of early intervention measures should not be a condition for the Board to make arrangements for the marketing of the entity or to request information to update the resolution plan and prepare the valuation. When marketing an entity that is a member of an institutional protection scheme (IPS), the Board should consider measures that the IPS could take prior to resolution to avert the material risk that the entity will fail or become likely to fail. To ensure a consistent, coordinated, effective and timely reaction to the deterioration of the situation of an entity and to prepare properly for a possible resolution, it is necessary to enhance the interaction and coordination between the ECB, the national competent authorities and the Board. As soon as an entity meets the conditions for the application of early intervention measures, the ECB, the national competent authorities and the Board should increase their exchanges of information, including provisional information, and monitor the situation of the entity jointly.

(15)

It is necessary to ensure timely action and early coordination between the Board and the ECB, or the relevant national competent authority, with respect to less significant cross-border groups while an entity is still a going concern but there is a material risk that the entity might fail. The ECB or the relevant national competent authority should therefore notify the Board as early as possible of such a risk. That notification should contain the reasons for the assessment of the ECB or of the relevant national competent authority and a non-exhaustive overview of the alternative private sector measures, supervisory action or early intervention measures that are available to prevent the failure of the entity within a reasonable timeframe. Such early notification does not affect any alternative private sector measures, including measures by an IPS, that would prevent the failure or the likely failure of the entity within a reasonable timeframe or prejudice the procedures to determine whether the conditions for resolution are met. The prior notification by the ECB or by the relevant national competent authority to the Board of a material risk that an entity is failing or is likely to fail or the end of the specified timeframe for the implementation of the measures to address such material risk should not be a condition for, or otherwise necessarily imply, a subsequent determination that an entity is failing or is likely to fail. Moreover, if at a later stage the entity is assessed to be failing or likely to fail and there are no alternative solutions to prevent such failure within a reasonable timeframe, the Board has to take a decision on whether to take resolution action. In such a case, the timeliness of the decision to apply resolution action to the entity can be fundamental to the successful implementation of the resolution strategy, in particular because an earlier intervention in the entity can contribute to ensuring sufficient levels of loss absorption capacity and liquidity to execute that strategy. It is therefore appropriate to enable the Board to assess, in close cooperation with the ECB or the relevant national competent authority, what constitutes a reasonable timeframe to implement alternative measures to avoid the failure of the entity. To ensure a timely outcome and to enable the Board to prepare properly for the potential resolution of an entity, the Board and the ECB, or the relevant national competent authority, should meet regularly, and the Board should decide on the frequency of those meetings, having regard to the circumstances of the case.

(16)

To cover material infringements of prudential requirements, it is necessary to further specify the conditions for determining that parent undertakings, including holding companies, are failing or are likely to fail. An infringement of those requirements by a parent undertaking should be material where the type and extent of such infringement is comparable with an infringement that, if committed by a credit institution, would justify the withdrawal of the authorisation by the competent authority in accordance with Article 18 of Directive 2013/36/EU of the European Parliament and of the Council (11).

(17)

The resolution framework is meant to have the potential to be applied to any entity, irrespective of its size and business model, if the tools available under national law are not adequate to manage its failure. However, some objectives of the framework need to be further specified to increase harmonisation and to promote convergence. The resolution objective of ensuring continuity of critical functions aims to safeguard financial stability and the real economy. It is therefore necessary to ensure that the provision of critical functions is not discontinued. In particular, it is necessary to clarify that, depending on the specific circumstances, the Board is able to conclude that certain functions of an entity are considered to be critical even if their discontinuance would disrupt financial stability or services that are essential to the real economy only at regional level. As regards deposit taking, the Board is to pay due attention to the risk of a loss of confidence of depositors holding deposits not covered by Directive 2014/49/EU of the European Parliament and of the Council (12). Public funds should be protected by minimising reliance on extraordinary public financial support, in particular when provided from the budget of a Member State. Depositors covered by Directive 2014/49/EU, investors covered by Directive 97/9/EC of the European Parliament and of the Council (13), client funds and client assets are also to be protected.

(18)

During the resolution planning stage, when deciding whether an entity should be earmarked for resolution, the fact that an entity is subject to simplified obligations should, in general, be used by the Board as an indicator that resolving it in the case of failure would not be in the public interest. Conversely, the fact that an entity is not subject to simplified obligations could indicate that resolving it in the case of failure would be in the public interest.

(19)

The winding up of an entity under normal insolvency proceedings might, in some cases, jeopardise financial stability and interrupt the provision of critical functions. This could be the case, for instance, where insolvency would likely result in losses on a material share of deposits or significant difficulties in the continuity of access to deposits, and where the Board considers that those losses or those difficulties could have a significant impact on the provision of critical functions, on financial stability through contagion or on the real economy. In such cases it is highly likely that there would be a public interest in placing the entity under resolution rather than winding it up under normal insolvency proceedings. The assessment of whether the resolution of an entity is in the public interest should also reflect, to the extent possible, the difference between, on the one hand, funding provided through industry-funded safety nets, namely the resolution financing arrangements or the DGSs, and, on the other hand, funding provided by Member States from taxpayers’ money. Such funding provided by Member States bears a higher risk of moral hazard and a lower incentive for market discipline. Therefore, when assessing the objective of minimising reliance on extraordinary public financial support, the Board should prefer funding through the Single Resolution Fund (the ‘Fund’) or the DGSs to funding through an equal amount of resources from the budget of Member States.

(20)

When carrying out the public interest assessment, the Board should assess whether any of the resolution objectives would be at risk if the failing entity were wound up under normal insolvency proceedings. Resolution action should not be considered to be necessary in the public interest if none of the resolution objectives is at risk if the entity were wound up under normal insolvency proceedings. If at least one resolution objective is assessed by the Board to be at risk in the case of winding up under normal insolvency proceedings, the outcome of the public interest assessment should be negative only where the winding up of the failing entity under normal insolvency proceedings would achieve the resolution objectives not only to the same extent as resolution but more effectively.

(21)

In light of the experience acquired in the implementation of Regulation (EU) No 806/2014 and Directives 2014/49/EU and 2014/59/EU, it is necessary to further specify the conditions under which measures of a precautionary nature that qualify as extraordinary public financial support may exceptionally be granted. It should be ensured that precautionary measures are taken sufficiently early. Moreover, measures to provide relief for impaired assets, including asset management vehicles or asset guarantee schemes, can prove effective and efficient in addressing the causes of possible financial distress faced by entities and preventing their failure and could therefore constitute relevant precautionary measures. It should therefore be specified that precautionary measures can take the form of impaired asset measures.

(22)

To preserve market discipline, protect public funds and avoid distortions of competition, precautionary measures should remain the exception and only be applied to address situations of serious disturbance in the market and to preserve financial stability, in particular in the event of a systemic crisis. Moreover, precautionary measures should not be used to address losses incurred or likely to be incurred. The most reliable instrument to quantify losses incurred or likely to be incurred is an asset quality review by the ECB, the European Supervisory Authority (European Banking Authority) (EBA) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (14) or by national competent authorities. The ECB and national competent authorities should use such a review or, where appropriate, on-site inspections, to quantify losses incurred or likely to be incurred where such a review or inspections can be carried out within a reasonable timeframe. Where that is not possible, the ECB and national competent authorities should quantify losses incurred or likely to be incurred in the most reliable way possible under the prevailing circumstances, where appropriate on the basis of the entity’s balance sheet, provided that the balance sheet complies with the applicable accounting rules and standards, as confirmed by an independent external auditor. The consideration that an entity is solvent, for the purposes of support measures in the form of precautionary recapitalisation and of State guarantees of newly issued liabilities, should be based on a forward-looking assessment of whether the entity can comply with the own funds requirements laid down in Regulation (EU) No 575/2013 or Regulation (EU) 2019/2033 of the European Parliament and of the Council (15), and the additional own funds requirement laid down in Directive 2013/36/EU or Directive (EU) 2019/2034 of the European Parliament and of the Council (16).

(23)

The aim of precautionary recapitalisation is to support viable entities identified as likely to encounter temporary difficulties in the near future and to prevent their situation from deteriorating further. To avoid granting public subsidies to businesses that are already unprofitable, precautionary measures in the form of acquisition of own funds instruments or other capital instruments or through impaired asset measures should not be granted in an amount that exceeds the amount necessary to cover capital shortfalls as identified in the adverse scenario of a stress test or equivalent exercise. To ensure that public financing is ultimately discontinued, those precautionary measures should also be limited in time and contain a clear timeline for their termination (‘strategy to exit the support measure’). Perpetual instruments, including Common Equity Tier 1 capital, should only be used in exceptional circumstances and be subject to certain quantitative limits because by their nature they are not well suited for compliance with the condition that they be temporary. The ECB or the relevant national competent authority should request a one-time remediation plan from entities that fail to comply with the terms of the strategy to exit the support measure. To ensure the exit from the market by entities that prove not to be viable, a relevant authority should determine whether the entity is failing or is likely to fail where the ECB or the relevant national competent authority is not satisfied with the remediation plan or where the entity fails to comply with the remediation plan.

(24)

Precautionary measures should be limited to the amount that the entity would need to maintain its solvency in the event of an adverse scenario of a stress test or equivalent exercise. In the case of precautionary measures in the form of impaired asset measures, the receiving entity should be able to use the amount granted to cover losses on the transferred assets or in combination with an acquisition of capital instruments, provided that the overall amount of the shortfall identified is not exceeded. It is also necessary to ensure that precautionary measures in the form of impaired asset measures comply with existing State aid rules and best practices, that they restore the entity’s long-term viability, that State aid is limited to the minimum necessary and that distortions of competition are avoided. For those reasons, the authorities concerned should, in the case of precautionary measures in the form of impaired asset measures, take into account the specific guidance, including the Commission’s blueprint for how national asset management companies can be set up and the communication of the Commission of 16 December 2020 on tackling non-performing loans in the aftermath of the COVID-19 pandemic. Precautionary measures in the form of impaired asset measures should always be subject to the overriding condition that they be temporary. Public guarantees granted for a specified period in relation to the impaired assets of the entity concerned are expected to ensure better compliance with that condition than are transfers of such assets to a publicly supported entity.

(25)

It is important to ensure swift and timely resolution action by the Board where such action involves the granting of State aid or Fund aid. It is therefore necessary to enable the Board to adopt the resolution scheme concerned before the Commission has assessed whether such aid is compatible with the internal market. However, to ensure the good functioning of the internal market in such a scenario, resolution schemes involving the granting of State aid or Fund aid should ultimately remain subject to the Commission approving such aid. To enable the Commission to assess as early as practicable whether the Fund aid is compatible with the internal market, and to ensure the smooth flow of information, the Board and the Commission should promptly share all information necessary regarding the possible use of Fund aid. Specific rules should be laid down on when and what information the Board should provide to the Commission in order to inform the Commission’s assessment of Fund aid compatibility.

(26)

The procedure governing entry into resolution and the procedure governing a decision to apply the write-down and conversion powers are similar. It is therefore appropriate to align the respective tasks of the Board and of either the ECB or the national competent authority, as relevant, when, on the one hand, they assess whether the conditions for the application of the write-down and conversion powers are present, and, on the other hand, when they assess the conditions for adopting a resolution scheme.

(27)

It is possible that whereas resolution action is to be applied to a resolution entity that is part of a resolution group, write-down and conversion powers are to be applied to another entity of the same group. Interdependencies between such entities, including the existence of consolidated capital requirements to be restored and the need to activate loss upstream and capital downstream mechanisms, can make it challenging to assess the loss absorption and recapitalisation needs of each entity separately and thus to determine the necessary amounts to be written down and converted for each entity. A procedure whereby the Board should take such interdependencies into account in the application of the power to write down and convert capital instruments and eligible liabilities in those situations should therefore be specified. For that purpose, where one entity meets the conditions for the application of the write-down and conversion powers and another entity within the same group meets at the same time the conditions for resolution, the Board should adopt a single resolution scheme covering both entities.

(28)

To increase legal certainty, and in view of the potential relevance of liabilities arising from future uncertain events, including the outcome of litigation pending at the time of resolution, it is necessary to lay down the treatment those liabilities should receive for the purposes of the application of the bail-in tool. The Board should draw a distinction between liabilities based on present obligations arising from past events which will result in a loss but the timing or amount of which is uncertain and liabilities that might arise in the future but would not result in a loss or that might arise in the future only if an uncertain event occurs.

(29)

It should also be specified that liabilities of uncertain timing or amount, where those liabilities are based on present obligations arising from past events which will result in a loss, are to be treated the same way as other liabilities. Such liabilities should be bail-inable, unless they meet one of the specific criteria for being excluded from the scope of the bail-in tool. Given the potential relevance of those liabilities in resolution and to ensure certainty in the application of the bail-in tool, it should be specified that they are part of the bail-inable liabilities and that, as a result, the bail-in tool could be applied to them. To ensure the effective application of the bail-in tool to liabilities of uncertain timing or amount, the Board should have the power to reduce, including to reduce to zero, the principal amount due in respect of such liabilities and to convert such liabilities into shares or other instruments of ownership. However, the reduction or conversion can only take effect if and once the liability of uncertain timing or amount is conclusively determined in terms of timing and amount.

(30)

It is necessary to ensure that a liability that could arise in the future from an uncertain event or a liability of uncertain timing or amount which is based on a present obligation at the time of resolution does not impair the effectiveness of the resolution strategy and in particular of the bail-in tool. To achieve that objective, the valuer should, as part of the valuation for the purposes of resolution, assess such liabilities and quantify the potential value of those liabilities to the valuer’s best abilities. To ensure that, after the resolution process, the entity can sustain sufficient market confidence for an appropriate amount of time, the valuer should take into account that potential value when establishing the amount by which bail-inable liabilities need to be written down or converted to restore the capital ratios of the institution under resolution. In particular, the Board should apply its conversion powers to bail-inable liabilities to the extent necessary to ensure that the recapitalisation of the institution under resolution is sufficient to cover potential losses which might be caused by a liability that could arise in the future from an uncertain event or that is based on a present obligation but is uncertain in terms of timing or amount. When assessing the amount to be written down or converted, the Board should carefully consider the impact of the potential loss on the institution under resolution on the basis of a number of factors, including the likelihood of the event materialising, the timeframe for its materialisation and the amount of the liability.

(31)

In certain circumstances, after the Fund has provided a contribution up to the maximum of 5 % of the entity’s total liabilities including own funds, the Board is able to use additional sources of funding to further support its resolution action. It should be specified more clearly in which circumstances the Fund could provide further support where all bail-inable liabilities that are not eligible deposits, with a priority ranking lower than that of non-covered deposits of natural persons and micro, small and medium-sized enterprises and that are not discretionarily excluded from bail-in have been written down or converted in full.

(32)

The success of resolution hinges on timely access for the Board to relevant information from the entities that fall under the responsibility of the Board and from public institutions and authorities. Within that context, the Board should be able to access information of a statistical nature which the ECB has collected under its central bank function, in addition to the information available to the ECB as a supervisor within the framework of Regulation (EU) No 1024/2013. Pursuant to Council Regulation (EC) No 2533/98 (17), the Board should ensure the physical and logical protection of confidential statistical information and should require authorisation from the ECB for the further transmission that might be necessary for the execution of the tasks of the Board. As the provision of information related to the aggregated number of customers for which an entity is the only or principal banking partner, which is held by the centralised automated mechanisms established pursuant to Directive (EU) 2015/849 of the European Parliament and of the Council (18), can be necessary and proportionate to carry out the public interest assessment, the Board should be able to receive that information on a case-by-case basis. The exact timing of indirect access to information by the Board should also be specified. Moreover, where information needed by the Board to perform its tasks is available to a public institution or authority which is required to cooperate with the Board, such institution or authority should provide that information to the Board upon its request. However, if, at that time, the information is not available, irrespective of the reason, the Board should be able to obtain that information from the natural or legal person that has that information through the national resolution authorities or directly, after having informed those national resolution authorities thereof. It should also be possible for the Board to specify the procedure and form according to which it should receive information from entities in order to ensure that such information is that which is most suited to its needs, including in relation to virtual data rooms. In addition, to ensure the broadest cooperation possible with all public institutions and authorities which might hold data relevant to the Board and which are necessary for the performance of the tasks conferred on it, and to avoid duplicating requests, the public institutions and authorities with which the Board should be able to cooperate, check the availability of information and exchange information should include the members of the European System of Central Banks, the relevant DGSs, the European Systemic Risk Board, the European Supervisory Authorities and the European Stability Mechanism. Finally, to ensure a timely intervention of financial arrangements contracted for the Fund in the case of need, the Board should inform the Commission and the ECB as soon as it considers that it might be necessary to activate such financial arrangements and provide the Commission and the ECB with all information necessary for the performance of their tasks in respect of such financial arrangements.

(33)

Article 86(1) of Directive 2014/59/EU provides that normal insolvency proceedings in relation to entities within the scope of that Directive are not to be commenced except at the initiative of the resolution authority and that a decision placing an entity into normal insolvency proceedings is to be taken only with the consent of the resolution authority. That provision is not reflected in Regulation (EU) No 806/2014. In line with the division of tasks specified in Regulation (EU) No 806/2014, national resolution authorities should consult the Board before they act in accordance with Article 86(1) of Directive 2014/59/EU in relation to entities that are under the direct responsibility of the Board.

(34)

The selection criteria for the position of the Vice-Chair of the Board are the same as those for the selection of the Chair and other full-time members of the Board. It is therefore appropriate to provide the Vice-Chair of the Board with the same voting rights as those enjoyed by the Chair and the full-time members of the Board.

(35)

To allow for a preliminary assessment by the Board in its plenary session of the preliminary draft budget before the Chair presents the final draft, the period for the Chair to put forward an initial proposal for the annual budget of the Board should be extended.

(36)

In order to further strengthen cooperation within the SRM between the Board and national resolution authorities, the Board in its executive session should consult the Board in its plenary session regarding guidelines, general instructions and any other instruments of general application within the SRM which set out how the Board expects to implement Regulation (EU) No 806/2014.

(37)

The procedure for conducting consultations regarding guidelines, general instructions and any other instruments of general application within the SRM should be understood having regard to the existing procedures for conducting consultations in accordance with the framework referred to in Article 31(1) of Regulation (EU) No 806/2014. Where that framework already provides for specific arrangements regarding guidelines and general instructions, those existing procedures should apply in addition to the new consultation procedure, where appropriate.

(38)

After the initial build-up period for the Fund provided for in Regulation (EU) No 806/2014, its available financial means might face slight decreases below its target level, in particular resulting from an increase in covered deposits. The amount of the ex ante contributions likely to be called in those circumstances is thus likely to be small. It is therefore possible that, in some years, the amount of such ex ante contributions would no longer be commensurate with the cost of the collection of those contributions. The Board should therefore be able to defer the collection of the ex ante contributions for up to three years until the amount to be collected reaches an amount that is proportionate to the cost of the collection process, provided that such deferral does not materially affect the capacity of the Board to use the Fund.

(39)

Irrevocable payment commitments are one of the components of the available financial means of the Fund. It is therefore necessary to specify the circumstances in which those payment commitments can be called. In the event that an entity ceases to be subject to the obligation to pay contributions to the Fund following a decision to renounce its authorisation, the irrevocable payment commitment should be cancelled. To ensure that the cancellation of the irrevocable payment commitment does not lead to a situation where the available financial means in the Fund fall below a level that the Board deems adequate, the Board should have the power to determine a contribution that the relevant entity should be required to pay. In its decision, the Board should duly consider the need to maintain a level playing field between all participating entities, including the entity that ceases to be within the scope of Article 2 of Regulation (EU) No 806/2014. The Board is to provide detailed reasons for its decision and disclose that decision, including its reasoning, in its annual report. In addition, to provide more transparency and certainty with respect to the share of irrevocable payment commitments in the total amount of ex ante contributions to be raised, the Board should determine such share on an annual basis, subject to the applicable limits. The ECB, or the relevant national competent authority, should aim to ensure that any procyclical effect of irrevocable payment commitments depending on their accounting treatment is mitigated.

(40)

The maximum annual amount of extraordinary ex post contributions to the Fund that are allowed to be called is currently limited to three times the amount of the ex ante contributions. After the initial build-up period provided for in Regulation (EU) No 806/2014, such ex ante contributions will, in circumstances other than the use of the Fund, depend only on variations in the level of covered deposits and are therefore likely to become small. Setting the maximum amount of extraordinary ex post contributions on the basis of ex ante contributions could therefore have the effect of drastically limiting the possibility for the Fund to raise ex post contributions, thereby reducing its capacity for action. To avoid such an outcome, a different limit should be provided for and the maximum amount of extraordinary ex post contributions allowed to be called should be set at three times one-eighth of the target level of the Fund.

(41)

An adequate link between pay and performance should also be maintained in the event of resolution, in particular where losses are likely to be passed on to the Fund. In such cases, any variable remuneration of the members of the management body and senior management of the institution under resolution that has not been paid out or has not vested should be cancelled. Unless a member of the management body or senior management proves that they did not participate in, or were not responsible for, the conduct that resulted in, or contributed to, the failure of the institution under resolution, the variable remuneration that vested or was paid out in the 24 months preceding the decision to take resolution action should be returned or repaid.

(42)

The Fund can be used to support the application of the sale of business tool or of the bridge institution tool whereby a set of assets, rights, and liabilities of the institution under resolution are transferred to a recipient. In such a case, the Board might have a claim against the residual entity in its subsequent winding up under normal insolvency proceedings. That can occur where the Fund is used in connection to losses that creditors would otherwise have borne, including under the form of guarantees to assets and liabilities or coverage of the difference between the transferred assets and liabilities. To ensure that the shareholders and creditors left behind in the residual entity effectively absorb the losses of the institution under resolution and improve the possibility of repayments in insolvency to the Board, those claims of the Board against the residual entity, and claims that arise from reasonable expenses properly incurred by the Board, should benefit from the same priority ranking in insolvency as the ranking of the claims of the national resolution financing arrangements in each participating Member State, which should be higher than the priority ranking of deposits and of DGSs. Since compensation paid to shareholders and creditors from the Fund due to breaches of the ‘no creditor worse off’ principle aims to compensate them for the results of resolution action, that compensation should not give rise to claims from the Board.

(43)

To ensure sufficient flexibility and to make it easier for DGSs to intervene in support of the use of the resolution tools, where they lead to the exit from the market of the institution under resolution, certain aspects of the use of DGSs in resolution should be specified. In particular, it is necessary to specify that DGS funds can be used to support transfer transactions that include deposits, including eligible deposits above the coverage level provided by the DGS concerned, and also the non-eligible deposits included in the general depositor preference, in certain cases and under clear conditions. The contribution of a DGS should be aimed at covering the shortfall in the value of the assets transferred to a buyer or bridge institution in comparison to the value of the transferred deposits. Where a contribution is required by the buyer as part of the transaction to ensure its capital neutrality and preserve compliance with the buyer’s capital requirements, the DGS should also contribute to that effect. The support provided by a DGS to resolution action should take the form of cash or other forms, such as guarantees or loss sharing agreements that can minimise the impact of the support on the available financial means of that DGS while simultaneously allowing the contribution of the DGS to meet its purposes.

(44)

The contribution of the DGS in resolution should be subject to certain limits. First, the total amount of the contribution of the DGS in any resolution case should not exceed the amount of covered deposits in the credit institution concerned. Second, it should be ensured that any intervention by the DGS in a resolution action which relies primarily on the bail-in tool for the purposes of recapitalisation of the institution under resolution and of the continuation of its activities does not exceed the loss that the DGS would bear in insolvency if it paid out covered depositors and subrogated to their claims over the institution’s assets. Third, where the DGS is used in support of resolution action mainly consisting of the transfer of the business to a purchaser or to a bridge institution, the amount of the contribution of the DGS should not exceed 62,5 % of its target level, unless the designated authority under Directive 2014/49/EU chooses to disapply that limit to avoid adverse effects on financial stability or to preserve the access of depositors to their deposits. Fourth, the amount of the DGS contribution should not exceed the difference between the transferred assets and the transferred deposits and liabilities with the same or a higher priority ranking in insolvency than those deposits. That would ensure that the contribution of the DGS is only used for the purpose of avoiding the imposition of losses on depositors, where appropriate, and not for the protection of creditors that rank below deposits in insolvency. However, where relevant, the contribution might also include an amount necessary to ensure the capital neutrality of the recipient entity.

(45)

It should be specified that the DGS should only be able to contribute to a transfer of liabilities other than covered deposits in the context of a resolution if the Board concludes, on a case-by-case basis, that deposits included in the general depositor preference other than covered deposits cannot be bailed-in, nor left in the residual institution under resolution which will be wound up, and if the conditions for the use of the Fund are not met through contributions by shareholders and creditors. In particular, the Board should be allowed to avoid allocating losses to those deposits where the exclusion is strictly necessary and proportionate to preserve the continuity of critical functions and core business lines or where necessary to avoid widespread contagion and financial instability, which could cause a serious disturbance in the economy of the Union or of a Member State. The same reasons should apply to the inclusion in the transfer to a buyer or to a bridge institution of other bail-inable liabilities with a priority ranking lower than that of covered deposits. In that case, the transfer of those bail-inable liabilities should not be supported by the contribution of the DGS. If any external financial support to the transfer of those bail-inable liabilities is required, that support should be provided by the Fund.

(46)

Given the possibility to use DGS in resolution, it is necessary to further specify the conditions under which the DGS contribution can count towards compliance with the requirements to access the Fund. That possibility should only be available for credit institutions with a total value of assets equal to or below EUR 80 billion and in the context of a resolution action primarily relying on the application of the sale of business tool or the bridge institution tool. To ensure that resolution continues to be primarily financed by the credit institution’s internal resources and to minimise distortions of competition, the use of the DGS contribution to ensure access to the Fund should only be possible for credit institutions for which, in the preceding 24 months before resolution action is taken, the resolution plan or the group resolution plan does not provide for their winding up in an orderly manner in the event of failure, given that the MREL determined by the Board for those credit institutions has been set at a level that includes both the loss absorption and the recapitalisation amounts. The MREL set by the Board should comply with the minimum levels of the MREL for entities with preferred resolution strategies that envisage primarily the use of transfer tools in resolution, even if the respective resolution plan or group resolution plan had provided for different actions and the MREL of those credit institutions was therefore not subject to those minimum levels. Furthermore, the contribution of the DGS should be preceded by the contribution of own funds and eligible liabilities towards loss absorption and recapitalisation to the maximum extent possible. Finally, the institution under resolution must not have breached its MREL, including the binding intermediate targets, within a certain period preceding resolution action, without prejudice to short-term technical breaches of the MREL.

(47)

If the contribution made by shareholders and creditors of the institution under resolution through reductions, write-down or conversion of their liabilities or through the losses that they are expected to bear in the winding up of the residual entity, added to the contribution made by the DGS, amounts to at least 8 % of the institution’s total liabilities including own funds, the Board should be able to use the Fund to provide further funding where that is necessary to ensure effective resolution in line with the resolution objectives. In such cases, the contribution of the DGS should be limited to the amount necessary to enable access to the Fund. Additionally, for a credit institution with a total value of assets on an individual basis of between EUR 30 billion and EUR 80 billion, the contribution of the DGS should not exceed 2,5 % of the total liabilities including own funds of the credit institution on an individual basis.

(48)

In extraordinary circumstances, it can occur that the contribution of the Fund of 5 % of total liabilities including own funds is not sufficient to cover the financing needs of a given resolution action. In such cases, and where that contribution has been enabled by the intervention of the DGS, the DGS should make an additional contribution, under certain conditions, equal to the amount of losses that covered deposits would have suffered were they not protected. The cost of that additional contribution should not exceed the losses that the DGS would have borne in the hypothetical scenario of a winding up under normal insolvency proceedings and the repayment of covered deposits. Additionally, the sum of the initial contribution and of the additional contribution of the DGS should not exceed the amount of covered deposits in the credit institution concerned. Together with the additional contribution of the DGS, the Board should be able to seek further funding from alternative financing sources, where the conditions for that funding are met.

(49)

In light of the mutualised nature of the Fund, it is appropriate to establish a dedicated procedure to be followed once its net accumulated use, where made possible by a prior contribution of the DGS, reaches certain thresholds. Such procedure should not lead to the inability of using the means of the Fund in a subsequent resolution action. Where the net use of the Fund over three years reaches a threshold equivalent to 10 % of its target level, the plenary session must provide guidance for future uses of the Fund facilitated by the contribution of the DGS, until replenishment is complete. If the net use of the Fund over three years reaches 20 % of its target level, the Board must inform the Council and the Commission. At that point, the Commission should review the rules on the contributions of the DGSs in resolution that permit the subsequent use of the Fund, as well as assess whether the applicable arrangements for the collection of contributions to replenish the Fund in those cases are appropriate. Moreover, the timeframe for re-reaching the target level should be extended to 10 years.

(50)

Where the funds of the DGS are used in the application of the sale of business tool or the bridge institution tool, in isolation or together with contributions from the Fund, the residual entity remaining after the transfer of the assets, rights and liabilities should be wound up in an orderly manner in accordance with the applicable national law, pursuant to Article 22(5) of Regulation (EU) No 806/2014. Additionally, where the funds of the DGS are used in support of the bridge institution tool, the operations of the bridge institution should be terminated in accordance with Article 41(3), (5) and (6) of Directive 2014/59/EU.

(51)

Transparency is key to ensuring market integrity, market discipline, and the protection of investors. To ensure that the Board is able to foster, and participate in, efforts towards greater transparency, it should be allowed to disclose information that results from its own analyses, assessments and determinations, including its resolvability assessments, where such disclosure would not undermine the protection of the public interest as regards financial, monetary or economic policy and where there is an overriding public interest in the disclosure.

(52)

To ensure consistency, the amendments introduced to Regulation (EU) No 806/2014 by this Regulation that are similar to the amendments introduced to Directive 2014/59/EU by Directive (EU) 2026/806 of the European Parliament and of the Council (19) should be applied from the same date as the date for the transposition of Directive (EU) 2026/806, which is 11 May 2028. However, there is no reason to delay the application of the amendments to Regulation (EU) No 806/2014 introduced by this Regulation that relate exclusively to the functioning of the SRM. Those amendments should therefore apply from 11 June 2026.

(53)

Since the objective of this Regulation, namely to improve the effectiveness and efficiency of the recovery and resolution framework for entities, cannot be sufficiently achieved by the Member States due to the risks that diverging national approaches might entail for the integrity of the internal market but can rather, by amending rules that are already set at Union level, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(54)

Regulation (EU) No 806/2014 should therefore be amended accordingly,

(1)

Article 3(1) is amended as follows:

(2)

in Article 4, the following paragraph is inserted:

(3)

in Article 5, the following paragraph is inserted:

(*1)  Directive (EU) 2025/1 of the European Parliament and of the Council of 27 November 2024 establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132 and Regulations (EU) No 1094/2010, (EU) No 648/2012, (EU) No 806/2014 and (EU) 2017/1129 (OJ L, 2025/1, 8.1.2025, ELI: http://data.europa.eu/eli/dir/2025/1/oj).’;"

(4)

Article 7 is amended as follows:

(5)

Article 8 is amended as follows:

(6)

Article 10 is amended as follows:

(7)

Article 10a is amended as follows:

(8)

in Article 12, the following paragraph is added:

(9)

in Article 12a, paragraph 1 is replaced by the following:

(10)

Article 12c is amended as follows:

(11)

Article 12d is amended as follows:

(12)

in Article 12e(1), the introductory wording is replaced by the following:

‘The requirement referred to in Article 12a(1) for a resolution entity that is a G-SII entity shall consist of the following:’

(13)

Article 12g is amended as follows:

(14)

Article 12i is replaced by the following:

(15)

Article 12k is amended as follows:

(16)

Article 13 is replaced by the following:

(*2)  Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84, ELI: http://data.europa.eu/eli/reg/2014/600/oj).’;"

(17)

the following articles are inserted in Chapter 2:

(18)

in Article 14(2), point (c) is replaced by the following:

;

(19)

in Article 16, paragraph 2 is replaced by the following:

(20)

Article 18 is amended as follows:

(21)

the following article is inserted:

(22)

Article 19 is amended as follows:

(23)

Article 20 is amended as follows:

(24)

Article 21 is amended as follows:

(25)

in Article 22, paragraph 5 is replaced by the following:

(26)

Article 27 is amended as follows:

(27)

Article 30 is amended as follows:

(28)

the following article is inserted:

(*3)  Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ L 141, 5.6.2015, p. 73, ELI: http://data.europa.eu/eli/dir/2015/849/oj).’;"

(29)

in Article 31, the following paragraph is added:

(30)

in Article 32(1), the first subparagraph is replaced by the following:

‘Where a group includes entities established in participating Member States as well as in non-participating Member States or third countries, without prejudice to any approval by the Council or the Commission required under this Regulation, the Board shall represent the national resolution authorities of the participating Member States for the purposes of consultation and cooperation with non-participating Member States or third countries in accordance with Articles 7, 8, 12, 13, 16, 18, 45h, 55, and 88 to 92 of Directive 2014/59/EU.’

(31)

Article 34 is amended as follows:

(32)

the following article is inserted:

(33)

Article 43 is amended as follows:

(34)

Article 45 is amended as follows:

(35)

in Article 50(1), point (n) is replaced by the following:

;

(36)

Article 53 is amended as follows:

(37)

Article 54 is amended as follows:

(38)

in Article 55, paragraphs 1 and 2 are replaced by the following:

(39)

Article 56 is amended as follows:

(40)

Article 61 is replaced by the following:

(41)

in Article 62, paragraph 3 is replaced by the following:

(42)

in Article 69, paragraph 4 is replaced by the following:

(43)

Article 70 is amended as follows:

(44)

in Article 71(1), the second subparagraph is replaced by the following:

‘The total amount of extraordinary ex post contributions per year shall not exceed three times 12,5 % of the target level specified in Article 69.’

(45)

in Article 74, the following paragraph is added:

‘The Board shall inform the Commission and the ECB as soon as it considers that it might be necessary to activate the financial arrangements contracted for the Fund in accordance with this Article, and shall provide the Commission and the ECB with all of the information necessary for the performance of their tasks in respect of those financial arrangements.’

(46)

Article 76 is amended as follows:

(47)

Article 79 is replaced by the following:

(48)

the following articles are inserted:

(49)

in Article 85(3), the first subparagraph is replaced by the following:

‘Any natural or legal person, including resolution authorities, may appeal against a decision of the Board adopted under Article 10(10), Article 11, Article 12(1), Articles 38 to 41, Article 65(3), Article 71 and Article 90(3) which is addressed to that person, or which is of direct and individual concern to that person.’

(50)

Article 88 is amended as follows:

(51)

the following article is inserted:

(*4)  Regulation (EU) 2026/808 of the European Parliament and of the Council of 30 March 2026 amending Regulation (EU) No 806/2014 as regards early intervention measures, conditions for resolution and funding of resolution action (OJ L, 2026/808, 20.4.2026, ELI: http://data.europa.eu/eli/reg/2026/808/oj).’."