Resolution Q&A

1. What is the role of the Single Resolution Board (SRB)?

The SRB is the resolution authority for significant banks and other cross-border groups within the Banking Union. Together with NRAs, it forms the SRM. The NRAs play a key role within the Banking Union.

The mission of the SRB is to ensure the orderly resolution of failing banks with minimum impact on the real economy and public finances of the participating Member States of the Banking Union.

The SRB is the resolution authority for:

  • banks which are considered significant or in relation to which the ECB has decided to exercise directly all of the relevant supervisory powers; and
  • other cross-border groups, where both the parent and at least one subsidiary bank are established in two different participating Member States of the Banking Union.

The number of banks within the SRB’s direct remit is bound to change over time, as new banks are established and existing banks leave the market. The list of banks within the SRB’s remit is published on the SRB’s website.


2. What is the Single Resolution Mechanism?

The SRM is responsible for the resolution of all banks in participating Member States of the Banking Union.

The Single Resolution Mechanism (SRM) is one of the pillars of the Banking Union, alongside the Single Supervisory Mechanism (SSM). Under the Single Resolution Mechanism (SRM), centralised decision-making power in respect of resolution has as of Januart 2016 been entrusted to the Single Resolution Board (SRB), which derives its powers from both the Bank Recovery and Resolution Directive (Directive 2014/59/EU – BRRD) and the Single Resolution Mechanism Regulation (Regulation 1024/2013 – SRMR).

What is the BRRD?

As of November 2014, the SSM is the new system of banking supervision in the Banking Union, comprising the European Central Bank (ECB) and national supervisory authorities of the participating Member States (National Competent Authorities).

The aim of the BRRD is that failing banks can be videnly resolved without disruption of the financialsystem or the real economy and limiting the costs to taxpayers!

The BRRD, broadly speaking, regulates four key elements: i) the preparation and prevention of resolution by means of recovery and resolution planning; ii) early intervention measure by the supervisor; iii) the application of resolution tools and powers in the event of an actual bank failure; and, last but not least, iv) cooperation and coordination between national authorities.

The SRMR was adopted in July 2014 to create an integrated decision-making framework for resolution in the Banking Union as a complement to the SSM, which pursues a similar objective with respect to supervision. The SRB works in close cooperation with the National Resolution Authorities (NRAs).

The NRAs are the resolution authorities of the participating Member States of the Banking Union. They are empowered to implement resolution schemes adopted by the SRB.

The SRB and the NRAs closely cooperate with the SSM, the European Commission (EC), the Council of the European Union, the European Parliament, as well as other European and international authorities.

3. What are the roles of National Resolution Authorities in the SRM?

NRAs are responsible for all other banks. However, where it is necessary to ensure the consistent application of high resolution standards, the SRB can decide, or an NRA can request the SRB, to directly exercise all its powers with regard to banks falling within an NRA’s original remit.

The SRMR provides that the SRB is responsible for the effective and consistent functioning of the SRM. The SRB may issue general instructions for the attention of NRAs and may issue warnings to an NRA where the SRB considers that a decision that the NRA intends to adopt does not comply with the SRMR or with the SRB’s general instructions.

Moreover, if a resolution action by an NRA requires the use of the Single Resolution Fund (SRF), the SRB is responsible for the adoption of the resolution scheme for that bank.

The NRA’s also have an important role in the governance of the SRM. Should a bank within  the  SRB's  remit  meet  the  conditions  for  resolution  the ‘extended’ Executive Session of the SRB, in which the SRB and relevant NRA(s) are represented, will adopt a resolution scheme and the relevant NRA(s) will implement the scheme.



1. What is a bank resolution?

Resolution is the restructuring of a bank by a resolution authority through the use of resolution tools in order to safeguard public interests, including the continuity of the bank’s critical functions, financial stability and minimal costs to taxpayers.

Banks provide vital services to citizens, businesses, and the economy at large. Because of the vital role played by banks, and in the absence of effective resolution regimes, the authorities have in the past often considered it necessary to put up taxpayers' money to restore trust in the banking system and avoid broader systemic damage.

In view of the critical intermediary role that banks play in our economies, financial difficulties in banks need to be resolved in an orderly, quick and efficient manner, avoiding undue disruption to banking activity and to the rest of the financial system.

Where necessary in the public interest, resolution tools may be used to intervene in a failing bank so as to ensure the continuity of the bank’s critical financial and economic functions, while minimising the impact of the bank’s failure on the economy and the financial system. The resolution regime ensures that a failing bank’s shareholders and creditors will bear the losses, rather than taxpayers.

There are four resolution tools:

  • Sale of business - permits the total or partial disposal of an entity’s assets, liabilities and/or shares to a private purchaser;
  • Bridge bank – part or all of the assets, liabilities and/or shares are transferred to a controlled temporary entity;
  • Asset separation – assets, the liquidation of which could cause market disruption, can be transferred to an asset management vehicle;
  • Bail-in – equity and debt can be written down and converted, placing the burden on the shareholders and creditors of a bank, rather than on the public.


What is the difference between bank resolution and regular insolvency proceedings?

The overarching objective of the BRRD resolution regime is to make sure that a bank can be resolved swiftly with minimal risk to financial stability. This should be achieved without negative impacts on the real economy and without the need to spend taxpayer money to stabilise a failing bank (i.e. it should be bail-in instead of bail-out). Resolution objectives are much broader than the objectives of regular insolvency proceedings, which commonly focus on the interests of creditors and on maximising the value of the insolvency estate. The BRRD resolution regime aims to ensure overall financial stability.

2. What are the objectives that are pursued with a bank resolution?

When applying resolution tools and exercising resolution powers, the SRB and, where relevant, NRAs take into account the resolution objectives and select the resolution tool(s) and resolution powers which are best-suited to achieve the resolution objectives.

The BRRD and the SRMR set out the following resolution objectives:

  • to ensure the continuity of critical functions and essential financial services, namely the opening of deposit accounts, lending, provision of collateral, provision of payment services and portfolio management;
  • to avoid significant adverse effects on financial stability, in particular by preventing contagion, including to market infrastructures, and by maintaining market discipline; this is to prevent systemic contagion, i.e. the possibility that the situation of a distressed institution will have negative implications for the national financial system as a whole or an impact on economic activity;
  • to protect public funds by minimising reliance on extraordinary public financial support and to minimise costs to taxpayers and the state, thus preventing the use of public funds to compensate for bank failures not associated with public management;
  • to protect depositors covered by the Deposit Guarantee Scheme Directive (DGSD) and investors covered by the Investor Compensation Scheme Directive (ICSD), and to safeguard depositors’ confidence, thus preventing a ‘deposit run’, typically associated with a breakdown in that confidence, which would affect other institutions within the system and, consequently, would make it impossible for institutions to meet their commitments to depositors and would result in a credit crunch affecting the real economy;
  • to protect client funds and client assets.

When pursuing the resolution objectives, the SRB together with the NRAs will seek to minimise the cost of resolution and avoid destruction of value unless this is necessary to achieve the resolution objectives.

These resolution objectives are of equal importance, and resolution authorities need to balance them as appropriate depending on the nature and circumstances of each case.


3.What conditions have to be met in order to put an entity into resolution?

Resolution is the application of one or more resolution tools to a bank in order to achieve the resolution objectives.

The resolution of a bank occurs when the authorities determine that:

  • the bank is failing or likely to fail;
  • there are no supervisory or private sector measures that can restore the bank to viability within a short timeframe (for example by taking actions set out in the bank’s recovery plan); and
  • resolution is necessary in the public interest, i.e. the resolution objectives would not be met to the same extent if the bank were wound up under normal (national) insolvency proceedings.
  1. What is the decision-making process to put an entity into resolution?

Upon the determination by the SRB that a bank meets the conditions for resolution, the SRB will adopt a resolution scheme which will determine which resolution tool(s) is to be applied and, if necessary, whether the SRF is to be used.

Where the resolution action involves the use of the SRF or the granting of state aid, the resolution scheme can be adopted only after the European Commission (EC) has adopted a positive or conditional decision concerning the compatibility of such aid with the internal market. The competent NRAs are closely involved in the preparation and adoption of resolution schemes.

Once the SRB has adopted a resolution scheme, it sends it to the EC. The scheme may enter into force only if no objection is expressed by the EC or the Council of the European Union (the Council) within a period of 24 hours. If the EC endorses the scheme, it enters into force. However, if the EC objects to certain aspects of the scheme, the SRB shall modify it accordingly, after which is approved and enters into force. Alternatively, the EC can propose to the Council of the European Union that it objects to the scheme either because there is no public interest, or to require a material modification to the use of the SRF. If the Council of the European Union objects to the scheme because it is not in the public interest, the bank will be wound up in an orderly manner in accordance with the applicable national law. If the Council of the European Union approves the modification to the use of the SRF, the SRB

modifies the scheme accordingly, after which it is approved and enters into force. If the Council of the European Union rejects the EC’s proposal, the scheme enters into force in its original form.

Relevant NRAs will take the necessary actions to implement the resolution scheme. The SRB will monitor the execution of the resolution scheme by the relevant NRAs at national level and, should an NRA not comply with the resolution scheme, the SRB can directly address executive orders to the bank under resolution.


5.What are the general powers of the SRB and the NRAs to prepare for the implementation and application of resolution tools?

The BRRD sets out in Article 63 a list of general powers required by resolution authorities to prepare for the implementation and application of resolution tools. The minimum set of ‘key powers’ under the BRRD are:

  • Accessing information to prepare resolution actions.
  • Taking control of a bank under resolution, including the power to replace the management. If the resolution authority decides to resolve a bank, it will be crucial to gain control of the institution in order to effectively implement the resolution actions. This is especially true if there is reasonable suspicion that fraudulent behaviour may have led to the failure of the bank.
  • Exercising rights and powers conferred upon shareholders and the management body. To achieve the goal of gaining control, the resolution authority has the power to remove or replace the management body and senior management.
  • Transferring shares, rights, assets or liabilities.
  • Altering the maturity of eligible liabilities (as initially defined), converting them into shares or reducing the principal amount.
  • Cancelling or reducing the nominal amount of shares or other instruments of ownership. To overcome obstacles relating to the ownership structure, an important power is the possibility of exercising all the rights and powers of the shareholders without their consent. This allows the resolution authority to swiftly substitute votes required by company law or to implement corporate law measures in order to create the targeted company structure.


6.What are the resolution funding arrangements?

For the SRM to be credible, resolution funding arrangements are required as a last resort, once owners and creditors have first borne losses. The Single Resolution Fund (SRF) was created specifically for this reason. The SRB owns and administers the SRF. The SRB may use the SRF only for the purpose of ensuring the efficient application of the resolution tools and exercise of the resolution powers. Where the bail-in tool is to be applied and certain eligible liabilities are to be excluded from its scope, the SRB may use the SRF to cover losses or to recapitalise the entity once a contribution to loss absorption or recapitalisation equal to at least 8 % of total liabilities of the bank, including own funds, has been made by the bank’s owners and creditors. The SRF is composed of national compartments for a transitional phase of eight years before becoming fully mutualised. The amount of funds is built up over time, with contributions from the banking sector raised at national level by the NRAs.


The SRF, with a target level of at least 1 % of the amount of covered deposits of all credit institutions within the Banking Union by 31 December 2023, and having collected a total amount of EUR 10.8 billion in contributions from nearly 4 000 institutions as of July 2016, stands ready and will be used as a last resort. The target size of the SRF is dynamic and changes automatically as the amount of covered deposits varies.



One of the main tasks of the SRB is to plan for the resolution of banks to ensure their resolvability. The purpose of resolution planning is:

  • to obtain a comprehensive understanding of the banks and their critical functions,
  • to identify and address any impediments to their resolvability, and
  • to be prepared for their resolution if needed

The resolution planning process is reflected in the chapters of a resolution plan:

1: Strategic business analysis

As the first step, a detailed overview of the bank is produced. The overview describes the bank’s  structure,  financial  position,  business  model,  critical  functions,  core  business  lines,  internal and external interdependencies and critical systems and infrastructures.

2: Preferred resolution strategy

Next,  it  is  assessed  whether,  in  case  of  a  bank’s  failure,  the  resolution  objectives  are  best  achieved by winding up the bank under normal insolvency proceedings or resolving it. If it is the latter, the preferred resolution strategy is developed, including the use of appropriate resolution tools and powers.

3: Financial and operational continuity in resolution

When   the   resolution   strategy   has   been   determined,   the   financial   and   operational   prerequisites to ensuring continuity in resolution so as to achieve the resolution objectives are assessed.

4: Information and communication plan

This  step  describes  the  operational  arrangements  and  procedures  required  to  provide  resolution  authorities  with  all  necessary  information  and  the  arrangements  regarding 

management  information  systems,  which  will  ensure  timely,  up-to-date  and  accurate  information, together with the communication strategy and plan for resolution.

5: Conclusion of the resolvability assessment

In  this  step,  it  is  assessed  whether  impediments  exist  to  the  winding  up  under  normal  insolvency proceedings or the resolution of a bank. Where winding up or resolution is not possible, appropriate measures to address such impediments are identified. Furthermore, MREL is determined.

6: Opinion of the bank in relation to the resolution plan

The  bank  is  entitled  to  provide  its  opinion  in  relation  to  the  resolution  plan.  The  bank’s  opinion forms part of the resolution plan.The  resolution  plan  is  reviewed  and,  where  necessary,  updated  at  least  annually  and  after  any  material changes relating to the bank

For more information, please read the SRB’s Introduction to Resolution Planning.


8. What is the difference between bail-ins and bail-outs?

Bail-outs’ refer to a situation in which persons other than shareholders and creditors, such as a government, rescue a company (such as a bank) by injecting money to prevent negative consequences to the financial system that would arise from that company’s failure.

A ‘bail-in’, on the other hand, occurs when a company’s shareholders and creditors are forced to bear the burden by having a portion of their debt written off or converted into equity. This ensures that moral hazard is properly addressed and avoids the use of taxpayers’ money.


9. What are the resolution principles?

  • the shareholders of an institution must bear the first losses;
  • creditors of the institution will bear losses after the shareholders (in accordance with the priority of their claims under normal insolvency proceedings, unless expressly provided otherwise);
  • the management and senior management of the institution must be replaced (except where maintaining them in office is considered necessary to achieve the objectives of resolution);
  • natural and legal persons are made liable subject to national law, under civil or criminal law, for their responsibility for the failure of an institution under resolution;
  • creditors of the same class are treated in an equitable manner (unless otherwise provided for);
  • no creditor shall incur greater losses than they would have incurred under normal insolvency proceedings;
  • covered deposits are fully protected.


What is the bail-in tool?

Under bail-in, losses are imposed on owners and creditors of a failing bank, rather than on taxpayers under a public bail-out. The bail-in tool achieves loss absorption either by converting the liability into a common equity instrument, such as a share, or by writing down or writing off the principal amount of the liability (both are a form of bail-in).

Bail-in is a key resolution tool in the European resolution framework. It enables debt owed by a bank to creditors to be written-down or converted to equity.

By taking into account how shareholders and creditors would incur losses if a bank were subject to normal insolvency proceedings, bail-in reduces the value and amount of liabilities of a failed bank. It thereby avoids taxpayers having to provide funds to cover losses and recapitalise the bank, while allowing the critical functions of the bank to continue uninterrupted.

The bail-in tool can be used to:

  • recapitalise an institution that meets the conditions for resolution to the extent sufficient to restore its ability to comply with the conditions for authorisation and so continue performing its authorised activities, and to sustain market confidence in the institution; or,
  • convert to equity, or reduce the principal amount of claims or debt instruments that would be transferred to a bridge institution (in order to provide capital for that bridge institution) or be transferred under the sale of business tool or asset separation tool.

Scope of the bail-in tool

The BRRD provides that the bail-in tool can be applied to all liabilities that are not expressly excluded from the scope of bail-in. The most important exclusion is for covered deposits i.e. deposits up to the amount covered by a deposit guarantee scheme (DGS). This is why in resolution the covered deposits are safe.

The following liabilities are expressly excluded:

  • covered deposits, liabilities in respect of holding client assets or client money, where the client is protected under applicable insolvency law;
  • liabilities resulting from a fiduciary relationship, where the beneficiary is protected under applicable law;
  • liabilities to other financial institutions (outside the group of the institution under resolution) with an original maturity of less than seven days;
  • liabilities with a remaining maturity of less than seven days, owed to payment or securities settlement systems or their participants;
  • employee remuneration or benefits (other than variable remuneration);
  • liabilities to commercial or trade creditors relating to the provision of critical goods or services;
  • liabilities to tax and social security authorities that are preferred by law;
  • liabilities for contributions to deposit guarantee schemes; and
  • liabilities to the extent that they are secured, including covered bonds and hedging instrument liabilities of the covered bond issuer.

In addition to the above list of excluded liabilities, the BRRD provides that, in exceptional circumstances, the resolution authority may wholly or partially exclude certain liabilities from bail-in, where:

  • it is not possible to bail in the liability within a reasonable timeframe (this could potentially apply to derivatives liabilities, which can be very difficult to value in a short time frame); or
  • the exclusion is necessary and proportionate to achieve continuity of critical functions and core business lines; or
  • the exclusion is necessary and proportionate to avoid widespread contagion that would disrupt the functioning of financial markets, in particular as regards deposits held by individuals and micro-, small and medium-sized enterprises; or
  • bailing in the liability would cause higher losses to other creditors than not bailing it in.


What other measure have to be applied to the entity recapitalised by the bail-in instrument?

The business reorganisation plan

A business reorganisation plan must be prepared for the recapitalised institution by its management body, or other person appointed by the resolution authority, and submitted to the resolution authority within one month of the application of the bail-in tool. Within one month after such submission, the resolution authority and the relevant supervisory authority must assess and agree whether implementation of the business plan would restore the long-term viability of the institution, or whether amendments are needed to the plan to achieve this.


The sale of business tool enables resolution authorities to sell the institution (or parts of its business) to one or more purchasers with or without the consent of shareholders. The resolution authority has the power to transfer shares or other instruments of ownership issued by an institution under resolution, and all or any assets, rights or liabilities of an institution under resolution to a purchaser that is not a bridge institution. The sale of business tool may be applied individually or in combination with other tools (Article 37 BRRD). As for all resolution tools, its use must promote the resolution objectives (Article 31  BRRD).

What happens to the remaining entity in the event of a partial sale of business?

When the sale of business tool is used to transfer parts of assets, rights and liabilities, the residual entity shall be wound down under normal insolvency proceedings. This should be completed within a reasonable timeframe taking into account the need i) for the institution to provide services or support to the purchaser to meet the resolution objectives, especially to maintain the continuity of critical economic functions; ii) to ensure that assets or liabilities chosen for sale do not adversely impact the financial system or contribute to contagion in any way; and iii) to protect depositors, client funds and client assets.


The bridge institution tool aims to bridge time until a private–sector solution is found, thus preserving the critical functions of the failing bank.

The tool allows for the transfer of i) instruments of ownership issued by one or more institutions under resolution (share transfer) and/or ii) all or any assets, rights or liabilities of one or more institutions under resolution (property transfer) – depending on the corporate structure of the entity under resolution – to a bridge institution.

A temporary bridge institution (also known as a bridge bank) is created and, for up to two years, critical functions will be maintained a sale to a private purchaser, of either the whole or a part, can be concluded. Any residual part of the bank that has not been sold is then wound down in an orderly manner.

Who will be the owner of the new bridge institution?

The bridge institution must be wholly or partially owned either through direct state ownership or the resolution financing arrangements, or by one or more public authorities, and will be controlled by the resolution authority.


The asset separation tool is used to transfer assets and liabilities to a separate asset management vehicle (AMV). It is temporarily created to receive the assets, rights and liabilities of one or more institutions under resolution or of a bridge institution. These are managed by the AMV with a view to maximising their value for an eventual sale, or an orderly gradual wind-down if immediate liquidation would be disadvantageous at that time.

The asset separation tool is used to wind down and sell the elements transferred in an orderly manner while preserving the institution’s critical functions. It must always be applied together with another resolution tool (sale of business, the bridge institution and/or bail-in).

Who will be the owner of the new asset management vehicle?

The AMV is wholly or partially owned by one or more public authorities including the resolution authority or the resolution financing arrangements.

In line with the general resolution powers of the resolution authority to take over shareholder rights, the transfer may take place without the consent of shareholders of the institution under resolution or any third party other than the bridge institution, and without complying with any procedural requirements under company or security law.

The AMV should operate under the control of the resolution authority and subject to the following provisions: i) the resolution authority approves the content of the AMV’s constitutional documents; ii) the resolution authority either appoints or approves the AMV’s management body; iii) the resolution authority approves the remuneration of the members of the management body and determines their appropriate responsibilities; and iv) the resolution authority approves the strategy and risk profile of the AMV.

What type of assets will be transferred to the new asset management vehicle?

The focus should be on assets that are of no further strategic value; that are related to a specific impaired market; that contain risks considered to be no longer acceptable; that are too capital-intensive; and/or that may be unsuitable for obtaining future long-term funding.

Article 42(5) BRRD provides that the resolution authority may use the asset separation power to transfer assets, rights, and liabilities only in one of the following three scenarios:

  1. The market for those assets is such that their liquidation under normal insolvency proceedings could have an adverse effect on one or more financial markets and have an impact on financial stability. The EBA guidelines set out three specific factors that should be considered: i) whether or not the market for these assets is impaired; ii) the impact of the disposal of these assets on the markets in which they are traded; iii) the situation of the financial markets and the direct and indirect effects of an impairment of the markets for these assets.
  2. The transfer is necessary to ensure the proper functioning of the institution under resolution or bridge institution.
  3. The transfer is necessary to maximise the liquidation proceeds and preserve the value of the assets.

How will the new asset management vehicle be funded?

The funding structure of the AMV will depend on the value and characteristics of the assets transferred. The amount of bail-in has to take into account a prudent estimate of the capital needs of an AMV. Any consideration paid by the AMV in respect of the assets, rights or liabilities transferred directly from the institution under resolution may be paid in the form of debt issued by the AMV, which may carry the guarantee of the resolution financing arrangement.

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