Resolution planning and structural bank reform within the banking union

Abstract

In the aftermath of the global financial crisis, both resolution planning, i.e. contingency planning by both regulated institutions and public authorities in order to prepare their actions in financial crisis, and concepts for structural bank reform have been identified as possible solutions to ending "Too Big To Fail" and foster market discipline among bank owners, bank managers and investors in bank debt. Both concepts thus complement the global quest for reliable procedures and tools for bank resolution that would minimise systemic implications once large and complex financial institutions have reached the stage of insolvency. Given the complex task of orchestrating swift and effective resolution actions, especially with regard to cross-border banking groups and financial conglomerates, planning ahead in good times has since been widely recognised as crucial for enhancing resolvability. At least part of the impediments to resolution will be found in organisational, financial and legal complexity that has evolved in banks and groups over time. To remove these impediments, interference with existing corporate and group structures is all but inevitable. However, in both international standard setting and at the European Union level, issues related to resolution planning (within the context of bank resolution reform) and structural banking reforms to date have been discussed rather separately. This lack of consistency is questionable, given the obvious need to reconcile both approaches in order to facilitate effective implementation and enforcement especially with regard to large, complex banking groups. Based on an analysis both of the Bank Recovery and Resolution Directive and the SRM Regulation, this paper explores how these problems could be dealt with within the context of the European Banking Union.

Banking union: the problem of untried systems

“…These are not public documents so we can only guess their plausibility. But there are good grounds for scepticism (Binder 2016), both because of the softness of the assumptions and the surprise nature of previous problems with banks. 9…”

Insolvency of Significant Non-Financial Enterprises: Lessons from Bank Failures and Bank Resolution

“…106 such complexity is common for banks and is frequently driven by extensive intra-group transactions. 107 Fourth, ex ante crisis preparation and disclosure of (some) information in living wills may 'clarify expectations and strengthen market confidence in the resolution actions of authorities'. 108 some scholars remain sceptical of the practical relevance of recovery and resolution planning.…”