ABSTRACT
The 2007–2009 global financial crisis which featured the depositor run on Northern Rock has demonstrated the need to introduce an effective depositor protection scheme to mitigate depositor losses. This chapter examines the resolution tools for failing banks in the UK regulatory framework and the main pillars of the European bank insolvency regime, namely, recovery and resolution plans, and the Single Resolution Mechanism (SRM). In particular, the analysis focuses on the interplay between the European Central Bank (ECB) and national authorities in bank supervision and resolution. The regulatory architecture of the EU Bank Recovery and Resolution Directive (BRRD) and the SRM introduced rules necessary to prevent financial instability and systemic risk contagion. However, the restructuring tools for distressed banks – i.e. bail-in, precautionary recapitalisation and resolving plans – are largely flexible to allow Member States to adopt domestic policy measures to rescue distressed institutions. This leaves broad discretion to national competent authorities to provide public financial support, a legacy of the bail-out programmes that can undermine the new EU bank resolution regime. The new resolution tools within the BRRD reduce the intervention of competent authorities although they constitute a challenge for the restructuring policies of the Banking Union. The recent bank failures in the financial sector demonstrated that credit institutions rely on bail-out programmes and State aid practices. Banks tend to follow national supervision and domestic enforcement system, a practice that in the aftermath of the global financial crisis seems difficult to change.
