Il Nuovo Regime Europeo Di Risoluzione Delle Crisi Bancarie: Un’Analisi Comparata Dell’Applicazione Del Bail-In (A Comparative Analysis of the Bail-In Regime in Europe)

Posted: 15 Jan 2016

Date Written: September 24, 2015

Abstract

The bail-in tool introduced in the Bank Recovery and Resolution Directive (BRRD) and in the Single Resolution Mechanism (SRM) Regulation is aimed at increasing the efficiency of the crisis resolution mechanisms by applying penalties not just on bank shareholders but also on other classes of creditors. Bail-in allows to internalize the costs of bank failures instead of imposing externalities upon the rest of society through public bailouts. The final objective of the bail-in tool is then to encourage bank creditors to be more selective in their investment decisions and to take fully into account the adequacy of the bank's capital reserves to the desired level of business risk. The decision of the European legislator to apply bail-in to total liabilities instead of risk-weighted assets (as in the Basel III/CRD IV framework) should facilitate market oversight over the level of capital and bailinable liabilities for each bank.

The BRRD and the SRM Regulation provide that the bail-in tool may be applied either in order to recapitalize a bank or banking group and restructure it as a going concern, or to provide capital either for setting up a bridge bank, transferring the business to a third party or setting up an asset management vehicle. Certain liabilities may be exempted from the application of the bail-in tool if systemic risks would ensue. As the bail-in tool enables the authorities to restructure and recapitalize a bank without having to immediately separate the bank's critical functions from the non-viable part of the business, it is the resolution tool most likely to be used for large, complex and highly interconnected financial institutions, As it has been observed by some qualified commentators, for the largest banks systemic risks might emerge already for relatively limited levels of losses. Besides, presently the bailinable liabilities are largely held by creditors who made their investment ahead of the present legislation. Our study shows that in some EU Member States the average capitalization level for some of the largest banks is such that it would be necessary to apply the bail-in to a relatively high volumes of senior unsecured debt and other liabilities before the intervention of the Single Resolution Fund.

Our study also shows that the bailinable liabilities with remaining maturity of at least one year – those that represent the most solid basis for bail-in – in some cases are lower than 15% of the total liabilities.

Keywords: Bank resolution, Bail-in, Banking Union, Single Resolution Fund, Single Resolution Board

JEL Classification: G01, G21, G28

Suggested Citation

Santella, Paolo, Il Nuovo Regime Europeo Di Risoluzione Delle Crisi Bancarie: Un’Analisi Comparata Dell’Applicazione Del Bail-In (A Comparative Analysis of the Bail-In Regime in Europe) (September 24, 2015). Bancaria No. 9/2015, Available at SSRN: https://ssrn.com/abstract=2714757

Paolo Santella (Contact Author)

Single Resolution Board

Rue de la Science 27
Bruxelles, 1000
Belgium

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