The next step: Towards harmonised frameworks for the liquidation of non-systematically relevant credit institutions in the EU? A discussion of policy choices and potential impediments

Abstract

As part of its ongoing consultation on the European crisis management and deposit insurance
framework currently available for the management of bank failures within the EU generally
and the Banking Union in particular, the European Commission has called for the respondents’
views as to the need for further harmonisation of resolution arrangements for banks that currently
do not qualify for resolution under the auspices of the Single Resolution Mechanism. In this respect, the consultation takes up a broader discussion on the need for harmonised bank insolvency regimes within the EU, which also ties in with an earlier international debate on the functional characteristics of optimal bank insolvency regimes initiated by international standard
setters in the early 2000s. Against this backdrop, the paper analyses the case for further
reform, and identifies potential impediments (both technical and political) to be expected in
this regard. It argues that, while a full harmonisation of resolution powers and the centralisation
of decision-making powers can be expected to address relevant concerns regarding the
status quo, a comprehensive harmonisation can also be expected to meet with substantial political
opposition, which in turn requires a better understanding of the functional requirements
to be met by less ambitious reforms.

Keywords: bank insolvency, resolution, Banking Union, Single Resolution Mechanism, less significant credit institutions

JEL Classification: E44, G20, G21