The financial crisis led to the bail out of several banks which were considered to be “too big to fail.” Considering the costs of those bail outs for the European taxpayer and in view of the importance of financial stability for the proper functioning of the EU’s internal market, the EU institutions created a new legal framework for handling such bank failures going forward. This framework provides authorities with tools to manage a bank’s failure where they determine that the bank’s going through normal insolvency proceedings would harm the public interest and cause financial instability. The notion of “resolution” refers to the use of these tools. A key feature of the framework is the so-called Single Resolution Mechanism (SRM), which is run by the Single Resolution Board (SRB), an EU agency entrusted by EU regulation with a range of resolution powers. In exercising those powers, the SRB has at its disposal a Single Resolution Fund that is financed by contributions from the banking sector.
This article was originally published on Kluwer Competition Law Blog.