Resolution framework

On 15 May 2014, the Bank Recovery and Resolution Directive (BRRD) was adopted by the EU in order to provide national resolution authorities with comprehensive and effective powers for dealing with failing banks and in-scope investment firms ('institutions').  The BRRD was transposed into Irish law via the European Union (Bank Recovery and Resolution) Regulations 2015 (S.I. 289 of 2015).

This framework and related legislation enhances both the resilience and the resolvability of institutions, which will be better prepared to deal with, and recover from, a crisis situation. Moreover, in the event that an institution does fail, the impact associated with that failure should be minimised.

Specifically, the framework brings about the following changes:

  • Credit institutions and in-scope investment firms are required to prepare recovery plans, which identify appropriate options that can be executed in the event of a significant financial deterioration of the institution, thereby reducing the likelihood of failure.
  • In addition, the BRRD grants a new set of early intervention powers to supervisors. These powers include the requirement for institutions to execute recovery options, the removal of management and changing the structure of the institution.
  • Resolution planning activity is undertaken by the Central Bank, or the Single Resolution Board (SRB), in advance of failure to unsure this process is managed effectively.
  • If required, the Central Bank and the SRB have at their disposal a set of resolution tools that can be used to resolve failing institutions in order to minimise the impact of failure on the financial system, the real economy, depositors and taxpayers.
  • Both a national and a European resolution fund have been established to help finance the cost of resolution in the future.
  • The Central Bank of Ireland has established National Resolution Authority Internal Rules.

On 3 April 2019 the Central Bank published the first edition of its Approach to Resolution for Banks and Investment Firms (First Edition), This document:

  • Provides an overview of the resolution framework, including the Single Resolution Mechanism system;
  • Outlines the Central Bank's general perspectives on resolution planning;
  • Details the Central Bank's approaches to setting the minimum requirement for own funds and eligible liabilities (MREL); and
  • Illustrates how the Central Bank would exercise its resolution and liquidation powers in a failure event.

Pending framework changes

In April 2019 the EU Member States (the Council of the EU) and the European Parliament reached final agreement on a new suite of resolution and prudential measures, known as the ‘Banking’ or ‘Risk Reduction’ Package. The final legal texts were published in the EU’s legislation directory (the ‘Official Journal’) on 7 June 2019. Some of the new resolution-related  requirements, particularly those pertaining to ‘total loss absorbing capacity’ (TLAC) minimum statutory requirements for global systemically important banks, became directly legally applicable as of 27 June 2019. Most of the new resolution-related requirements will become applicable following transposition into Irish national law in due course.

Credit Unions

With respect to credit unions, the Central Bank is conferred with a range of resolution powers under the Central Bank and Credit Institutions (Resolution) Act 2011.

See our resolution explainer also.