Legislation for Resolution Framework

Banking Union

The Banking Union project was initiated in 2012, amongst the Euro Area Member States, with the possibility for non-Euro Area Member States to also participate.  The Banking Union aims to harmonise the supervision, resolution and deposit guarantee schemes for all participating (Banking Union) Member States.

The first pillar of Banking Union is the Single Supervisory Mechanism (SSM), which is comprised of the European Central Bank (ECB) and the national prudential supervisory authorities. The ECB fully assumed direct supervisory responsibility for significant credit institutions in participating Member States on 4 November 2014.

The second pillar of Banking Union is the Single Resolution Mechanism (SRM), which is composed of the Single Resolution Board (SRB) and the national resolution authorities. The Bank Recovery and Resolution Directive (BRRD) comprises the foundation of the second pillar of Banking Union by acting as an EU framework, which governs the resolution of both credit institutions and in-scope investment firms. The BRRD operates in conjunction with the Single Resolution Mechanism Regulation (SRMR) in order to implement a harmonised EU resolution framework. The SRMR established the SRB as a fully independent EU agency acting as the central resolution authority within the Banking Union. The European Union (Bank Recovery and Resolution) Regulations 2015 (S.I. No 289 of 2015) came into effect on 15 July 2015 (with the exception of the bail-in tool which came into effect on 1 January 2016) and transposed the BRRD into Irish law.

The third pillar of Banking Union comprises the Deposit Guarantee Scheme (DGS) Directive and, in future, a European deposit insurance scheme (EDIS). The DGS Directive is transposed into Irish law via the European Union (Deposit Guarantee Schemes) Regulations 2015 (S.I. No 516 of 2015). EDIS remains under political negotiation at EU level.

Bank Creditor Hierarchy Directive

On 7 December 2017, the EU Member States (the Council of the EU) adopted the Bank Creditor Hierarchy Directive (BCHD), which amended the BRRD to introduce greater harmonisation of the creditor hierarchy amongst EU Member States. This is necessary in order to achieve effective burden-sharing within the resolution framework, in particular, through the introduction of new creditor classes and contractual rankings for certain debt instruments. The BCHD was transposed into Irish law via the European Union (Bank Recovery and Resolution) Regulations 2019 (S.I. 127 of 2019).

‘Risk Reduction Measures’ (RRM) Package

In May 2019, the EU Member States (the Council of the EU) reached final agreement on a new suite of resolution and prudential measures, known as the RRM Package. The final legal texts were published in the EU’s legislation directory (the Official Journal) on 7 June 2019. As part of the RRM Package, legislative amendments have been made, inter alia, to both the BRRD and SRMR (known as ‘BRRD2’ and ‘SRMR2’).

National transposition of BRRD2 which amended the European Union (Bank Recovery and Resolution) Regulations 2015 entered into force from 28 December 2020 (S.I. 713 of 2020). BRRD2 and SRMR2 introduced several new and refined powers and discretions, primarily in relation to the minimum requirement for own funds and eligible liabilities (MREL) and related matters.

Other Domestic Legislative Acts

The Central Bank and Credit Institutions (Resolution) Act 2011 (CBCIR) is national legislation enacted in 2011 to govern the resolution of banks and credit unions, but due to the introduction of the BRRD in 2015 the CBCIR now only governs the resolution of credit unions.

The Resolution Division relies on at least the above legislation to ensure that the resolution of institutions, in-scope investment firms and credit unions are dealt with in a timely, transparent and effective manner to safeguard against exchequer funds being used in resolution cases.