What is the difference between the temporary public ownership tool and the bridge bank tool?

Article 40 of Directive 2014/59/EU (BRRD) lays out the rules for the bridge institution tool, whereas Article 58 defines the Temporary public ownership tool. The difference between those two tools is not fully clear.

Temporary public ownership tools (TPOs), as with any other Government stabilisation tools (GFST); and, unlike the use of a bridge bank, do not constitute a resolution tool under Article 2(1)(19) BRRD. Indeed, GFST are to be used as a last resort only after assessing the use of other resolution tools (Article 56(2) BRRD).

The bridge bank tool laid out in Article 40 of Directive 2014/59/EU (BRRD) would typically be used if a private sector purchaser is not immediately available to purchase the critical functions of the institution under resolution. Furthermore, whilst the use of a bridge bank is typical in a situation of a close bank bail-in, TPO would be more useful in situations of open bank bail-in. In any event, also for the use of TPOs, there must be prior loss absorption by shareholders and creditors of 8% of total liabilities including own funds as set out in Article 37(9).

Furthermore, GSTs, such as TPO, would only be available in very extraordinary situations of a systemic crisis. Finally, a Member State (or its nominee) would wholly own the entity when applying the TPO tool, whereas a bridge bank could also be partially owned by one or more public authorities.

Disclaimer:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Directive 2014/59/EU (BRRD) and continues to be relevant.