Question ID:
2015_2518
Legal Act:
Directive 2014/59/EU (BRRD)
Topic:
Resolution objectives and triggers
Article:
31
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
n.a.
Disclose name of institution / entity:
No
Type of submitter:
Competent authority
Subject Matter:
Application of tools
Question:

Does the Commission agree that the Directive must be interpreted in such a way that that the resolution authority should have all the tools available for all institutions so that they can be used depending on the situation, and that it cannot be determined by national legislation, that certain tools (e.g. bail-in) should always be used for the smallest institutions whereas other tools can be applied for SIFIs?

Background on the question:

Article 31 of Directive 2014/59/EU (BRRD), on resolution objectives, states that:

1. When applying the resolution tools and exercising the resolution powers, resolution authorities shall have regard to the resolution objectives, and choose the tools and powers that best achieve the objectives that are relevant in the circumstances of the case.

2. The resolution objectives referred to in paragraph 1 are:

(a) to ensure the continuity of critical functions;

(b) to avoid a significant adverse effect on the financial system, in particular by preventing contagion, including to market infrastructures, and by maintaining market discipline;

(c) to protect public funds by minimising reliance on extraordinary public financial support;

(d) to protect depositors covered by Directive 2014/49/EU and investors covered by Directive 97/9/EC; (e) to protect client funds and client assets. When pursuing the above objectives, the resolution authority shall seek to minimise the cost of resolution and avoid destruction of value unless necessary to achieve the resolution objectives.

3. Subject to different provisions of this Directive, the resolution objectives are of equal significance, and resolution authorities shall balance them as appropriate to the nature and circumstances of each case.

Date of submission:
11/12/2015
Published as Final Q&A:
28/10/2016
Final Answer:

Article 37(1) of Directive 2014/59/EU (BRRD) requires Member States to ensure that resolution authorities have the necessary powers to apply the resolution tools in Article 37(3) in respect of institutions and to entities referred to in point (b), (c) or (d) of Article 1(1) of BRRD. The choice of resolution tool should be established on a case-by-case basis depending on the circumstances. The resolution authority should not be constrained by law from using one of the tools provided for in BRRD as the absence of the tool could prevent the resolution authority from ensuring the objectives of resolution are met.

However, Directive 2014/59/EU (BRRD) does not prohibit authorities from further describing how they might potentially exercise the resolution tools in relation to different types of entities provided the compliance of the general principles governing resolution and resolution tools set in Articles 31-34 and 37(4) and (5) BRRD.

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.

Status:
Final Q&A
Answer prepared by:
Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Note to Q&A:

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.

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