Volume 36, Issue 1

The first Panel of the SRB Legal Conference, moderated by Pedro Machado (SRB Board Member), focused on the interplay between resolution and national corporate/insolvency law.

This article explores the complex interplay between bank resolution and national insolvency law, with a specific focus on intra-group financing. We discuss group financial support agreements under BRRD, prudential requirements under the CRR, iMREL under BRRD, and harmonisation of national bank insolvency laws. We conclude that without harmonisation, the dependence of bank resolution on national insolvency laws continues to result in legal diversity and uncertainty, and thus may jeopardise effective resolution.

When dealing with the resolution of a banking group under EU regulation there are two different approaches: Single point of entry (SPE) versus Multiple Point of Entry (MPE). In a MPE strategy, the resolution authority is taking separate resolution actions at the level of individual legal entities of the group. In a SPE strategy, the resolution authority is taking a resolution action at the level of a single entity, usually the parent undertaking, which, consequently, becomes the so called “resolution entity” building together with its subsidiaries the “resolution group”. The general idea in a SPE strategy is, that losses at subsidiary level are first streamed up to the parent undertaking (resolution entity), i. e. capital is streamed down from the parent undertaking to the subsidiary to cover its losses and ensure its recapitalisation. This leads to losses at the resolution entity level, which, if the resolution entity meets the conditions for resolution, are taken care of by applying resolution tools to the resolution entity. This procedure is not necessarily a two-step approach but could also be completed in one go. In the following, we focus on different ways to upstream losses from the subsidiary to the parent undertaking and to recapitalise the subsidiary.

It is well-established that managing the failure of banks requires a special legal regime. While retaining the specificities of such regime is key to preserve financial stability and more broadly public interest, bank failure proceedings operate in the broader legal infrastructure of a country, where corporate insolvency regimes have a key role. This chapter examines at high-level some institutional, substantive and procedural areas where bank failure proceedings and corporate insolvency frameworks interact.

The second Panel of the SRB’s Legal Conference, moderated by the SRB General Counsel Karl-Philipp Wojcik, focused on the possible interferences between the resolution framework and the protection of fundamental rights as embedded in the EU Charter of Fundamental rights (the Charter) the European Convention on Human Rights (ECHR) and its protocols. The panellists also picked up case law developments regarding those interferences before both the European Court of Justice (ECJ), and the European Court of Human Rights (ECtHR).

This article deals in particular with the right to property of shareholders and creditors suffering from the negative consequences of bank resolution. Although the General Court recognizes the possibility of de facto infringements or expropriations falling within the scope of Article 17 of the Charter, the Court of Justice is reluctant in that regard. The application of the “no creditors worse off principle” may provide for the necessary protection under the condition, however, that a valuable ex ante evaluation of the bank´s assets is assured.

This article summarises and puts into context the limited but important case law of the European Court of Human Rights concerning bank resolution procedures, in particular under Article 6 (the right to a fair trial before an independent and impartial tribunal established by law) and Article 1 of the First Protocol (the right of property), as well as the important issue of who has standing under Article 34 to bring proceedings in the name or on behalf of an affected affected bank, its (former) management, share holders, bond holders, creditors or others affected.

This note considers human rights review of resolution decisions and processes – a context in which property rights can be limited or suspended given the operation of resolution decisions, including bail-in and sale decisions – in the context of the UK resolution regime and the relevance of the European Convention on Human Rights (the Convention) and the Charter of Fundamental Rights of the EU (the Charter) following the withdrawal of the UK from the EU. It outlines the UK framework, considers the current approach to rights review, and closes with the implications of the UK withdrawal from the EU on rights review, ex ante and ex post, against the Convention and Charter.

The shift in bank resolution paradigm towards bail-in has repercussions over those who see their sphere of fundamental rights affected by measures adopted in the name of the public good. The EU bank resolution framework is sensitive to these concerns, and seeks to reconcile the private and public interests at stake – at times, a difficult pursuit.

The third Panel of the SRB Legal Conference, moderated by Tuija Taos, focused on various aspects of cross-border bank resolutions and how events have shown that a banking crisis can occur very quickly. There was consensus on the importance of being very well prepared to react with the same speed. Authorities and institutions must have solid plans and always be prepared for the unexpected. This was the first time since 2008 that a global systemically important bank was under severe stress and the resolution framework was put to the test. When facing cross-border bank resolutions, legal regimes need to be credible and workable. There is no doubt that the authorities currently have the necessary powers and tools.

The March 2023 turmoil, the most significant banking stress since the Great Financial Crisis, exposed vulnerabilities in governance, risk management, and supervisory practices. This article delves into this multifaceted financial turmoil, offering critical insights into the dynamics of systemic banking stress, regulatory responses, and the evolving challenges financial authorities face.

This article comprehends a very selective analysis of some aspects deemed of extreme relevance to ensure effective cross-border resolution strategies, dealing with global systemically important banks G-SIBS, and also involving financial institutions with no systemic dimension but which operate in multiple jurisdictions. It is discussed, namely, the fact that G-SIBS, as Credit Suisse, and other multi-jurisdictional groups, highlight critical issues of resolution planning when dealing with several jurisdictions. Secondly, this analysis also highlights particular problems in implementing cross-border resolution strategies to be applied to some banking sub-sectors, namely as regards the case study of cooperative banks, which are an important part of the European financial landscape. Thirdly, the article briefly addresses some critical issues of bail-in when dealing with private actors from different jurisdictions. This overall analysis starts from a critical discussion of the financial turmoil of March 2023, debating if this might have affected the relevance and credibility of resolution regimes.

The Credit Suisse (CS) failure in March 2023 was the first time that the crisis management and resolution framework put in place after the global financial crisis (GFC) was faced with a serious test. Long-standing problems with management, organisation and culture had led to a gradual erosion of confidence and eventually depositor flight. Despite advance planning for resolution in close cooperation with their foreign counterparts, the Swiss authorities chose not to execute their resolution plan for CS. Instead, the Swiss government issued emergency regulations to facilitate a takeover of Credit Suisse by UBS. The approach that was chosen departed from the pre-ordained one, but it addressed the bank’s failure in a manner that maintained financial stability and prevented contagion. The episode taught important lessons about the implementation of international resolution standards.