In the future, bail in instead of bailing out, says a Commission proposal on the recovery and resolution of credit institutions and investment firms, presented to the finance ministers at the Ecofin Council on 10 July 2012.
The draft directive would provide supervisory authorities with a set of tools and powers to prevent banking crises and to manage ailing banks. The brunt of restructuring or winding down an institution would be borne by the banks' owners and creditors, rather than the taxpayers.
The proposal's main elements are:
1. Prevention: Banks and national supervisory authorities will be required to draw up recovery and resolution plans on how to deal with financial stress.
2. Early intervention: Authorities will have wider powers to intervene when a bank is about to breach regulatory capital requirements. They can appoint a special manager to oversee the bank.
3. Resolution: In the event of incipient insolvency, resolution tools would allow authorities to restructure the failing bank or wind it down in an orderly manner. In particular, authorities would have powers to
● sell all or part of the business to another entity
● transfer the clean assets and essential functions into a publicly controlled temporary "bridge bank" to enable them to be sold to another entity, and liquidate the old bank
● separate clean and toxic assets between good and bad banks in order to carry out restructuring (by means of a bridge bank, sale of business or write-down)
● impose losses, in order of seniority, on shareholders and creditors ("bail in").
In order to deal with cross-border banking groups, national authorities will cooperate in all three phases. Joint resolution actions will be facilitated by the European Banking Authority. A network of national resolution funds and resolution authorities will be set up.
The proposed rules aim at safeguarding the critical functions of financial markets (such as deposits and payment systems) and ensuring long-term financial stability. At international level, a review of resolution regimes was called for by G20 leaders in November 2008.
To be adopted, the draft directive has to be agreed by the Council and the European Parliament.
Council deliberation (video in all languages)
Press release (covers the whole meeting, in pdf)
Press conference (video in several languages)
Single Market - Banking - Crisis management (Commission webpages)