Titles II and III: Preparation and Early Intervention

As the European Commission has succinctly explained, ‘institutions will be required to draw up recovery plans setting out arrangements and measures to enable it to take early action to restore its long term viability in the event of a material deterioration of its financial situation. Groups will be required to develop plans at both group level and for the individual institutions within the group. Supervisors will assess and approve recovery plans’. Thus, institutions must draw up ‘recovery plans’ which are to be approved by the relevant supervisory authorities, so as to have a plan in place that might be useful to help turn around a material deterioration of the financial situation that institution may face. The ‘relevant supervisors’ are the European Central Bank (ECB) under the Single Supervisory Mechanism (SSM) for systemically important institutions, and the national supervisory authorities for less systemically important institutions, as well as for institutions outside of the Banking Union.

France

Directive 2014/54/EU of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment companies (the Bank Recovery and Resolution Directive, or the ‘BRRD’) was implemented recently into the French legal system, enacted by Law dated 23 July 2013, Order dated 20 August 2015, and the following Decrees of 11 September 2015.

Titles V and VI: Cross-Border Group Resolution and Third Countries

Title V of the Bank Recovery and Resolution Directive (BRRD) (Articles 87–92) concerns cross-border group resolution. This Title V is an important part of the BRRD, for the financial crisis has shown how difficult it can be for authorities to cooperate effectively and efficiently in cross-border bank failures. Moreover, whilst this Title V focuses on the resolution of cross-border groups, it bears relevance also for the preparation and early intervention stages, and it contains important provisions on authorities’ cooperation in that regard. Article 87(c), for instance, requires also the relevant supervisory authorities (responsible for the early intervention stage) to cooperate, and Article 88(1) requires the resolution colleges to decide on the resolvability of institutions and groups in scope of the BRRD ex Articles 12, 13, 16, and 18.

Title IV: Resolution

Title IV of the Bank Recovery and Resolution Directive (BRRD) concerns resolution. If ‘conditions for resolution’ are met, resolution authorities may place any entity covered by BRRD under resolution, apply the resolution tools, and exercise the resolution powers. ‘Resolution’ is often contrasted with ‘insolvency’. Resolution is a specialized regime for bank failures, and its objectives are fundamentally different from the objectives of normal insolvency law. The resolution regime has general public interest as its main, most abstract goal, whereas the insolvency regime traditionally aims at maximizing creditor value. For these reasons, resolution management is the responsibility of government authorities rather than courts. Nonetheless, insolvency law remains of essential importance to bank resolution rules. Not only will (national) insolvency law remain critical for the interpretation and application of the BRRD’s bank resolution rules such as the ‘No Creditor Worse Off’ rule (see below at paras 7.102–7.104), but insolvency law will also remain applicable to bank failures where specific bank resolution rules do not apply.

Title I: Scope, Definitions, and Authorities

In Part I, Chapter 1 at paras 1.22 ff, we set out the context in which the Bank Recovery and Resolution Directive (BRRD) was drafted and how it aims to harmonize, in short, substantive bank insolvency law. Together with the Single Resolution Mechanism Regulation (SRMR), the BRRD forms the second pillar of the Banking Union and intends ‘[t]‌o provide authorities with a credible set of tools to intervene sufficiently early and quickly in an unsound or failing institution as to ensure the continuity of the institution’s critical financial and economic functions, while minimising the impact of the institution’s failure on the economy and financial system’ (recital (15)). The BRRD had to be implemented into national law by 31 December 2014.

Ireland

The Irish Banking Crisis (2008–2012) led to a dramatic restructuring of the credit institutions, including the nationalization of two out of three of the domestic retail banks and the injection of significant capital into all three. Progress continues to be made in strengthening the balance sheets of the banks against a background of continued economic recovery reflected in GDP growth of 4.8 per cent in 2015, increases in exports and employment, and improvements in investor and consumer spending. Focus has shifted now to the oversight of the resolution of the large number of non-performing loans, the strengthening of the banks’ business models, and managing the consequences to the Irish economy of Brexit. Ireland has five ‘significant institutions’ (Bank of Ireland, AIB plc, Ulster Bank Ireland DAC, Citibank Holdings Ireland Ltd, and Permanent TSB Group Holdings plc) and thirteen ‘less significant’ institutions. The Irish insurance market is well developed and diverse with the majority of the insurers being subsidiaries of large international insurance parents. At the time of writing, there are approximately fifty-eight insurance undertakings with Irish consumers operating in Ireland.

Commentary on Title IV of Directive 2009/138/EC on the Taking up and Pursuit of the Business of Insurance and Reinsurance (Solvency II)

Until 2009, the European law of insurance was set out in a plethora of different Directives. The key legislation dealing with insurance insolvency was Directive 2001/17/EC on the reorganisation and winding-up of insurance undertakings (IWUD).

United Kingdom

Banking and insurance play central roles in UK industry. The UK banking industry is the largest in the world in terms of GDP. The UK insurance industry is the largest in Europe and the third largest in the world. Therefore, particularly in light of the financial crisis of 2008, it is extremely important to have a clear formula for the winding up of credit institutions, but also steps have been taken to bolster the resilience of the financial system and help avoid future crises by the implementation of a further regulation.

Germany

Within Germany, the harmonization of the national bank insolvency laws by Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (the BRRD) has rendered an already complex legislative landscape considerably more confusing. For credit institutions, there are now no less than three different statutes that lay down the procedures and substantive provisions available to supervisory and resolution authorities, and the procedural framework for cross-border coordination and recognition is to be found in two of them (with some overlap in terms of scope and content). While the BRRD has been transposed within a separate new statute (the Act on the Recovery and Resolution of Institutions and Financial Groups), the provisions transposing Directive 2001/24/EC on the reorganisation and winding up of credit institutions (the Credit Institutions Directive) continue to be included in the German Banking Act. Section 46 of the Banking Act also continues to lay down administrative powers, including the closure of a failing institution, the imposition of a freeze of assets and stay of payments (known as the ‘moratorium’), as well as the removal of senior management for the German financial supervisory authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin).

Commentary on Directive 2001/24/EC on the Reorganisation and Winding up of Credit Institutions

Articles 1 and 2 determine the scope of the Credit Institutions Directive (CIWUD). Article 1(3) until and including Article 1(6) is the result of the amendment of the CIWUD by the Bank Recovery and Resolution Directive (BRRD) (see Article 117 Directive 2014/59/EU). Several subjects and definitions have already been discussed in a broader systematic context in the general introduction of this book, especially the general principles applicable to international insolvency cases of multinational banks and the specific EC directives which create a pan-European framework relating to the reorganisation and winding up of credit institutions: the BRRD and the Single Resolution Mechanism Regulation (SRMR), the Deposit Guarantee Scheme (DGS) Directive 2014, the Settlement Finality Directive, and the Collateral Directive. When consulting this commentary, reference should be made to the general introduction.