Bank resolution

What is bank crisis "resolution"?

"Resolution" is a term of English origin which is similar to the notion of preventative intervention present in French legislation since the law of 25 June 1999 by which the FGDR was created. It entails the intervention by a so-called public resolution authority prior to the failure of a bank or financial institution, in order to restructure it or bring about its orderly liquidation so as to limit the impact on the institution's customers and on the rest of the economy.

 

The aim of banking resolution is to prevent the outright bankruptcy of a bank (often referred to in practice as a "suspension of payments"). Indeed, for a bank or financial institution, such a failure almost automatically results in its court-ordered liquidation with all the effects that that implies: hold on customers' accounts and ripple effects on customers' creditors and debtors, interruption of banking and financial services, prolonged hold and loss in value of funds contributed by creditors and shareholders, loss in value of the institution's assets, etc.

 

The "BRRD" directive on the recovery and resolution of banks adopted on 15 May 2014 (2014/59/EU) sets out the conditions under which a systemic bank or a bank whose failure would have significant repercussions on the economy may be subject to a resolution mechanism. This mechanism is based on plans previously defined by the institutions and approved by the authorities. It lays down rules for the use of various tools, including the creation of a bridge bank to extract and resell healthy assets, the separation of assets, run-off management of non-essential assets and a bail-in tool.

 

This "BRRD" directive was transposed into French law with the publication of Order 2015-1024 of 20 August 2015 containing various provisions for adapting legislation to European Union financial law. These new official texts may be downloaded on this website in the Document Database section > Official Texts, "Legal and Regulatory Texts" tab.