Resolution and deposit guarantee

Resolution and deposit guarantee

Resolution and deposit guarantee are closely related

A deposit guarantee scheme may be implemented to protect depositors by intervening through resolution, before the institution fails, to avoid the more serious consequences that certainly result from a failure.

In fact, experience shows that a compensation procedure is generally more costly than a resolution intervention, not to mention the difficulties that an outright bankruptcy causes for the bank's customers.

A special regime defined by law

Implementing a resolution procedure implies that the resolution authority has recourse to special legal powers, outside the scope of ordinary law: while not a judicial authority (a court), the resolution authority may take coercive measures vis-à-vis the institution in an emergency (for example, require it to dispose of or discontinue activities, remove its senior managers) or decisions affecting the ownership rights of shareholders and creditors (charge losses to capital or to certain debt categories, cancel shares, convert the institution's debt into capital, etc.). For this reason, resolution is subject to a special regime defined by law.