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How to resolve a bank

Infographic explaining the process of a bank resolution

As preparation/prevention: 

  1. Banks draw up recovery and resolution plans
  2. Supervision by the Single Supervisory Mechanism and national authorities
  3. Banks contribute to Single Resolution Fund
  4. Compliance with capital rules and building up of loss absorbency capacity (MREL) 

If a bank is failing or likely to fail, the following questions are asked: 

  1. Are all private measures/supervision actions exhausted? 
  2. Is there public interest to save the bank? 
  • If the answer is 'no', the bank is wound up. 
  • If the answer is 'yes", the bank is being resolved. 

Resolution tools include: 

  • bail in
  • sale of business
  • bridge bank
  • asset separation 

Use of single resolution fund (+/- €60 billion by 2024) to ensure the effective application of the resolution actions and, in exceptional circumstances, to absorb losses or to recapitalise a bank. 

Once implemented, the European Stability Mechanism (ESM) backstop will provide +/- €60 billion at the latest by 2024. If the Single Resolution Fund doesn't have sufficient means, the ESM lends additional funds to carry out resolution action.

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