Contractual Recognition of Bail-in

Abstract

The EU Bank Recovery and Resolution Directive (2014/59/EU) (the “BRRD”) is part of a series of European Union (“EU”) banking reforms made in response to the financial crisis and establishes a framework for the management of failing financial institutions by the authorities. The financial crisis has shown that there was a significant lack of adequate tools at EU level to deal effectively with insolvent or failing credit institutions (i.e. banks) and investment firms (together “financial institutions” or “institutions”). When the financial crisis exploded there was no harmonisation of procedures for winding-up or administration of financial institutions at the European Union level. Some Member States were used to apply to financial institutions the same procedures that they applied to other insolvent corporate entities, which in certain cases have been adapted for financial institutions. There were substantial and procedural differences between the laws, regulations and administrative provisions which govern the insolvency of institutions in the Member States. In addition, as result of the financial crisis it was clear that general corporate insolvency procedures may not always be appropriate for financial institutions as they may not always ensure: (i) sufficient speed of interv ention, (ii) the continuation of the critical functions of institutions and (iii) the preservation of financial stability.