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International Environment: Recovery and Resolution Regimes as the Pillar of the Banking Union

Mejra Festić

Abstract


The purpose of the article is to present the possible regimes of bank resolution
in the euro system and to highlight open questions concerning additional capital
buffers and the valuation of assets according to the Bank Recovery and Resolution
Directive (BRRD). The bail-in tool is used to write down or to convert certain
liabilities with the purpose of restoring the capital adequacy. The valuation
exercise would determine the amount of loss absorbtion to restore viability of the
institution and capital adequacy. The bridge bank tool offers deeper restructuring
powers to the competent resolution authority. Sale of the business tool is actually
a variation of the bridge bank tool, enabling the resolution authority to transfer
assets and liabilities to investors. The asset separation tool always is combined
with another tool. The write-down is not a resolution tool, as it affects equity,
while a bail-in tool goes further to other subordinated debt and senior debt. It
is possible to establish additional resolution tools in the national legislation, as
long as these tools are compatible with the principles of directive and national
legislation in order to support cross-border group resolution. The issue of bank
overregulation and the ability to meet the requirements without negative effects
on the economy is emphasized.


Keywords


recovery and resolution regimes, bridge bank, sale of business, asset separation tool, bail-in, regulation

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