The Banking Recovery and Resolution Directive and the EU’s Crisis Management Framework: Principles, Interplay with the Comprehensive Assessment and the Consequences for Recapitalizing Credit Institutions in Crisis Situations

Within the EU, a new framework has been designed to define, when banks are considered no longer viable, how such banks can exit the market without creating widespread financial distress and how a smooth exit or recovery should be financed. It consists of a complex set of rules and international agreements, with responsibility for their implementation assigned to various authorities. This study analyzes the objectives of the new regime and the new powers of the various authorities involved, as well as the main underlying tradeoffs that are defining the policy debate in terms of the allocation of losses to various stakeholders, the associated conditionality and the degree of mutualization of decision-making and financing within the euro area and the EU at large.