The Single Resolution Mechanism and the EU crisis management tools

The EU framework for dealing with failing banks constitutes a complex trifurcated system: a bank that does not meet the conditions for resolution under BRRD/SRM may be subject to the applicable national corporate insolvency law, which may entail the granting of State aid subject to Commission approval. The resolution of an institution under BRRD/SRM may require the granting and approval of State aid at various stages. Moreover, in certain scenarios the granting of State aid outside the BRRD/SRM framework or the national corporate insolvency law regime remains an option. This paper argues that the operation of these parallel subsystems, with their different substantive entitlements and loss allocation cascades, invites potentially wrong deployment decisions resulting in undesirable distributional outcomes, contrary to the overall system goal of limiting taxpayers’ loss exposure to a minimum and tackling the ‘too-big-to-fail’ problem.