Closing financial institutions on both sides of the Atlantic: Are there differences in approach? CEPS Commentary, 25 February 2015

In the aftermath of the Great Financial Crisis both the EU and the US have implemented resolution procedures for their largest and most systemic financial institutions. This Commentary examines the main differences between the two frameworks. The EU framework allows, inter alia, action to prevent the failure of a credit institution, while the US regulatory framework requires that all systemic banks subject to resolution must be closed and resolved. The greater flexibility under the EU resolution framework allows action to be taken to preserve a credit institution without putting it through an insolvency process, which makes limiting moral hazard less obvious. Moreover, the scope of the EU framework is still narrow, since it does not allow the recovery of non-bank financial institutions, whereas the US framework does.

Tough love for sinners in the eurozone banking union. CEPS Commentary, 1 July 2013

The ministers of finance and the economy of the eurozone have now agreed on the main features of a new ESM instrument for the direct recapitalisation of euro area banks (Eurogroup, 2013) and on a framework for the recovery and resolution of credit institutions (Council of the European Union, 2013). However, as Stefano Micossi explains in this Commentary, the text that has come out of the frantic late-night negotiations in the Ecofin Council seems to leave unwelcome uncertainty as to the real scope of the new rules in the different national jurisdictions, while the lack of depositor preference in the bail-in pecking order may result in destabilisation. The proposed system appears not only highly intrusive but it also places a considerable burden of aid to the failing institution on the member state, raising doubts about its ability to “break the vicious circle between banks and sovereigns”.