Bridge institution tool

Definition

The bridge institution tool transfers a failing bank's critical functions to a temporary, publicly controlled bank — a bridge — keeping them running until a private sale or orderly wind-down, normally within two years.

How it works

When no purchaser can be found over a resolution weekend, the authority may transfer shares, assets and liabilities to a bridge institution: a licensed bank owned or controlled by public authorities, created to preserve critical functions and to be sold as soon as market conditions allow. The bridge must be managed commercially, and the framework expects its life to end — through sale or wind-down — within two years, extendable in defined circumstances.

In practice

The banking union has not yet used a bridge, but the tool has precedent elsewhere in Europe: the UK used a bridge bank for Dunfermline Building Society in 2009, and pre-BRRD national regimes used comparable vehicles during the financial crisis. It remains the standard fallback in resolution plans where a sale cannot be assumed.