Overview

Early intervention measures are a set of supervisory powers that sit between ordinary ongoing supervision and resolution. They allow the competent authority to intervene when an institution's financial condition or governance deteriorates, so as to correct problems early and, where possible, avoid the need for resolution. The measures are triggered when an institution infringes, or in the near future is likely to infringe, prudential requirements, for example because of a rapidly deteriorating financial situation.

How it works

When the trigger is met, the competent authority may take a range of actions. These include requiring the institution's management to implement measures set out in its recovery plan, to draw up an action programme and timetable, to convene a shareholders' meeting, to remove or replace members of the management body or senior management where they are found unfit, and to require the institution to prepare a plan for the restructuring of debt with its creditors. The authority may also require changes to the institution's business strategy or legal and operational structures.

A more far-reaching power allows the authority, where other measures are insufficient, to remove the senior management and management body in their entirety and, as a further step, to appoint a temporary administrator to run the institution for a limited period. Throughout, the aim is remedial: to restore the institution to soundness rather than to wind it down.

Early intervention is also a coordination point between supervision and resolution. When early intervention measures are applied, the supervisor informs the resolution authority, which may begin preparing for a possible resolution, including by contacting potential purchasers. This link ensures that if the situation continues to worsen toward the point at which the institution is failing or likely to fail, the resolution authority is ready to act.

Early intervention measures are set out in the BRRD (Arts. 27-29), covering the general measures, the power to remove senior management and the management body, and the appointment of a temporary administrator. Within the banking union, the SRM Regulation (Art. 13) addresses the SRB's role and cooperation with the ECB when early intervention is applied. The measures build on the recovery plan requirements and connect to the conditions for resolution.

Relevance for banks and investors

For banks, early intervention marks an escalation in supervisory engagement and can compel significant governance and strategic changes. For investors, the application of early intervention measures is an important signal that an institution is under stress and that the authorities are preparing for possible resolution. It is a stage to watch closely, because it precedes, but does not necessarily lead to, the failing-or-likely-to-fail determination.