The problem

Resolution restores a bank's solvency by absorbing losses and recapitalising it through bail-in and the other resolution tools. Solvency, however, is not the same as liquidity. Even after a successful recapitalisation, a resolved institution may face deposit outflows, loss of access to unsecured markets, and demands from counterparties, so it can still need substantial funding to continue its critical functions and honour obligations as they fall due. Ensuring that funding is available is the question of liquidity in resolution.

This distinction matters because the resolution framework is calibrated primarily around loss absorption and recapitalisation capacity, through own funds and eligible liabilities. Liquidity needs in the days and weeks after resolution can be large and are harder to size in advance, which is why authorities treat funding in resolution as a distinct workstream in resolution planning.

Sources of funding

A resolved bank is expected to rely first on its own resources: unencumbered assets that can be used as collateral, retained liquid buffers, and the restoration of private market access as confidence returns. Where these are not sufficient, the single resolution financing arrangement can provide support, for example through guarantees or loans, subject to the conditions and the prior bail-in requirements that govern access to the Fund. Central bank facilities operate under the central bank's own rules and require adequate collateral and, ordinarily, solvency, so they are not an automatic backstop for a bank in resolution.

There is no single article that defines a comprehensive public liquidity backstop in resolution. The financing arrangements that can contribute to liquidity are set out for the Banking Union in the Single Resolution Mechanism Regulation (SRMR), Arts. 67 to 79, which govern the Single Resolution Fund, and in the parallel resolution financing provisions of the Bank Recovery and Resolution Directive (BRRD). The framework for liquidity in resolution is elaborated further through Single Resolution Board guidance rather than a dedicated article, so the treatment here anchors on the Fund provisions and describes the mechanism.

Practical relevance

For investors and analysts, liquidity in resolution is a recognised gap in the framework's design: a bank can be solvent post-resolution yet still fail if it cannot fund itself. This is one reason resolution plans increasingly quantify potential funding needs and the collateral available to meet them. For banks, it reinforces the value of a stable deposit base, unencumbered collateral and prepositioned funding capacity. Policy discussion continues on whether a larger, more automatic public liquidity backstop is needed for the Banking Union, comparable to arrangements in some other jurisdictions.