Why a special regime exists
Ordinary corporate insolvency destroys exactly what makes a bank matter: continuous access to deposits, payments and lending. Before 2014, European states facing a failing bank therefore chose between disruptive liquidation and taxpayer-funded rescue. Resolution is the third path: a statutory administrative procedure that keeps the bank's critical functions running over a weekend while its owners and creditors absorb the losses.
The conditions
Under Article 32 BRRD, resolution requires three cumulative conditions: the bank is failing or likely to fail; no private or supervisory alternative can restore viability within a reasonable timeframe; and resolution is necessary in the public interest. If the last condition fails, the bank exits through national insolvency instead — the outcome in most banking union failure cases to date.
The tools
The framework provides four tools, usable alone or in combination: sale of business, bridge institution, asset separation and bail-in. Every application is preceded by the write-down or conversion of capital instruments, and constrained by the no-creditor-worse-off safeguard.