What it is
A temporary stay is a power that allows a resolution authority to suspend, for a limited period, the exercise of early termination, acceleration, netting or close-out rights that counterparties would otherwise trigger because an institution has entered resolution. The purpose is to prevent a wave of contract terminations that could destroy value, disrupt critical functions and undermine an orderly resolution.
Without such a stay, the very act of placing a bank into resolution could allow counterparties to close out derivatives and other financial contracts en masse, accelerating the firm's collapse. The stay gives the authority a brief window to apply resolution tools, effect transfers and stabilise the situation before termination rights can be exercised.
How it works
The framework provides related powers: a power to suspend certain payment and delivery obligations, a power to restrict the enforcement of security interests, and a power to suspend the termination rights of counterparties. The suspension of termination rights is time-limited and typically runs until shortly after the resolution action is taken and publicly notified.
Crucially, termination rights that are suspended and then not triggered, because the underlying obligations continue to be performed or the contract is transferred to a solvent purchaser or bridge institution, cannot be exercised merely on the basis of the resolution event. This supports the transfer tools by keeping contracts alive in the hands of the acquirer. To make these powers effective across borders, institutions may be required to include recognition of resolution stays in contracts governed by third-country law.
Legal basis
The suspension and stay powers, including the power to restrict early termination rights, are set out in the BRRD, which specifies their scope, maximum duration and the conditions attaching to their use. Corresponding powers within the Single Resolution Mechanism are provided in the SRMR. These powers operate together with the moratorium and transfer tools.
Relevance for banks and investors
For banks, the stay framework drives contractual requirements: firms must ensure that financial contracts, especially those governed by foreign law, recognise EU resolution stays, and they must maintain the operational capability to identify and manage affected contracts at speed.
For counterparties and investors, the stay means that entry into resolution does not automatically permit immediate close-out. Rights to terminate are suspended briefly and may be preserved for a transferee, so counterparties should understand that continued performance, rather than the resolution event alone, governs whether their contracts survive.