Glossary
The European banking resolution framework, term by term: 129 definitions, each opening with a one-sentence answer and citing its legal basis in BRRD, SRMR, the CRR and related standards. Filter by theme, or search the full index.
Browse by theme129 of 129 terms
A
Additional Tier 1 (AT1)Additional Tier 1 instruments are perpetual, deeply subordinated bank securities with discretionary coupons that convert to equity or are written down when the issuer's capital falls below a contractual trigger — the first debt layer to absorb losses.Asset management vehicleAn asset management vehicle is an entity wholly or partly owned by public authorities that receives assets, rights or liabilities transferred from an institution under resolution, so it can manage and wind them down over time.Asset quality review (AQR)An asset quality review is a point-in-time examination of the accuracy of a bank's asset carrying values, provisioning and collateral valuation, forming the balance-sheet component of the ECB's comprehensive assessment.Asset separation toolThe asset separation tool transfers impaired or problem assets of a bank in resolution to a dedicated asset management vehicle — a “bad bank” — to be managed or sold over time; it may only be used together with another resolution tool.
B
Bail-inBail-in is the resolution tool that absorbs a failing bank's losses by writing down or converting its capital instruments and eligible liabilities in creditor-hierarchy order, so shareholders and creditors — not taxpayers — bear the cost of failure.Bail-in playbookA bail-in playbook is a bank's operational documentation describing, step by step, how a bail-in would be executed in practice, covering the data, processes, systems and internal and external communication needed to implement write-down and conversion.Bail-in waterfallThe bail-in waterfall is the fixed statutory order in which a failing bank's capital instruments and eligible liabilities are written down or converted into equity, with shareholders and Common Equity Tier 1 absorbing losses first and senior creditors last.Banking UnionThe Banking Union is the integrated framework for supervising and resolving banks in participating EU Member States, resting on a Single Supervisory Mechanism and a Single Resolution Mechanism, with a common deposit insurance scheme still only proposed.Bank Recovery and Resolution Directive (BRRD)The BRRD is the EU directive establishing a common framework for the recovery and resolution of banks and investment firms, giving authorities harmonised planning duties, early intervention powers and resolution tools, including bail-in.Bridge institution toolThe 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.Burden sharingBurden sharing is the State-aid requirement that a bank's shareholders and subordinated creditors contribute to absorbing losses before public support is granted, established by the European Commission's 2013 Banking Communication.Business reorganisation planA business reorganisation plan is the restructuring plan that a bank recapitalised through the bail-in tool must draw up to restore its long-term viability, submitted to and approved by the resolution authority.
C
Capital conservation bufferThe capital conservation buffer is a fixed common equity tier 1 buffer of 2.5% of the total risk exposure amount that every bank must hold above its minimum own funds requirements to absorb losses in a downturn.Capital Requirements Regulation and Directive (CRR/CRD)The CRR and CRD are the EU's prudential rulebook for banks, setting own funds definitions, minimum capital and liquidity requirements, capital buffers and supervisory powers. They provide the capital concepts the resolution framework builds on.Client assetsClient assets are money and securities that a bank holds on behalf of its customers rather than for its own account. Because they belong to the clients, they are protected and excluded from bail-in when the bank enters resolution.Close-out nettingClose-out netting is a contractual mechanism that, on a counterparty's default, terminates the many mutual obligations under a master agreement and reduces them to a single net sum. Resolution law protects it as a class in partial transfers.Combined buffer requirementThe combined buffer requirement is the total Common Equity Tier 1 capital a bank must hold on top of its minimum own funds requirements, aggregating the capital conservation, countercyclical and systemic buffers.Common backstopThe common backstop is a credit line from the European Stability Mechanism to the Single Resolution Fund, providing a last-resort source of financing if the Fund's own resources are exhausted, with any drawings repaid by the banking industry over time.Common Equity Tier 1 (CET1)Common Equity Tier 1 is the highest-quality component of a bank's own funds, consisting mainly of paid-up ordinary shares and retained earnings, and is the first capital to absorb losses on a going-concern basis.Competent authorityA competent authority is the public body responsible for the prudential supervision of an institution — the European Central Bank or a national supervisor — as distinct from the resolution authority that would manage the institution's failure.Comprehensive assessmentA comprehensive assessment is the ECB's health check of a bank's balance sheet — combining an asset quality review with a forward-looking stress test — conducted before the ECB assumes direct supervision of the institution.Contingent convertible bond (AT1 / CoCo)A contingent convertible bond is a perpetual, deeply subordinated debt instrument, typically qualifying as additional tier 1, that converts to equity or is written down automatically when the issuer's common equity tier 1 ratio falls to a contractual trigger.Continued access to financial market infrastructuresContinued access to financial market infrastructures is the capability of a bank in resolution to keep using payment, clearing, settlement and custody systems, whether as a direct participant or through an intermediary, so that its critical functions are not interrupted.Contractual recognition of bail-inContractual recognition of bail-in is a clause required in liabilities governed by non-EU law, by which the counterparty agrees to be bound by any write-down or conversion a resolution authority imposes under EU resolution law.Core business linesCore business lines are the business lines and associated services that represent material sources of revenue, profit or franchise value for an institution or its group, and are therefore central to preserving it as a going concern.Countercyclical capital buffer (CCyB)The countercyclical capital buffer is an institution-specific common equity tier 1 buffer, set by macroprudential authorities and varied over the credit cycle, intended to build capital when systemic risk grows and to be released when it crystallises.Covered bondA covered bond is a dual-recourse debt instrument backed by a ring-fenced cover pool of high-quality assets. Holders have a claim on both the issuer and the pool, and it is excluded from bail-in to the extent of its collateral.Covered depositsCovered deposits are eligible deposits protected by a deposit guarantee scheme up to the coverage level of EUR 100,000 per depositor per institution. They are excluded from bail-in and rank highest in the creditor hierarchy.Creditor hierarchyThe creditor hierarchy is the statutory ranking of a bank's capital and liabilities that fixes the order in which they absorb losses: equity first, then AT1, Tier 2, other subordinated debt, senior non-preferred, and ordinary senior claims.Crisis management group (CMG)A crisis management group is the forum of home and key host authorities that maintains cross-border cooperation, recovery and resolution planning, and resolvability assessment for a global systemically important bank, established under the FSB Key Attributes.Critical economic functionsCritical economic functions are activities, services or operations whose disruption would likely impair the real economy or financial stability, because of a bank's size, market share, interconnectedness or complexity, and which cannot be readily substituted.
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Deposit guarantee scheme (DGS)A deposit guarantee scheme repays covered deposits up to EUR 100,000 per depositor per bank when a bank fails, and may contribute to resolution financing in place of depositor losses.Depositor preferenceDepositor preference is the ranking of deposits above ordinary unsecured claims in insolvency and resolution, with covered deposits ranking highest, so that depositors bear losses only after other senior creditors.Digital Operational Resilience Act (DORA)The Digital Operational Resilience Act is Regulation (EU) 2022/2554, applicable from 17 January 2025, which sets uniform requirements for the security and resilience of financial entities' information and communication technology systems and their ICT third-party providers.
E
Early intervention measuresEarly intervention measures are supervisory powers that let the competent authority act when a bank breaches or is likely to breach requirements, to restore its position before it reaches the conditions for resolution.Eligible depositsEligible deposits are deposits that qualify in principle for repayment by a deposit guarantee scheme, once excluded categories are removed. The portion up to EUR 100,000 per depositor is the covered deposit.Eligible liabilitiesEligible liabilities are the liabilities of a bank that satisfy the regulatory conditions to count towards MREL and TLAC, being available for write-down or conversion in resolution alongside own funds.European Banking Authority (EBA)The European Banking Authority is the EU agency responsible for the single rulebook in banking. It drafts binding technical standards and guidelines, promotes supervisory convergence and may conduct binding mediation between national authorities.European Deposit Insurance Scheme (EDIS)The European Deposit Insurance Scheme is a proposed common deposit insurance system for the Banking Union, intended as its third pillar. Set out in a 2015 Commission proposal, it has not been adopted and is not in force.European Systemic Risk Board (ESRB)The European Systemic Risk Board is the EU body responsible for the macroprudential oversight of the financial system, established to prevent and mitigate systemic risk through warnings and recommendations rather than binding measures.Ex-ante contributions to the Single Resolution FundEx-ante contributions are the annual, risk-adjusted levies that banks in the Banking Union pay in advance into the Single Resolution Fund, raised each year so the Fund reaches its target level of at least 1% of covered deposits.Excluded liabilitiesExcluded liabilities are the categories of a bank's liabilities that can never be subjected to the bail-in tool, such as covered deposits and secured liabilities, which are protected from write-down or conversion in resolution.
F
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Going-concern loss absorptionGoing-concern loss absorption is the capacity of a bank's own funds to absorb losses while it continues to operate, supplied by common equity tier 1 and, more conditionally, additional tier 1 and tier 2 capital.Gone-concern loss absorptionGone-concern loss absorption is the capacity used once a bank has failed, to absorb losses and recapitalise it in resolution through the write-down and conversion of own funds and MREL- or TLAC-eligible liabilities by bail-in.Government financial stabilisation toolsGovernment financial stabilisation tools are last-resort public support measures — a public equity injection or temporary public ownership — that a Member State may use in a resolution once at least 8% of total liabilities and own funds has been contributed through bail-in.Group recovery planA group recovery plan is a single recovery plan drawn up at the level of the ultimate parent for an entire banking group, setting out recovery options for the group as a whole and for its individual entities.G-SIIA G-SII — global systemically important institution — is the EU designation of a banking group on the FSB's global systemically important bank list, carrying an additional capital buffer and the TLAC minimum requirement.
H
I
Impediments to resolvabilityImpediments to resolvability are features of a bank's structure, operations, liabilities or arrangements that would prevent or hinder its feasible and credible resolution, and which the resolution authority can require the bank to remove.Independent valuerAn independent valuer is a person, independent of any public authority and of the institution concerned, appointed to carry out the valuations that underpin a resolution and determine which tool is used and how deeply creditors are affected.Intermediate EU parent undertaking (IPU)An intermediate EU parent undertaking is a single EU-established parent that a large third-country banking group with substantial EU operations must set up to sit above its EU subsidiaries, consolidating them under one entity subject to EU supervision.Internal MRELInternal MREL is the minimum requirement for own funds and eligible liabilities that subsidiaries which are not resolution entities must hold, typically issued to and held by their resolution entity, so losses can be passed up without resolving the subsidiary.Internal resolution team (IRT)An internal resolution team is a Single Resolution Board-led team, staffed jointly with the relevant national resolution authorities, that carries out resolution planning for a specific significant banking group.Intra-group financial support agreementAn intra-group financial support agreement is a voluntary, pre-authorised arrangement under which entities of a banking group may provide loans, guarantees or collateral to one another to address financial difficulty, before conditions for early intervention are met.
K
L
Least-cost principle (DGS)The least-cost principle caps a deposit guarantee scheme's contribution to resolution, or its use of funds for preventive or alternative measures, at the net amount the scheme would have paid out to covered depositors in normal insolvency.Leverage ratioThe leverage ratio is a non-risk-based capital measure comparing a bank's tier 1 capital to its total exposure, with a 3% minimum, acting as a backstop to the risk-weighted requirements.Liability Data Report (LDR)The Liability Data Report is the annual return through which banks under the Single Resolution Board's remit report the detailed composition of their liabilities, so that the authority can calibrate MREL and draw up resolution plans.Liquidation entityA liquidation entity is a group entity that is not a resolution entity and whose planned failure would be handled through normal insolvency proceedings rather than resolution, because no resolution action is envisaged for it.Liquidity coverage ratio (LCR)The liquidity coverage ratio requires a bank to hold enough high-quality liquid assets to cover its net cash outflows over a 30-day severe stress scenario, with a 100% minimum.Liquidity in resolutionLiquidity in resolution refers to the funding a bank needs to keep operating after it has been resolved, once losses are absorbed but confidence and market access may still be impaired, and to the arrangements that can provide that funding.
M
Macroprudential policyMacroprudential policy is the use of prudential instruments — chiefly capital buffers such as the countercyclical, systemic-risk and systemically-important-institution buffers — to limit risk to the financial system as a whole rather than to individual firms.Maximum distributable amount (MDA)The maximum distributable amount is the cap on a bank's discretionary distributions that applies automatically when it fails to meet its combined buffer requirement, restricting dividends, buybacks and Additional Tier 1 coupons.MoratoriumThe moratorium is the power to suspend a failing bank's payment and delivery obligations for up to two business days, buying the resolution authority time to complete a determination or prepare a resolution action.MRELMREL — the minimum requirement for own funds and eligible liabilities — is the buffer of capital and bail-inable debt every EU bank must maintain so that losses and recapitalisation in resolution fall on investors, not taxpayers.Multiple point of entry (MPE)Multiple point of entry is a group resolution strategy in which resolution powers are applied at more than one resolution entity, so that distinct parts of the group can be resolved separately, each with its own loss-absorbing capacity.
N
National resolution authorityA national resolution authority is the public administrative authority a Member State designates to apply resolution tools and powers to banks, working within the Single Resolution Mechanism for banking-union States.Net stable funding ratio (NSFR)The net stable funding ratio requires a bank to fund its assets and off-balance-sheet exposures with sufficient stable funding over a one-year horizon, with a 100% minimum.No creditor worse off (NCWO)No creditor worse off is the safeguard that no shareholder or creditor may bear greater losses in resolution than they would have borne had the bank been wound up in normal insolvency; any shortfall is compensated from the resolution fund.
O
Operational continuity in resolution (OCIR)Operational continuity in resolution refers to arrangements ensuring that the services, staff, systems and infrastructure supporting a bank's critical functions keep running through a resolution, so that stabilisation is not undermined by operational failure.Operational resilienceOperational resilience is a firm's ability to prevent, adapt to, respond to, recover from and learn from operational disruption, so that it can continue to deliver critical operations through severe events, including disruptions to people, processes, technology and third parties.Other systemically important institution (O-SII)An other systemically important institution (O-SII) is a bank designated by its national authority as systemically important at domestic or EU level, and is subject to an additional Common Equity Tier 1 capital buffer set for that reason.Overall capital requirement (OCR)The overall capital requirement is the sum of a bank's Pillar 1 minimum own funds requirement, its Pillar 2 requirement and its combined buffer requirement — the total binding capital a bank must hold under the supervisory framework.Own fundsOwn funds are a bank's regulatory capital, comprising Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments, that absorb losses and support the minimum capital and MREL requirements.
P
Partial property transferA partial property transfer is a resolution action moving only some of a bank's assets, rights or liabilities, rather than the whole entity, to a purchaser or bridge institution. It triggers safeguards protecting netting, secured and structured-finance arrangements.Pillar 2 guidance (P2G)Pillar 2 guidance is a non-binding, bank-specific capital expectation set by the supervisor through the SREP, sitting above the Pillar 2 requirement and the combined buffer to absorb stress-test losses.Pillar 2 requirement (P2R)The Pillar 2 requirement is a binding, bank-specific own funds add-on set by the supervisor through the SREP to cover risks not fully captured by the Pillar 1 minimum.Point of non-viability (PONV)The point of non-viability is the moment at which an authority determines a bank is no longer viable, triggering the mandatory write-down or conversion of its capital instruments and eligible liabilities.Precautionary recapitalisationPrecautionary recapitalisation is a temporary, precautionary injection of public capital into a solvent bank to address a capital shortfall revealed by a stress test, permitted without triggering a failing-or-likely-to-fail determination.Public interest assessmentThe public interest assessment is the resolution authority's judgement on whether resolving a failing bank is necessary to protect critical functions, financial stability or public funds — or whether normal insolvency proceedings suffice.
Q
R
Recognition of third-country resolution proceedingsRecognition of third-country resolution proceedings is the mechanism by which EU authorities give effect to, or refuse, a resolution action taken by a non-EU authority, so far as it affects entities, assets or liabilities in the Union.Recovery indicatorsRecovery indicators are the qualitative and quantitative measures, spanning capital, liquidity, profitability and market-based signals, that a recovery plan must specify to identify when the institution should consider taking the recovery options set out in the plan.Recovery planA recovery plan is a document prepared by an institution setting out the measures it would take to restore its financial position after a significant deterioration, without recourse to public support or resolution.ResolutionResolution is the orderly restructuring of a failing bank by a public authority using statutory tools — instead of normal insolvency — to preserve its critical functions, protect financial stability and impose losses on shareholders and creditors.Resolution collegeA resolution college is the standing body that brings together the group-level and host resolution authorities of a cross-border banking group to coordinate resolution planning, resolvability assessment and joint decisions.Resolution entityA resolution entity is the company within a banking group at which resolution tools would be applied under the group's resolution plan — the entity that issues external MREL and defines its resolution group.Resolution financing arrangementsResolution financing arrangements are the pre-funded resolution funds, financed by industry contributions, that authorities can draw on to support a resolution once shareholders and creditors have absorbed losses, subject to strict conditions.Resolution groupA resolution group comprises a resolution entity together with its subsidiaries that are not themselves resolution entities and do not belong to another resolution group. It is the perimeter to which a single resolution action applies.Resolution objectivesThe resolution objectives are the five statutory aims that guide every resolution action: continuity of critical functions, financial stability, protection of public funds, protection of covered depositors, and protection of client funds and assets.Resolution perimeterThe resolution perimeter is the boundary of legal entities and activities within a banking group that a single resolution action would cover, as distinct from those left to normal insolvency or wind-down.Resolution planA resolution plan is the authority-owned playbook for a bank's failure: the preferred resolution strategy, the tools to apply, the MREL needed to execute them, and the analysis of impediments to resolvability — updated at least annually.Resolution strategyA resolution strategy is the authority's chosen approach for resolving a bank or group if it fails, specifying which entity or entities would enter resolution, which tools would be applied, and how critical functions would be maintained.Resolution weekendA resolution weekend is the short operational window, typically between a Friday close and a Monday reopening while markets are shut, over which authorities execute a resolution from the failing-or-likely-to-fail determination to reopening.Resolvability assessmentA resolvability assessment is the resolution authority's evaluation of whether a bank can feasibly and credibly be liquidated under normal insolvency or resolved, without significant adverse effects on financial stability and while protecting critical functions and public funds.Resolvability testingResolvability testing is the structured exercising of a bank's resolution capabilities, through dry-runs, simulations and deep-dives, to verify that the plans, data and operational arrangements needed to execute a resolution strategy would work in practice rather than only on paper.
S
Sale of business toolThe sale of business tool lets a resolution authority transfer some or all of a failing bank's shares, assets and liabilities to a private purchaser without shareholder consent — the tool behind every completed European resolution to date.Secured liabilitiesSecured liabilities are obligations of a bank backed by collateral, such as covered bonds and repurchase agreements. They are excluded from bail-in to the extent of that collateral, so only the uncollateralised excess can be written down or converted.Senior non-preferred debtSenior non-preferred debt is a statutory class of unsecured bank debt that ranks below ordinary senior liabilities but above subordinated instruments — created in 2017 so banks can meet subordinated MREL requirements without disturbing existing creditors.Senior preferred debtSenior preferred debt is ordinary unsecured senior debt that ranks above senior non-preferred instruments and pari passu with general senior liabilities, and is bailed in only after subordinated and non-preferred claims are exhausted.SeparabilitySeparability is a bank's capacity to have parts of its business, such as portfolios, business lines or subsidiaries, cleanly separated and transferred or wound down in resolution without disrupting critical functions.Set-offSet-off is the discharge of mutual claims between two parties by applying one against the other, so that only the net balance remains owed. Resolution transfers must not defeat protected set-off and netting rights.Significant institutionA significant institution is a bank in the Banking Union that the European Central Bank supervises directly under the Single Supervisory Mechanism, because it meets size, economic-importance or cross-border criteria set in the SSM Regulation.Simplified obligationsSimplified obligations are reduced recovery- and resolution-planning requirements that competent and resolution authorities may apply to institutions whose failure would not have a significant negative effect on financial markets, other institutions or funding conditions.Single customer viewA single customer view is the aggregated, standardised record of each depositor's eligible deposits held by a bank, which allows a deposit guarantee scheme to calculate and repay covered amounts within the deadline set by the Deposit Guarantee Schemes Directive.Single point of entry (SPE)Single point of entry is a group resolution strategy in which resolution powers are applied at one top-level resolution entity, which absorbs group losses and recapitalises its subsidiaries, keeping operating entities open and out of resolution.Single Resolution Board (SRB)The Single Resolution Board is the central resolution authority for the banking union, responsible for resolution planning and resolution decisions for the largest and cross-border banks and for managing the Single Resolution Fund.Single Resolution FundThe Single Resolution Fund is the banking union's industry-financed resolution fund, built from bank contributions and controlled by the SRB. It may support a resolution only after shareholders and creditors have absorbed losses of at least 8% of total liabilities.Single Resolution Mechanism Regulation (SRMR)The SRMR is the EU regulation that establishes the Single Resolution Mechanism and the Single Resolution Board, centralising resolution decisions and funding for banks in the banking union.Single Resolution Mechanism (SRM)The Single Resolution Mechanism is the centralised system for resolving failing banks in the banking union, pairing the Single Resolution Board with national resolution authorities and financed by the Single Resolution Fund.Single Supervisory Mechanism (SSM)The Single Supervisory Mechanism is the system of banking supervision in the Banking Union, comprising the European Central Bank and national competent authorities, under which the ECB directly supervises significant institutions and oversees the framework as a whole.SRB Expectations for BanksThe Expectations for Banks is a Single Resolution Board policy document, published in 2020 and phased in through end-2023, that sets out the capabilities a bank must build across seven dimensions to be considered resolvable. It is guidance, not legislation.Stacking order of capital requirementsThe stacking order is the sequence in which a bank's common equity tier 1 is allocated across Pillar 1, the Pillar 2 requirement, the combined buffer and Pillar 2 guidance, fixing when a buffer breach restricts distributions.Structural subordinationStructural subordination is the ranking effect by which creditors of a holding company sit behind creditors of its operating subsidiaries, because the holding company's claim on subsidiary assets is only the residual equity after subsidiary creditors are paid.Subordinated debtSubordinated debt is debt that ranks below a bank's ordinary unsecured, or senior, claims in insolvency, so it absorbs losses ahead of senior creditors. Tier 2 capital is its most common regulatory form.Subordination requirementA subordination requirement is the part of MREL that a resolution authority requires to be met with own funds and liabilities ranking below excluded liabilities in the creditor hierarchy.Supervisory Review and Evaluation Process (SREP)The SREP is the annual supervisory assessment of a bank's risks, governance and capital and liquidity adequacy, through which the supervisor sets bank-specific Pillar 2 requirements and guidance.Systemic risk buffer (SyRB)The systemic risk buffer is a common equity tier 1 buffer that macroprudential authorities may impose to address structural or sectoral systemic risks not captured by other requirements, applied to some or all exposures and institutions.
T
Temporary stay on early termination rightsA temporary stay is a resolution authority's power to suspend, for a short period, counterparties' rights to terminate, accelerate or close out contracts with an institution under resolution, preventing disorderly unwinding of positions.Third-party risk management (TPRM)Third-party risk management is the discipline of identifying, assessing and controlling a bank's dependence on external providers, including ICT services and outsourced functions, so that reliance on those providers does not compromise safe operation or orderly resolution.Tier 2 (T2)Tier 2 instruments are subordinated bank debt with an original maturity of at least five years that counts as gone-concern regulatory capital, absorbing losses after Additional Tier 1 but before senior classes.TLACTLAC — total loss-absorbing capacity — is the FSB's minimum standard of capital and bail-inable debt for global systemically important banks, implemented in the EU through the Capital Requirements Regulation.Too big to failToo big to fail describes institutions so large, interconnected or complex that authorities feel compelled to rescue them rather than let them fail, creating moral hazard. Ending this implicit subsidy is the central purpose of the resolution framework.Total capital ratioThe total capital ratio is a bank's total own funds as a percentage of its total risk exposure amount. The CRR sets a minimum of 8%, met with common equity tier 1, additional tier 1 and tier 2 capital.Total risk exposure amount (TREA)The total risk exposure amount is the sum of a bank's risk-weighted exposures for credit, market, operational and other risks. It is the denominator against which capital and MREL ratios are expressed.Total SREP capital requirement (TSCR)The total SREP capital requirement is the sum of a bank's Pillar 1 minimum own funds requirement and its binding Pillar 2 requirement; adding the combined buffer requirement gives the overall capital requirement.