The European Commission has published an agenda which, inter alia, states that it will present its legislative initiative for a new European framework for bank recovery and resolution on 6 June 2012. Agenda.

According to the agenda, key elements of the proposal are:

– The framework will primarily be based on preventing and reducing the risk of failure. The powers of the European supervisory authorities (ESAs) will be expanded so that they can intervene at an early stage before problems in a bank become critical and its financial situation deteriorates irreparably.

– The proposal will ensure that national authorities and the European Banking Authority (EBA) have the appropriate co-ordination tools to ensure coherent procedures. This is particularly important in the context of cross-border banking groups.

– The framework will provide for credible resolution tools when a bank is no longer viable and allowing it to go bankrupt would be disruptive for essential financial services and overall stability. These tools will include bail-in measures (the power to convert or write down the debt of failing banks).

– To be effective, sufficient funds should be available to finance resolution, for example to issue guarantees or provide short term loans to help a newly set up bridge bank to operate. Such funds would only serve to ensure the continuity of critical functions and not to bail out troubled institutions.