European Commission Proposes Measures to Avoid Future Bank Bailouts

On 6 June, the European Commission published a legislative proposal for a Directive designed to avoid future taxpayer bailouts of troubled banks. The proposals aim to ensure authorities will have the means to intervene decisively before problems occur, or if they do occur, to intervene as early as possible. Banks that have deteriorated beyond repair would be partly rescued by unsecured creditors rather than taxpayers. Legislative Proposal.

The proposals include:

  • Preparatory and preventative measures – including recovery plans, resolution plans, powers to address or remove resolvability impediments and intra-group support agreements;
  • Early supervisory intervention;
  • Resolution tools – including selling all or part of a failing firm to another firm, separating “good” assets into a new firm, putting “bad assets” into an asset management vehicle and a “bail-in” tool which involves a firm being recapitalised with creditors having their claims reduced or converted to shares; and
  • Enhanced co-operation between national authorities.

The European Commission intends Member States to finalise their implementing measures for the proposed Directive by 31 December 2014 and apply the measures from 1 January 2015. The bail-in tool should be applied from 1 January 2018. A Law-360 article, with comments from Orrick’s Partner Sam Millar, a regulatory partner in the London office, can be found here.