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Under Single Resolution Mechanism, EU banks get bail-in

Paul Hodgson | February 24, 2016

The new European Single Resolution Mechanism (SRM), intended to rescue failing banks, has received further implementation. The SRM was designed as part of a larger initiative adopted by the European Union after the financial crisis to guarantee the stability of financial institutions and banks. This initiative, known as the Bank Recovery and Resolution Drive (BRRD), was adopted in Spring 2014 and was intended to be introduced across all member states on 1 January 2015.

Under the BRRD, banks are required to prepare recovery plans, and national and EU-level authorities have powers to intervene to prevent a bank from failing and to restructure them if they do fail, allocating losses to shareholders and creditors in a defined hierarchy. This restructuring is known as the ‘bail-in” mechanism. It is this mechanism that the SRM has finally implemented. The BRRD mandates that 8 percent of a bank’s total liabilities must be wiped out before any taxpayer support can be provided. The...

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