What if... your bank fails? Recent European developments in the field of bank insolvency law
Do you have a bank account? If so your position can suddenly change significantly as from next year. By the end of 2014, a large part of the rules of the Bank Recovery and Resolution Directive have to be implemented by the European Member States.
Do you have a bank account? If so your position can suddenly change significantly as from next year. By the end of 2014, a large part of the rules of the Bank Recovery and Resolution Directive ('BRRD') have to be implemented by the European Member States.
The BRRD aims to establish a more harmonized European bank insolvency framework and equips national authorities with an expanded set of powers and tools to plan and manage the failure of a bank. When a bank is failing or is likely to fail, (some parts of) its business can be sold to another bank or can be transferred to a temporary institution controlled by the government. Moreover, to avoid resorting to public funds as much as possible, the costs of a recapitalization of the bank have to be borne by the creditors and the shareholders to a large extent. Authorities can reduce (even to zero), cancel and convert your claim on or share in a failing bank. Deposits at the bank up to €100,000 are in principle excluded from the scope of this so-called bail-in tool, though.
The developments continue. From January 2016 onwards, decisions about the restructuring of significant banks in the Euro Area and in other participating Member States, will not be taken on a national level anymore, but by one agency on a European level. In the Netherlands, inter alia, ABN AMRO Bank, ING Bank, Rabobank and SNS Bank are among these banks which are considered to be significant. The agency, i.e. the Single Resolution Board, has to ensure the unified application of the BRRD tools and powers just referred to. The measures will finally be implemented by the national authorities. Moreover, in its decisions the Board can require contributions from a common fund, which contains ex-ante contributions of all banks in the participating Member States. Yet before this can be considered a large part of the losses of the failing bank have to be borne by the creditors and shareholders first.
At the moment of writing, all Member States in the European Union are developing legislation to implement the BRRD. Yet there will be even more future developments in the field of European bank insolvency law. Since 1994 European Member States are required to provide for a national scheme that guarantees money deposited in a bank account up to a certain amount in case the bank fails. Although these so-called deposit guarantee schemes have been further harmonized in the European Union throughout the last two decades, according to many studies and reports a single pan-European deposit guarantee scheme should be the next step in the field of depositor protection and should complement the current European bank insolvency framework. Will your deposit in the future be guaranteed by the same deposit insurance fund as the deposits of our German neighbours?
The question ‘What is the effect of the strengthened and expanded European bank insolvency regime on the interests of, inter alia, creditors and shareholders of banks on a national level?’ is one of the questions that will be addressed in the workshop ‘The financial crisis and the impact of Europe on national parliamentary and stakeholder interests’ at Leiden Law School’s ILS Conference ‘Room for reflection’ in January 2015.