Failing or likely to fail: time for a normative reconsideration?
Abstract
The Bank Recovery and Resolution Directive sets out three peremptory condition to initiate resolution. The first condition, namely “failing or likely to fail”, covers critical importance because should ascertains the point of non-viability of the banking business which justifies resolution action. This paper analyses the use of this trigger in the recent bank resolution cases and argues that the broad drafting of the provision creates a state of destructive ambiguity which creates confusion and causes clash with the framework set out for emergency liquidity assistance and precautionary recapitalization, produces legal uncertainty, raises regulatory arbitrage and entails further unnecessary financing costs for the entities supervised. Most importantly, it brings about the risk of unjustified impairment of creditors’ and debtors’ rights and reputational damage for supervisors.
