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Financial Services Law Insights and Observations

European Bank Resolution Proposal Released

Systemic Risk Bank Resolution

Federal Issues

On June 6, the European Commission released a proposal to establish common rules for EU member country banking regulators to follow when faced with failing banks. The rules are meant to provide a more standard regulatory structure and approach to help reduce the impact of bank failures, improve market stability, and limit taxpayer risk. To achieve these goals, the Commission’s proposal would allow banks that do not pose a systemic risk to fail. Further, the proposal would shift the burden of restructuring costs for a systemically important troubled bank to its shareholders, creditors, and any employees responsible for mismanagement. Public authorities would be given new powers to (i) intervene earlier, (ii) establish in advance bank resolution plans, (iii) assume control of a failing bank if early intervention fails, and (iv) better coordinate cross-border issues raised by a failing bank. Banks, for their part, would be required to put in to place recovery plans and take certain actions if capital reserves fall below a set level, among other things. The proposals must first be considered and approved by the European Parliament and Council, and would take effect in 2018.