The Concept of Recovery of Credit Institutions in the Bank Recovery and Resolution Directive

Abstract

New regulations, obligations for credit institutions, and powers for authorities were created by the Bank Recovery and Resolution Directive (BRRD). While resolution of a credit institution is clearly defined, it is less clear whether recovery of a credit institution could and should be treated as a separate concept under the BRRD; which elements it encompasses; and how these elements enhance and are linked with the pre-existing prudential regulation, processes, and tools. The problem is that if recovery is to be deemed a differentiable concept, specific legal rules and principles could be applicable that are separate from the prudential or the resolution framework – whether existing ones or other, easily developed rules and principles. This is particularly crucial when authorities exercise powers related to recovery, because following appropriate rules and principles has a direct connection with state liability.

In consideration of these issues, the article presents several important conclusions: Firstly, recovery in the sense applied in the BRRD can be distinguished from both the prudential framework and the concept of resolution, on the basis of function; the concept of recovery can be considered to consist of recovery planning, early intervention measures, and two measures of further intervention that can be employed. Some early intervention measures are recovery-specific and broaden the supervisory powers significantly, while others do not and show overlap with supervisory powers derived from the prudential framework. Recovery planning and exercising early intervention measures can take place in parallel with processes connected with the prudential framework while nonetheless maintaining recovery as a usefully separate concept.