La Direttiva di Recupero e Risoluzione delle Banche e il Bail-in: Implicazioni e Riflessioni
Document information
| Author | Andrea Zilio |
| instructor | Ch.mo Prof. Bruno Maria Parigi |
| School | Università degli Studi di Padova |
| Major | Economics and Finance |
| Document type | Master Thesis |
| Year of publication | 2017-2018 |
| Place | Padova |
| Language | Italian |
| Number of pages | 82 |
| Format | |
| Size | 1.85 MB |
- crisi finanziaria
- bail-in
- direttiva BRRD
Summary
I. Financial Crisis From Bail out to Bail in
The transition from bail-out to bail-in represents a significant shift in the approach to managing banking crises. The 2007-2008 financial crisis highlighted the inadequacies of traditional bail-out strategies, which often prioritized the stability of large financial institutions at the expense of taxpayers. The bail-out model, characterized by government interventions to recapitalize failing banks, has been criticized for creating moral hazard and perpetuating a cycle of dependency on public funds. In contrast, the bail-in mechanism aims to impose losses on bank creditors and shareholders, thereby reducing the burden on taxpayers. This shift is encapsulated in the Bank Recovery and Resolution Directive (BRRD), which establishes a framework for resolving failing banks without resorting to public funds. The BRRD emphasizes the need for a coordinated approach to bank resolution across the European Union, addressing the systemic risks posed by interconnected financial institutions. The effectiveness of the bail-in approach, however, remains a topic of debate, particularly regarding its implementation and the potential for market disruptions. As the document notes, 'the real question...is whether and when a full bail-in will be put in action.'
1.2 Bail in Challenges
Despite the theoretical advantages of the bail-in approach, several challenges hinder its practical application. One significant concern is the potential for market instability during the implementation of bail-in measures. The document notes that 'the management of recent bank crises raised questions about the EU credibility to impose private losses without demanding a sacrifice to the public.' This highlights the delicate balance policymakers must strike between ensuring financial stability and maintaining public trust. Additionally, the complexity of the bail-in framework can lead to confusion among stakeholders, particularly regarding the hierarchy of claims and the treatment of different types of creditors. The BRRD aims to clarify these issues, yet the effectiveness of its provisions remains to be seen. The document emphasizes the need for robust communication and transparency to mitigate the risks associated with bail-in implementations, ensuring that all parties understand their rights and obligations.
II. The Bail in and Its Legal Framework
The legal framework surrounding the bail-in mechanism is primarily established by the Bank Recovery and Resolution Directive (BRRD). This directive provides a comprehensive set of rules for the resolution of failing banks, emphasizing the need for a coordinated approach across EU member states. The BRRD aims to ensure that banks can be resolved without resorting to public funds, thereby protecting taxpayers from the financial fallout of bank failures. The directive outlines the conditions under which a bail-in can be implemented, including the requirement for banks to maintain sufficient capital buffers to absorb losses. The document states that 'the Directive gives authorities and central banks further tools before the liquidation of a failing institution,' highlighting the proactive measures that can be taken to stabilize the financial system. The legal framework also addresses the treatment of different classes of creditors, ensuring that losses are distributed fairly and in accordance with established hierarchies. This aspect is crucial for maintaining market confidence and preventing panic during times of financial distress.
2.2 The Key Points of the Directive
The BRRD outlines several key points that are essential for understanding the bail-in framework. Firstly, the directive establishes the principle that shareholders and creditors should bear the losses of a failing bank before any public funds are used. This principle is fundamental to the bail-in approach, as it seeks to ensure that financial institutions are held accountable for their risks. Secondly, the BRRD mandates that banks maintain sufficient capital buffers to absorb potential losses, thereby reducing the likelihood of requiring public intervention. The document notes that 'the key points of the Directive' are crucial for ensuring that the bail-in mechanism operates effectively and transparently. Additionally, the BRRD provides guidelines for the resolution planning process, requiring banks to develop strategies for addressing potential failures. This forward-looking approach is vital for enhancing the overall stability of the banking sector.
Document reference
- The Bank Recovery and Resolution Directive and the Bail-in: Some Implications (Andrea Zilio)
- The European Stability Mechanism (ESM)
- BRRD (2014/59/EU)
- troubled asset relief program (TARP)
- Moody’s methodology