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

Author:Märt Maarand
Märt Maarand
Doctoral student, University of Tartu
Head of risk and compliance, Pocopay AS
The Concept of Recovery of
Credit Institutions in the Bank
Recovery and Resolution
1. Introduction
The recovery and resolution framework created by the Bank Recovery and Resolution Directive (BRRD)*1
is in essence a nal safety net for failing credit institutions that gives the public authorities more powers to
intervene in such an institution’s operations to save it and, if needed, restructure that institution by force.
Correspondingly, the credit institutions themselves have been assigned further responsibilities. The name
of the BRRD suggests that it covers two sets of legal activities – both recovery and resolution of credit insti-
tutions. However, while resolution is clearly de ned in the BRRD’s Article 2(1)(1), the directive does not
de ne the concept of recovery. Therefore, it is not actually clear whether recovery could or should be treated
as a separate concept under the BRRD; whi ch elements it encompasses; and how these elements enhance
the pre-existing prudential regulation, processes and tools.
There have not been many pieces of research aimed at delineating recovery as a concept separate from
resolution and from what is addressed in prudential legislation. Therefore, this article highlights the asso-
ciated aims and objectives, along with the connections among them, the system they compose, and the
coherence of the relevant norms. Where suitable, it o ers comparison of the provisions considered with the
provisions of harmonised European Union (EU) prudential legislation.
The aim of this article is to distinguish the concept of recovery of credit institutions from resolution of
credit institutions and the pre-existing prudential framework. This is done by identifying and examining
the elements, as well as the powers provided to public authorities*2, that can be considered constituent to
the concept of recovery. The problem is that if recovery is to be deemed a di erentiable concept, some or
even all of the legal rules and principles applicable within the prudential or resolution framework might
not applicable in the context of recovery, and vice versa. There might be speci c legal principles applicable
only with regard to recovery, or, if not, these may be developed in the future. If powers connected with the
Directive //EU of the European Parliament and of the Council of  May  establishing a framework for the
recovery and resolution of credit institutions and investment rms [] OJ L /.
The legislation distinguishes between competent authorities, responsible for the prudential supervision, and resolution
authorities, responsible for resolution. These may, de facto, be the same authority on national level. See the BRRD’s Art. ()
(), Art. (), Art. (), and Recital ; Regulation (EU) No. / of the European Parliament and of the Council of
 June  on prudential requirements for credit institutions [] OJ L / (the Capital Requirements Regulation),
Art. ()().

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