Daisy chains: Council adopted a revised bank resolution framework

 F.P. Report

BRUSSELS: The Council adopted a regulation which strengthens the prudential regulatory framework for credit institutions operating in the Union. The ‘Daisy Chain’ regulation introduces targeted adjustments that improve the resolvability of banks. It helps to ensure that banks remain resilient and capable of withstanding shocks.

“As the economic fall-out of Russia’s aggression against Ukraine shows, it is of key importance to ensure the stability of the European financial sector. The new rules which we have adopted today will ensure that we have stable and resilient banks without imposing a significant increase in capital requirements on them. Even complex banking groups will be better prepared to withstand present and future shocks.”

Zbyněk Stanjura, Minister of Finance of Czechia

This revised Union bank resolution framework aims to better ensure that the loss absorption and recapitalisation of banks occurs through private means when those banks become financially unviable and are placed in resolution.

Background

On 28 October 2021 the Commission presented the ‘Daisy Chain’ proposal. It is part of the single rulebook of the Banking Union and amends the rules in the Capital Requirements Regulation and the Bank Recovery and Resolution Directive.

Regulation (EU) No 575/2013 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union.

This banking prudential framework is complemented by rules on the resolution of banks, i. e. the orderly exit of all or parts of a banking business to avoid the destructive impact of bankruptcies where relevant and possible. The last update to the banking resolution framework (‘BRRD2’) entered into force in 2019, but issues had later been identified, calling for additional fixes. The Daisy Chain proposal aims to address those issues.

The Council adopted its negotiating mandate on 21 December 2021. The European Parliament adopted its negotiating position in mid-February 2022. Trilogues between the co-legislators started on 31 March 2022 and ended in agreement on 28 April 2022. Today’s formal adoption of the regulation is the final step in the process.