Is the Bank-Sovereign Link Truly Severed? Bruges European Economic Policy Briefings 43/2016

Nicolaides, Phedon and O’Connor, Tony (2016) Is the Bank-Sovereign Link Truly Severed? Bruges European Economic Policy Briefings 43/2016. [Policy Paper]

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Abstract

This paper examines the degree to which the Banking Recovery and Resolution Directive and the Single Resolution Mechanism Regulation have severed the dependence of banks on sovereigns. We review the cases in which public aid has been granted to banks since the entry into force of the above legislation, as well as outlining the circumstances in which state shareholdings have been bailed-in. We conclude that the current rules on public assistance to banks need revision as they neglect the fact that for some banks the state is already a shareholder. To remedy this, we propose a revision of the Banking Recovery and Resolution Directive and the Single Resolution Mechanism Regulation whereby private shareholdings are bailed-in before public shareholdings, and where contributions by the national resolution funds or the Single Resolution fund are exhausted before state aid is granted.

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