BRRD – EBA Publishes Guidelines on definition of “failing” or “likely to fail”

On 26 May 2015 the European Banking Authority (the “EBA”) published its final guidelines (the “Guidelines”) in relation to the different circumstances in which an institution will be considered as “failing” or “likely to fail” under Article 32(6) of the Bank Recovery and Resolution Directive (the “BRRD”). The issuing of the Guidelines is in line with the idea of promoting the convergence of supervisory and resolution practices throughout the EU in particular in relation to how a “resolution” of an institution should be triggered off. The Guidelines list all the objective elements for determining whether, and when, an institution is failing or likely to fail.

The determination that an institution is failing or likely to fail constitutes one of the three cumulative conditions determining whether resolution authorities should take resolution actions and is also one of two cumulative conditions determining that an institution is no longer viable and that resolution authorities shall exercise the write down or conversion power. While the BRRD provides a general description of the circumstances in which an institution shall be deemed to be failing or likely to fail, the Guidelines further specify those circumstances in order to ensure a consistent approach to triggering resolution, especially in the context of cross-border groups. While the determination that an institution is failing or likely to fail remains the discretionary assessment of the relevant authority, the Guidelines set forth broad elements on the basis of which this judgment should be based.

The Guidelines will apply from 1 January 2016 and can be found here.