Regulatory developments in bank solvency, recovery and resolvability

Abstract

Most of the amendments to prudential and resolution legislation introduced in the European Union (EU) in 2019 have already been implemented for credit institutions over the course of 2021. These include a broad set of measures aimed at reducing risks in the banking sector, boosting its strength and progressing towards the completion of the Banking Union. These risk mitigation measures give continuity to the substantial change in prudential rules carried out in 2013 in response to the shortcomings identified in the financial sector in the wake of the financial crisis and which prompted the adoption of the Basel III framework in the EU. They also give continuity to the resolution framework introduced in 2014 to ensure the orderly resolution of non-viable banks, minimising the repercussions of banking crises on the real economy, taxpayers and depositors. The fresh revision of European rules here at hand aims to make progress in the pass-through to European regulations of the internationally agreed reforms. It also aims to change certain aspects in light of the experience accumulated and the inefficiencies detected in the years during which the previous regulations were applied. This article reviews the most salient prudential and resolution measures introduced, presents some reforms that have already been rolled out and describes certain aspects that have not yet been addressed.