BRRD

BRRD, or Bank Recovery and Resolution Directive, is a European Union directive establishing a comprehensive framework for the recovery and orderly resolution of banks to ensure financial stability and reduce taxpayers’ exposure to bank failures. It applies to credit institutions and, in many cases, investment firms within the EU and, where relevant, to cross-border groups. The directive covers two linked phases: early intervention and recovery planning by banks to restore viability, and resolution planning and execution when recovery fails.

Key tools include: internal recapitalization and restructuring under supervisory authority; sale of business, asset separation, or the creation of a bridge institution to maintain critical functions; and, as a central element, the bail-in of a bank’s creditors to absorb losses and recapitalize the institution rather than use public funding. BRRD also establishes mechanisms for cross-border cooperation, resolution authorities, and resolution funding.

Resolution funding is provided through the Single Resolution Fund, funded by the banking sector for participating member states, complemented by national resolution funds. The directive requires banks to meet a minimum requirement for own funds and eligible liabilities (MREL), ensuring resources are available to absorb losses and support an orderly resolution.

In 2019, BRRD II amended the framework to strengthen the resolvability of banks, expand the scope of eligible liabilities for bail-in, and clarify cross-border resolution arrangements. The directive works alongside the Single Resolution Mechanism (SRM) to coordinate resolution at the EU level, with the Single Resolution Board acting as the central resolution authority for participating Member States.