This paper defined critical banking functions and considers whether there is a need for further legal/regulatory clarification if liquidation is the default option for failing banks. It relied on EU law and soft law principles (FSB) bearing in mind that ‘liquidation’ is at times a loosely defined concept. Despite efforts to agree upon a set of qualitative and quantitative criteria to assess the critical nature, or lack thereof, of relevant functions, it argues that simplification is needed. Given the discretionary element in the determination of public interest and critical functions and the existence of different legal sources with different purposes, it recommends a consistent application of the resolution rules to build up credibility in the Banking Union project, considering in particular the differential treatment by the competent resolution authorities in recent Spanish and Italian liquidation and resolution cases.
This project was awarded under the Framework Service Contract for the provision of external expertise in the field of banking resolution (IP/A/ECON-BU/FWC/2015-057/LOT2) with the European Parliament. The full list of CEPS’ Framework Contracts is available here.