Banking resolution: BRRD on the run
Even its main architects admit that Europe’s banking resolution directive is fundamentally flawed – and they are in a desperate race to fix its failure to deal with funding and liquidity crises before the next bank collapse occurs.
"Everybody has a plan until he gets punched in the mouth.”
Jaime Ponce, president of Spain’s Executive Resolution Authority (FROB), may have been quoting former boxer Mike Tyson when he made this observation recently, but he has some experience of being blind sided by events.
Ponce took over at FROB in 2015, so was in the hot seat for the first and so-far only implementation of Europe’s Bank Resolution and Recovery Directive (BRRD) – the resolution and sale of Banco Popular to Banco Santander for €1 in 2017. As such, he was given a sobering demonstration of just how important funding in resolution is and just how ineffective Europe’s resolution framework is at guaranteeing it.
The resolution of Banco Popular was the consequence of a fast and vicious run on the bank, not a lack of capital.
“When Banco Popular happened, the regulators were surprised by the scale of the liquidity outflows,” Marco Troiano, executive director, financial institutions at Scope Ratings tells Euromoney.