Bail-in in the Banking Union

Publishers Abstract:
On 1 January 2016, the Single Resolution Mechanism as the second pillar of the EU’s Banking Union became fully operational. At the same moment, bail-in, i.e. the statutory power of resolution authorities to cancel shares and to write down or to convert liabilities of a bank which is failing or likely to fail, became mandatory in the EU.
This paper sets out the newly created regulatory framework on the recovery and resolution of banks in the EU, focusing on the main features of the EU’s rules on bail-in in the Banking Union. It examines the legal and economic impact of bail-in in general and highlights the various challenges for the application of bail-in. Finally, this paper assesses whether bail-in can attain the goals which it is meant to achieve and what it will take to make it effective.