From Supervision to Resolution: Next Steps on the Road to European Banking Union

Special resolution regimes for banks and systemically important financial institutions are an attractive alternative to both insolvency and public bailouts and have a compelling track record. The European Council has outlined a policy sequence of three successive steps including the Single Supervisory Mechanism (SSM), the Bank Recovery and Resolution (BRR) Directive and the operational framework for direct recapitalizations, and the Single Resolution Mechanism (SRM). Implementing this sequence will involve a complex balancing of short-term, medium-term, and long-term objectives. The creation of the SRM will be a key milestone and should take place as early as possible.