Rescuing Failing Banks for Financial Stability: The Unintended Outcomes of Bail-in Rules

The regulatory architecture of the EU Bank Recovery and Resolution Directive(BRRD) and the Single Resolution Mechanism (SRM) introduced rules necessary to prevent financial instability and systemic risk contagion. However, the restructuring tools for failing banks, namely bail in,precautionary recapitalisation and resolving plans, are largely flexible to allow Member States to adopt domestic policy measures to rescue distressed institutions. This leaves broad discretion to national competent authorities to provide public financial support; a legacy of the bail-out programmes that can undermine the new EU bank insolvency regime.