The EU Council has adopted its position on the reform of the banking crisis management framework, aiming to make the orderly resolution of small and medium-sized banks more practicable. The Council's position, published on 3 May 2026 and adopted on 27 January 2026, allows the use of deposit guarantee scheme (DGS) funds under strict conditions when a bank's own resources are insufficient, reinforcing a funding hierarchy that prioritises loss-absorption by shareholders and creditors before any exceptional DGS funding, with the Single Resolution Fund treated as a last resort. This reform is part of the broader Crisis Management and Deposit Insurance (CMDI) review package.
Reinforcing the funding hierarchy
The Council's position amends Regulation (EU) No 806/2014 (the Single Resolution Mechanism Regulation or SRMR) and related directives (BRRD, DGSD). It introduces a strict funding cascade: shareholders and creditors must absorb losses first; only if their resources are exhausted may DGS funds be used, and only under exceptional circumstances. The Single Resolution Fund remains a last-resort backstop. This approach aims to minimise taxpayer exposure while providing a more flexible tool for resolving smaller banks that often lack the critical mass for a full bail-in.
Impact on stakeholders
For small and medium-sized banks, the reform reduces the likelihood of liquidation by offering a resolution path that can tap DGS funds, potentially lowering resolution costs and preserving financial stability. However, shareholders and junior creditors face a clearer risk of loss absorption, which may increase their funding costs. Deposit guarantee schemes, typically funded by the banking sector, may see increased exposure, though the strict conditions limit this risk. EU taxpayers are protected by the reinforced hierarchy, as public funds are only used as a last resort. The Single Resolution Board gains a more flexible toolkit but must ensure strict adherence to the new conditions.
Expected institutional follow-up
The Council's position will now be negotiated with the European Parliament, which is expected to adopt its own stance in the coming months. The final text will require approval from both institutions before entering into force. The reform is part of the EU's ongoing efforts to complete the Banking Union and enhance financial stability.