The Council of the EU on 27 January 2026 adopted its first-reading position (general approach) on a proposed directive to reform the Bank Recovery and Resolution Directive (BRRD), aiming to make resolution a more usable tool, particularly for small and medium-sized banks. The position, which establishes the Council's formal negotiating mandate for trilogue talks with the European Parliament, seeks to reduce reliance on taxpayer-funded bailouts and uncoordinated national measures by enhancing the credibility and applicability of the EU's industry-funded resolution framework.
Enhancing Resolution Usability
The Council's position introduces key amendments to address the underuse of the current framework, which has often led to uncoordinated national measures and taxpayer-funded bailouts. Reforms aim to ensure resolution can be applied whenever in the public interest, including for deposit-funded institutions with limited other bail-inable liabilities. This is intended to make resolution a more credible and frequently used tool, decreasing financial fragmentation and managing bank failures more consistently across the Single Market.
Revising Early Intervention and Streamlining Planning
The position proposes simplifying and specifying triggers for early intervention measures, such as appointing temporary administrators, to allow authorities to act sooner. It introduces qualitative triggers (e.g., reputational, AML risks) alongside quantitative ones and removes measures overlapping with general prudential powers to improve legal certainty. Additionally, it allows for a more proportionate approach to resolution planning for subsidiaries based on their size, risk, and systemic importance, and clarifies that resolution plans are not required for entities in orderly wind-down or for residual entities post-resolution.
Clarifying Powers and Procedures
The Council's position aligns information submission procedures for resolution planning with those for the Minimum Requirement for own funds and Eligible Liabilities (MREL). It clarifies rules for resolution authorities to prohibit distributions, such as dividends, when an institution fails to meet MREL. Furthermore, it amends the public procurement directive (2014/24/EU) to facilitate the swift hiring of independent valuers in resolution scenarios.
Impact on Stakeholders
The reforms are expected to significantly impact EU regulatory bodies, national resolution authorities, and banks, particularly smaller institutions. For EU regulatory bodies, the framework provides clearer tools and procedures, potentially increasing their effectiveness. National authorities will gain more discretion and clearer triggers for intervention, but may face implementation costs. Small and medium-sized banks will benefit from more proportionate resolution planning, reducing administrative burden, but may face earlier intervention and restrictions on distributions. Larger banks are less directly affected but may see more consistent resolution practices across the EU.
Legislative Next Steps
The Council's position enables it to enter trilogue negotiations with the European Parliament, moving the file closer to final adoption. The position reflects a compromise among member states, balancing the need for a more effective framework with national supervisory discretion. If adopted, the directive will require member states to transpose the revised rules, leading to more harmonised practices among national resolution authorities and altering the incentives for managing failing banks, particularly smaller ones.