The EU Council on 27 January 2026 adopted its position on a reform of the Bank Recovery and Resolution Directive (BRRD) and related legislation, aiming to make the orderly resolution of small and medium-sized banks more practicable. The key change allows national deposit guarantee schemes (DGS) to finance the resolution of smaller banks under strict conditions, when the bank's own loss-absorbing capacity is insufficient. The Council's position tightens the public interest assessment for resolution and caps DGS interventions to protect taxpayers and ensure private resources are used first.
Document context The document is a Statement of the Council's Reasons, adopted by the Council (Economic and Financial Affairs) under the Polish Presidency. It sets out the Council's negotiating mandate for trilogue discussions with the European Parliament. The reform amends Directive 2014/59/EU (BRRD) and Directive 2014/24/EU, and is part of the broader Banking Union agenda to complete the crisis management framework.
Policy orientations and trade-offs The Council's position introduces a calibrated approach: for smaller banks (typically with assets below €30 billion), resolution authorities may use DGS funds to bridge losses or provide liquidity, but only after shareholders and creditors have absorbed at least 8% of liabilities. This balances the need to avoid taxpayer bailouts with the practical difficulty of applying the full resolution toolkit to small lenders. The reform also clarifies the public interest assessment, making it harder to place a bank into resolution if its failure would not cause systemic disruption—potentially pushing more cases into national insolvency proceedings.
Impact on stakeholders - Small and medium-sized banks: Benefit from a more feasible resolution path, reducing the stigma and cost of failure. However, they face stricter conditions on DGS access and may need to hold more loss-absorbing instruments. - Deposit guarantee schemes: Gain a new role as resolution financiers, but with capped exposure and strict safeguards. This could increase their risk profile, potentially requiring higher ex-ante funding from member banks. - National resolution authorities: Receive clearer rules but must conduct more rigorous public interest assessments, requiring additional resources and expertise. - Taxpayers: Protected by the mandatory 8% bail-in and the cap on DGS interventions, reducing the likelihood of public funds being used.
Institutional follow-up The Council's position now enters trilogue negotiations with the European Parliament, which adopted its own amendments in 2025. The European Commission has signalled support for a swift agreement to finalise the reform before the end of the legislative term. The outcome will determine whether the Banking Union's crisis management framework becomes more proportionate for smaller banks while maintaining financial stability.
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