An analysis of the bank recovery and resolution directive and its impact on the local banking industry

Abstract

The financial crisis that commenced in the fall of 2007 has shown that many banks and financial institutions were considered to be “too big to fail” and thus had to be bailed out by using public funds. These bank failures have shown that there were a number of shortcomings in the tools that were available to the authorities to tackle such high-profile failures, especially systemic and cross-border banks. The Bank Recovery and Resolution Directive aims to mitigate the possibility of having such a catastrophe in order to ensure that there is long term financial stability throughout the whole European Union, and to reduce the potential costs of public bailouts. This dissertation will analyse the reasons that led to proposing this Directive, and also to assess to tools and mechanisms that are imposed by the BRRD. The Banking Union, Single Supervisory Mechanism (SSM), Single Resolution Mechanism (SRM) will be assessed due their relation with the BRRD. Particular focus is given to the Maltese Banking sector and how these new regulations impact the Maltese banks. Due to being part of the European Economic Area (EEA) and one of the countries using the Euro, Malta is obliged to follow these mechanisms and adopt these regulations. In order to conduct this research, the wording of the Directive is analysed in order to get a better understanding of what it entails. Furthermore, the impact of this Directive on Malta is studied by interviewing officials that work with the local regulator (the MFSA) and also other local practitioners to ensure that the reader is provided with a holistic view about the implications that are implied by the new Directive.