The Different Legal and Operational Structures of Banking Groups in the Euro Area, and their Impact on Banks’ Resolvability

29-11-2016

The legal and operational structures of banks matter for their resolvability. While resolution applies to legal entities, its success depends on the underlying logic and viability of bank business models. Moreover, to the extent that activities of a bank transcend borders, resolution is an affair for multiple national authorities. We categorise the largest euro-area banking groups according to their number of entities, cross-border assets and governance. We identify three main impediments to resolvability: complex structures, the broad definition of critical functions and provision of liquidity after resolution. We make recommendations to address these impediments. This paper was requested by the European Parliament under the supervision of its Economic Governance Support Unit.

The legal and operational structures of banks matter for their resolvability. While resolution applies to legal entities, its success depends on the underlying logic and viability of bank business models. Moreover, to the extent that activities of a bank transcend borders, resolution is an affair for multiple national authorities. We categorise the largest euro-area banking groups according to their number of entities, cross-border assets and governance. We identify three main impediments to resolvability: complex structures, the broad definition of critical functions and provision of liquidity after resolution. We make recommendations to address these impediments. This paper was requested by the European Parliament under the supervision of its Economic Governance Support Unit.