Critical functions and public interest in banking services: Need for clarification?

30-11-2017

Under the EU framework for dealing with banking problems, resolution is seen as an exception to be granted only if liquidation under national insolvency proceedings is not warranted. We look at the recent liquidation of two Italian banks to show how resolution and liquidation differ substantially when it comes to the scope of legislation applicable to the use of public funds. We argue that more clarity would be needed as to the role that the concepts of critical functions and public interest play in Member States’ decision to grant liquidation aid, and that the two-tier system – in which resolution is done at the EU level but insolvency remains a national prerogative – raises issues in the context of Banking Union.

Under the EU framework for dealing with banking problems, resolution is seen as an exception to be granted only if liquidation under national insolvency proceedings is not warranted. We look at the recent liquidation of two Italian banks to show how resolution and liquidation differ substantially when it comes to the scope of legislation applicable to the use of public funds. We argue that more clarity would be needed as to the role that the concepts of critical functions and public interest play in Member States’ decision to grant liquidation aid, and that the two-tier system – in which resolution is done at the EU level but insolvency remains a national prerogative – raises issues in the context of Banking Union.