Bank resolution

Bank resolution refers to the legal and operational process by which a designated public authority takes control of a failing or likely-to-fail bank and restructures, sells, or winds it down in a way that preserves critical functions (payments, deposits, lending) while imposing losses on shareholders and certain creditors rather than on taxpayers. It is distinct from ordinary corporate insolvency, which is generally considered too slow and disruptive for systemically important financial institutions.

The modern framework emerged after the 2007–2009 global financial crisis, when governments in the United States, United Kingdom, Ireland, and elsewhere injected public funds into banks deemed too big to fail. In response, the Financial Stability Board published the Key Attributes of Effective Resolution Regimes for Financial Institutions in 2011, which became the international benchmark. The United States codified resolution powers in Title II of the Dodd-Frank Act (2010), creating the Orderly Liquidation Authority administered by the FDIC. The European Union adopted the Bank Recovery and Resolution Directive (BRRD, Directive 2014/59/EU) and established the Single Resolution Board (SRB) and Single Resolution Fund within the Banking Union.

Standard resolution tools include:

• Bail-in: writing down or converting shareholders' equity and unsecured creditors' claims into new equity.
• Sale of business: transferring assets and liabilities to a private acquirer.
• Bridge institution: moving viable operations into a temporary publicly controlled entity.
• Asset separation: parking impaired assets in a bad bank vehicle.

Banks are required to maintain a minimum stock of loss-absorbing liabilities (TLAC for global systemically important banks under FSB standards; MREL under the BRRD) and to prepare living wills describing how they could be resolved.

Resolution remains contested in practice. Critics note that authorities have sometimes circumvented bail-in rules through state aid or emergency mergers, and that cross-border resolution of large groups raises unresolved jurisdictional conflicts.