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First published online: 09 June 2021 ; The role of deposit guarantee schemes is pivotal in banking crises. This role, however, should not be limited to only performing the so-called pay-box function. While this is deposit guarantee schemes' core function, and, as such, needs to be included in the safety net 'armoury' of every jurisdiction, optional interventions, both preventive measures and measures in the context of liquidation, can turn out to be more effective, from a system-wide perspective, to maintain financial stability and to reduce the destruction of value potentially resulting from an atomistic liquidation. Accordingly, the implementation of these measures by deposit guarantee schemes should not be hindered, but rather facilitated by the legal framework. Each European Union Member State should be encouraged (indeed required) to transpose in its domestic regime the provisions of the Deposit Guarantee Schemes Directive which deal with deposit guarantee schemes' alternative measures, thereby paving the way for a new bank crisis management paradigm. Nonetheless, a number of legal obstacles arising from the application of state aid rules and from the extension of the depositor preference rule in the liquidation process to deposit guarantee schemes, combined with a narrow reading of the least cost principle, need to be removed in order for deposit guarantee schemes to be able to successfully carry out optional interventions.

AbstractEven though the bail-in tool is potentially helpful in resolving banks in crisis, it may still create the same issues that resolution is meant to prevent and/or avoid, namely contagion, financial instability and also systemic risk. Recent cases of bank restructuring have demonstrated that there are situations in which the use of the bail-in tool could end up being dangerous for the stability of the financial system. Obviously in such cases, the write down and/or conversion into equity of the bank's liabilities must be avoided. At the same time, however, the disapplication of bail-in makes the provision of external resources necessary to rescue effectively the bank in crisis.The EU legislator was aware of these potential issues and for this reason introduced a number of rules allowing, in certain situations, both the disapplication of the bail-in tool and the provision of external financing. Nevertheless, when the provision of external financing comes from the Member States, it has to comply with the rules of the State aid framework set by the Treaty on the Functioning of the European Union (TFEU) and applied by the European Commission. In this article, it is argued that despite the strict rules on State aid, there is still room to manage even difficult banking crisis situations in which the application of the bail-in tool could be counterproductive and therefore public intervention should take place through the so-called precautionary recapitalisation instead. However, in this regard, it is crucially important that the authorities intervene before the bank in trouble 'crosses the line' of insolvency, as some recent cases of Greek and Italian banks have demonstrated.

Abstract

936The three financial appeal bodies established in the EU (Board of Appeal of the European Supervisory Authorities, Administrative Board of Review of the SSM, and Appeal Panel of the Single Resolution Board) have certainly a number of advantages. Particularly, their technical expertise in matters of financial supervision and resolution makes them well placed to understand the intricacies, complexities and reactions of financial markets. The members of these bodies are individuals of high repute, with a proven record of relevant knowledge and professional experience and are not bound by any instructions, thereby acting independently and in the public interest. Yet, there are also drawbacks as the nature of these financial appeal bodies is hybrid, quasi-judicial, combining features from both advisory committees and courts of justice. Also, the legal regime applicable to these financial appeal bodies is both complex and not uniform. The rationale of the new European financial regulatory regime post GFC, which prompted the creation of the appeal bodies, resides in the primacy of financial stability and public interest considerations. Although there is no doubt that administrative decisions need to be motivated if they are to be reviewed, most of such decisions in the area of banking and finance are very complex and yet timing is crucial for them to be effective. On these grounds, legitimacy and accountability are of utmost importance for any democratic system to properly function; however, the more complex the activity, the more difficult it is to establish clear standards of conduct and specific outcomes.937