On 26 June 2020, the European Banking Authority (EBA) published a discussion paper on the application of early intervention measures (EIMs) in the EU under the Bank Recovery and Resolution Directive (BRRD).
The first part of the discussion paper discusses the results of a survey on the application of the EIMs that the EBA conducted among member state competent authorities in H1 2019. This part of the discussion paper describes current supervisory practices in the area of EMIs. Its main goal is to present the experience gained in the application of EIMs and the EBA guidelines on early intervention triggers as well as to set out the background for the second part of the discussion paper which focuses on the key challenges faced by supervisors in the application of the current regulatory framework on the EIMs and various options of addressing them.
One of the key challenges faced by supervisors is the overlap between EMIs and other supervisory powers, as well as conditions for applying them. Article 28 and 29 BRRD can only be applied after Article 27 BRRD, whereas in some cases a temporary administrator assisting the board of an institution may actually be a more relevant and effective measure compared to the measures enlisted in Article 27 BRRD. According to national rules in one member state Article 104 Capital Requirements Directive IV has to be applied before appointing a temporary administrator or a trustee, and the competent authority must apply a certain sequence of powers (i.e. recommendations and in case the bank is failing to comply with them, also written warning notice) before using more strict tools, as per Article 29(1) BRRD. This makes the EIMs hard to apply in most cases as its process is very time‐consuming and does not cover the risk of further deterioration in the institution’s situation. Also, the EIMs listed in Article 27 BRRD are measures that are unlikely to result in an immediate improvement in the capital / liquidity position of an institution. Therefore the effectiveness of the measures are called into question.