The European banking union's resolution framework is a significant achievement that has proved capable of managing idiosyncratic bank failures. However, certain features increase its complexity and undermine its efficiency compared with the frameworks of other major jurisdictions. These features include cumbersome decision-making procedures; detailed arrangements for coordination among authorities; granular and complex regulation, including rules on calibration of the minimum requirement for own funds and eligible liabilities (MREL); and a complicated interaction with insolvency regimes. Unnecessary complexity has costs for firms and authorities. This complexity does not result directly from shortcomings in the policy approaches pursued by authorities. Rather, it is mainly a consequence of singularities of the current legislative framework that affect not only the efficiency with which the single resolution mechanism (SRM) operates but also its ability to contribute to the objectives of the banking union. In other words, discussions about complexity, inefficiency and effectiveness are linked, and to achieve meaningful improvement the inefficiencies will need to be addressed by determined legislative action. This consideration is of direct relevance to the ongoing discussions about the scope for simplification of the European resolution framework.
JEL classification: G01, G18, G21, G33
Keywords: bank resolution, banking union, single resolution mechanism, simplification, efficiency, effectiveness, proportionality, MREL
