A bank resolution authority is the public body that has legal power to step in when a bank is failing and to deal with it in an orderly way: by selling it, transferring parts of it to a temporary bridge bank, imposing losses on its shareholders and creditors, or winding it down. Its purpose is to keep critical services such as deposits and payments running, protect financial stability and avoid using public money to rescue the bank.
Resolution authorities exist because ordinary corporate insolvency is too slow and disruptive for banks. Their design follows the Financial Stability Board's Key Attributes of Effective Resolution Regimes, agreed in 2011 after the global financial crisis. The authority may be a deposit insurer, a central bank or a dedicated agency, and it works alongside the bank's supervisor. Its planning work is described under banking resolution planning and its financing under bank resolution fund.
Bank resolution authority in plain terms
Think of a fire service for banks. Most of the time it is preparing: checking buildings, mapping exits and agreeing who does what. When a fire breaks out, it has the right to enter the building, take charge, and decide what to save and what to let go, without asking the owners for permission.
A resolution authority plays that role when a bank is about to collapse. It can take control quickly, often over a weekend, keep the doors open for depositors, and make sure the people who invested in the bank, rather than taxpayers, bear the losses.
Main resolution authorities
| Jurisdiction | Authority | Legal basis |
|---|---|---|
| United States | Federal Deposit Insurance Corporation | Federal Deposit Insurance Act for insured banks; Title II of the Dodd-Frank Act for systemic financial companies |
| Euro area banking union | Single Resolution Board, with national resolution authorities | Single Resolution Mechanism Regulation and the Bank Recovery and Resolution Directive (BRRD) |
| Rest of the European Union | National resolution authorities | BRRD as transposed into national law |
| United Kingdom | Bank of England | Banking Act 2009 |
In the euro area, the Single Resolution Board in Brussels has been responsible since 2016 for significant banks and cross-border groups, while national authorities handle smaller banks. Supervision and resolution are deliberately separated: the European Central Bank supervises the largest banks, and it is usually the ECB that declares a bank "failing or likely to fail" before the resolution authority acts.
Resolution tools and powers
- Sale of business. Selling all or part of the failing bank to a healthy buyer, often within days.
- Bridge institution. Moving critical operations into a temporary bank owned by the authority until they can be sold.
- Asset separation. Transferring impaired assets to a separate vehicle to be run down, used only together with another tool in the EU framework.
- Bail-in. Writing down or converting shareholders' and creditors' claims into equity to recapitalise the bank, following the creditor hierarchy.
- Supporting powers. Temporarily suspending contract termination rights, replacing management and keeping shared services running.
In the EU and UK, the authority may only use these tools if the bank is failing, no private solution is likely in time, and resolution is in the public interest; otherwise the bank goes through normal insolvency and insured depositors are paid out by the deposit insurance scheme. A key safeguard, "no creditor worse off", promises that no creditor will lose more than it would have in liquidation.
Resolution in practice
The first resolution by the Single Resolution Board came in June 2017, when Spain's Banco Popular was declared failing and sold to Banco Santander for one euro after its shares and some bonds were written off. In March 2023 the FDIC took Silicon Valley Bank and Signature Bank into receivership, transferring their business to bridge banks and later selling them; US authorities used a systemic risk exception to protect all depositors, including holders of uninsured deposits. A week later the Swiss authorities chose not to resolve Credit Suisse and instead arranged its takeover by UBS under emergency law, writing down about 16 billion Swiss francs of Additional Tier 1 bonds. These cases are often cited in debates about whether resolution regimes work as intended for the largest banks.
Criticism and limitations
Critics point out that authorities have often preferred mergers, guarantees or a bail-out to the resolution tools they were given, which weakens market discipline and adds to moral hazard. Cross-border groups are hard to resolve because national authorities may protect local creditors first. Funding the bank's liquidity needs during resolution also remains a concern, since a recapitalised bank may still face a run. Supporters reply that the regimes have made shareholders and bondholders, rather than taxpayers, bear losses in most recent cases.