Recital (2)

Several years into its implementation, the Union resolution framework does not deliver as intended with respect to some of those objectives. In particular, while institutions and entities have made significant progress towards resolvability and have dedicated significant resources to that end, in particular through the build-up of the loss absorption and recapitalisation capacity and the filling-up of resolution financing arrangements, the Union resolution framework is seldom resorted to. Instead, failures of certain smaller and medium-sized institutions and entities are typically addressed through unharmonised national measures. Taxpayers’ money is still used rather than industry-funded safety nets, such as resolution financing arrangements. That situation appears to arise from inadequate incentives. Those inadequate incentives are the result of the interplay of the Union resolution framework with national rules, whereby the broad discretion of resolution authorities when carrying out the public interest assessment is not always exercised in a way that reflects the intended application of the Union resolution framework. At the same time, the Union resolution framework has seen little use due to the risk for depositors of deposit-funded institutions of having to bear losses to ensure that those institutions can access external funding in resolution, in particular in the absence of other bail-inable liabilities. Finally, the fact that there are less stringent rules on access to funding outside resolution than in resolution has discouraged the application of the Union resolution framework in favour of other solutions, which often entail the use of taxpayers’ money instead of the use of own resources of institutions or entities or of industry-funded safety nets. That situation, in turn, generates risks of fragmentation, risks of suboptimal outcomes in managing institutions and entities’ failures, in particular in the case of smaller and medium-sized institutions and entities, and opportunity costs from unused financial resources. It is therefore necessary to ensure a more effective and coherent application of the Union resolution framework and to ensure that it can be applied whenever doing so is in the public interest, including for certain smaller and medium-sized institutions which are primarily funded through deposits and do not have sufficient other bail-inable liabilities.