When a bank collapses, the EU has decided taxpayers should be last in line, not a firstone. A sweeping overhaul of resolution rules rewrites the playbook for bank failures, bringing deposit protection, bail-in tools, and crisis financing into a single, more coherent framework.
April 20th, 2026 — Directive (EU) 2026/806 and Regulation (EU) 2026/808, both dated 30 March 2026, represent the most significant revision to the EU’s bank resolution framework since it was first built in the aftermath of the 2008 financial crisis. The Directive amends the Bank Recovery and Resolution Directive (BRRD, 2014/59/UE), while the Regulation amends the Single Resolution Mechanism Regulation (SRMR, 806/2014). Together, they address the Commission’s findings on that, despite years of preparation and significant resources devoted to resolvability, the resolution framework has rarely been used in practice. When banks fail, national governments have continued to reach for public funds rather than activating the sector-funded safety nets the framework was designed to make available.
The core diagnosis behind both texts is that the resolution framework contained perverse incentives, as outside resolution, access to public funding was usually structurally easier than within it. The rules that governed access to resolution financing mechanisms were much stricter than those governing ordinary insolvency, nudging authorities towards non-harmonised national solutions, which most often than not, involved taxpayer money, rather than resolution tools. This was especially pronounced for mid-sized and smaller deposit-funded banks that lacked sufficient bail-in buffers beyond deposits.
The two legislative acts address this in parallel, with the Directive applying to all EU member states, while the Regulation acts within the Banking Union, assigning specific roles to the Single Resolution Board (SRB) and adapting the rules to the institutional structure of the Single Resolution Mechanism (SRM).
The public interest test
One of the most contested aspects of the existing framework has been the “public interest assessment”, which is the gateway condition that determines whether a failing bank is placed into resolution or left to ordinary insolvency. Critics argued it had been applied inconsistently, with authorities frequently concluding that resolution was not in the public interest even for banks whose failure affected hundreds of thousands of depositors.
The revised Article 32(5) BRRD reframes the test. A resolution measure is not necessary in the public interest if no resolution objective is at risk under ordinary insolvency. However, if at least one objective is at risk, the test now requires authorities to ask whether insolvency would achieve those objectives more effectively than resolution. The previous formulation, which allowed a negative outcome on public interest grounds whenever insolvency appeared equally effective, is removed. Authorities must also, for the first time, explicitly compare the public funding that could reasonably be expected in either scenario. The preference for sector-funded safety nets over taxpayer funds is written directly into the objective of minimising reliance on extraordinary public financial support.
The SRB equivalent provision in the SRMR is also amended in mirror terms.
General depositor preference: a full harmonisation
Perhaps the structurally most significant change is the introduction of a universal depositor preference across all EU member states. Article 108 BRRD is rewritten to place all deposits, that is, not just covered deposits or those of natural persons and SMEs, above ordinary unsecured creditors in the insolvency hierarchy.
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Previously, only a partial preference existed, covering deposits, which ranked highest, deposits of natural persons and SMEs above the guaranteed limit ranked second, and remaining deposits, including large corporate deposits not covered by guarantee schemes, which were left unharmonised, sitting alongside ordinary unsecured claims in many member states. This created divergences between national insolvency hierarchies that complicated cross-border valuations and made the “no-creditor-worse-off” principle harder to apply consistently.
Under the new framework, the three-tier deposit hierarchy is maintained for the top tiers, but all other deposits now also rank above ordinary unsecured creditors as a general class. The only deposits excluded from this preference are those used to meet MREL requirements, which must absorb losses and cannot simultaneously carry a protective preference.
The policy rationale offered is fourfold, including depositor confidence, financial stability, improved resolvability by reducing the risk of breaching the no-creditor-worse-off principle when bailing in unsecured debt, and cleaner cross-border valuations. The SRF and SGD are given corresponding priority claims against residual entities in the new Article 108(9) and Article 76(6) SRMR.
Bail-in tools: uncertain-amount liabilities brought into scope
Both texts address a long-standing gap in the bail-in framework, as the treatment of contingent or uncertain liabilities, such as those arising from ongoing litigation; at the point of resolution. The revised definition of “bail-inable liabilities” in both the BRRD and SRMR is amended to explicitly include liabilities of uncertain maturity or amount, defined as liabilities based on present obligations from past events that will result in a loss, where maturity or amount is uncertain.
These liabilities must be treated in the same way as other bail-inable liabilities unless they meet one of the existing exclusion criteria. Resolution authorities are granted the power to write down or convert them, with the important caveat that the reduction or conversion only takes effect once the liability has been conclusively determined in terms of amount and maturity. Valuators must estimate their potential value and factor it into recapitalisation calculations. The provision is designed to prevent uncertain contingent liabilities from undermining the effectiveness of the bail-in tool by creating post-resolution uncertainty about capital adequacy.
Early intervention: simplified and given teeth
The early intervention framework, which has rarely been used since its introduction in 2014, is substantially simplified. The existing conditions, which partially overlapped with supervisory powers, are replaced by a cleaner set of triggers. Authorities must consider early intervention when: an institution fails to address problems identified under the supervisory review process despite being required to do so; when corrective measures are insufficient; when MREL requirements are breached; or when certain investment firm requirements are likely to be breached within twelve months.
The Directive explicitly recognises early intervention measures as including the replacement of management and the appointment of temporary administrators. A new measure is also added: the authority to require a plan for an orderly voluntary wind-down of activities, leaving the decision whether to implement it with the institution. Proportionality requirements apply throughout, and the competent authority must assess effectiveness after each measure and communicate that assessment to the resolution authority.
Within the SRM, the BCE’s early intervention powers over significant institutions are now directly embedded in the SRMR rather than relying solely on national transposition of the BRRD, addressing a long-standing concern about divergent national implementation creating inconsistency in the Banking Union.
Resolution preparation: earlier, and with more teeth
A new Article 30a BRRD (and the equivalent Article 13d SRMR) formalises the preparation phase between early intervention and resolution. Competent authorities are required to notify resolution authorities early, including when supervisory evidence shows early intervention conditions are met, before any early intervention measure is actually applied. When there is a significant risk of failure, the competent authority must notify the resolution authority as soon as possible, setting out the situation and what alternatives are being considered.
Resolution authorities acquire new pre-resolution powers, as they may require information to update resolution plans and prepare valuations. They may also market the institution to potential purchasers as a preparatory step; and they may require the institution to set up data-sharing infrastructure for potential buyers or advisers. Crucially, these powers can be exercised without waiting for a formal early intervention measure to have been adopted.
MREL floors and the deposit question
The minimum requirement for own funds and eligible liabilities (MREL) framework is updated in several respects. Most notably, a new minimum MREL floor is introduced for resolution entities whose preferred strategy involves sale-of-business or bridge institution tools and market exit. These entities must now meet a floor of at least 15% of risk-weighted assets (13% under SRMR provisions for Banking Union entities subject to the TLAC standard) and 4.5% of total leverage exposure, where their resolution group exceeds €30 billion in total assets. The floor is designed to reduce the risk that resolution authorities will conclude that resolution is not in the public interest simply because there are insufficient loss-absorption resources to finance it without disproportionate reliance on external funding.
A separate change concerns the use of deposits as MREL-eligible instruments. Under the existing rules, certain deposits could be included in MREL subject to conditions. The revised Article 45c BRRD and Article 12d SRMR impose significantly stricter eligibility criteria: deposits used for MREL must be fixed-term with a minimum original maturity of one year, must not confer any right of early withdrawal, must not be held by natural persons or SMEs, and their contractual documentation must explicitly state both the intention to use them for MREL and their exclusion from any deposit guarantee scheme reimbursement. Their inclusion requires prior authorisation from the resolution authority, which must be satisfied that they would not be protected from loss in resolution and would not create a material obstacle to resolvability.
Deposit guarantee schemes in resolution: the central financing reform
The most consequential change for the practical application of the framework is the formal integration of deposit guarantee schemes (DGS) as a source of resolution financing. The existing Article 109 BRRD is replaced entirely by a detailed new provision that specifies precisely when and how DGS funds can be used.
In recapitalisation-based resolution (bail-in), the DGS contributes the amount by which covered deposits would have been written down had they been included in the bail-in. In sale-of-business or bridge institution tools that lead to market exit, the DGS covers the shortfall between the value of assets transferred to an acquirer and the value of deposits and equivalently-ranked liabilities transferred. It may also contribute to capital neutrality for the acquirer.
For the DGS contribution to count towards meeting the 8% bail-in threshold required before the resolution fund can be used, a set of cumulative conditions must be met: the institution’s total assets must not exceed €80 billion; the institution must not have been identified as a liquidation entity in its resolution plan in the preceding 24 months; eligible MREL instruments must have been exhausted; and, for institutions above €30 billion, the MREL level must meet the new minimum floors. Member states may add, as a further condition, that the institution has not breached its MREL floor for two consecutive quarters in the four-year period before resolution.
The DGS contribution in this scenario is capped at 62.5% of its target level, though the designated authority may waive this cap to avoid adverse effects on financial stability or to preserve depositor access. A hard cap remains: total DGS contribution cannot exceed the amount of covered deposits in the institution at the point of resolution.
For Banking Union institutions between €30 billion and €80 billion in assets, a 2.5% cap on DGS contribution relative to total liabilities applies as a further limit on the use of the SRF in combination with DGS funds.
Resolution funding: contributions and irrevocable payment commitments
Several technical but practically important changes are made to the funding of resolution mechanisms. The cap on extraordinary ex post contributions is recast: instead of being linked to the level of ex ante contributions, which was becoming progressively smaller in relative terms after the initial build-up period. The cap is now set at three-eighths of the target level of the fund. For the SRF, the equivalent is one-eighth. This change is designed to preserve the meaningful fundraising capacity of resolution funds in scenarios where ex ante contributions have fallen to very low levels because the target is already substantially met.
Resolution authorities are given the power to defer ex ante contribution collection for up to three years where the amount to be collected would be disproportionate to the cost of collection, provided this does not substantially affect the fund’s capacity to act.
Irrevocable payment commitments are more precisely regulated: the rules for their cancellation when an institution leaves the scope of the framework are clarified, and the resolution authority is given the power to require a final cash contribution from a departing institution to compensate for the loss of the commitment.
What comes next
Both texts require transposition and application by 12 May 2028. Several provisions of the Regulation applicable only to the internal functioning of the SRM, including the new early intervention framework for the BCE, governance changes at the SRB, and certain cooperation obligations, are applicable from 11 June 2026.
The EBA is tasked with issuing guidelines on early intervention conditions by May 2028, on DGS cap waivers by the same date, and on resolution simulation exercises on an ongoing basis. The Commission must report on liquidity in resolution by 31 December 2026.
