Financial institution failure and bank resolution operate at a thin line between the protection of the financial system and the property rights of shareholders. Mandatory restructuring of a financial institution transfers shares and property into external ownership without consent of the current shareholders. Such a big step must follow strict rules to refrain from undesired prejudice and maintain public confidence.
The Sale of Business Tool, defined in the EU Bank Recovery and Resolution Directive (BRRD), allows a failing bank to be sold as a going concern to a third party, providing a viable alternative to resolution or liquidation. This tool can be used to transfer all or part of the bank’s business to a private sector entity, such as another bank, a financial institution, or an investment fund.
The tool aims to ensure continuity of business and minimise disruption for customers and employees. The tool also allows the transfer of assets and liabilities in a way that preserves the value of the assets and minimises the impact on creditors and shareholders. Other tools include the bail-in tool, asset separation tool, and bridge bank tool.