The European Central Bank has revised its crisis management guidelines to permit liquidity support for banks that are in the process of resolution, a move aimed at strengthening stability in the eurozone’s banking system. The change addresses a recognised gap in the EU’s framework for handling failing lenders and reflects the ECB’s effort to fortify financial safety nets.
Under the updated guidance, banks undergoing resolution can access the ECB’s liquidity provision facilities if they satisfy specified conditions, including maintaining sufficient capital thresholds during the wind-down process. Previously, existing rules prevented the central bank from offering such support once resolution procedures were initiated, as seen in notable cases like the 2017 collapse of Spain’s Banco Popular and subsequent issues with parts of Sberbank’s European operations.
The amendment seeks to smooth the resolution process by ensuring that liquidity constraints do not exacerbate the failure of a troubled institution, potentially reducing systemic risk. It also aligns with broader regulatory discussions on enhancing the European banking union’s capacity to manage distress without resorting to taxpayer-funded bailouts. Reflecting this context, the ECB has concurrently engaged in consultation on simplifying certain prudential rules to improve clarity and operational efficiency while maintaining robust capital requirements.
The guideline change is significant because resolution frameworks are core components of the Single Resolution Mechanism, the EU’s system for handling failing banks, involving both the ECB’s supervision and the Single Resolution Board’s execution of restructuring plans. By enabling liquidity assistance within resolution, the ECB aims to fill a strategic gap that previously constrained its role and limited policy options during critical stress episodes.
