Bank Resolution

About Bank Resolution

Bank resolution refers to the process of winding down a failing bank in an orderly manner. Before 2008, governments typically rescued failing banks with taxpayer money to prevent systemic collapse. The 2008 bailouts were deeply unpopular. The Dodd Frank Act created the Orderly Liquidation Authority as an alternative to bankruptcy for large financial institutions. The EU created the Single Resolution Mechanism for eurozone banks. Resolution plans, or living wills, require banks to describe how they could be unwound without systemic disruption. Bail in rules require shareholders and creditors to absorb losses before taxpayers. The effectiveness of resolution regimes has not been tested in a major crisis since implementation.