Banking Recovery and Resolution (BRRD1)

Banking Recovery and Resolution (BRRD1)

Directive 2014/59/EU regulating the framework for the recovery and resolution of credit institutions and investment firms (BRRD1) was partially incorporated into Andorran law in 2015 by means of Law 8/2015 of 2 April on urgent measures to implement mechanisms for restructuring and resolution of banking institutions.

The new Law 7/2021 of 29 April on the recovery and resolution of banks and investment firms repeals the previous law, supplements the transposition of BRRD1.

The basic objectives are to enable the resolution of any financial institution in an orderly manner, without serious systemic disruption, and to minimise, to the extent possible, the risk to taxpayers by protecting functions that are critical to financial markets and the real economy, ensuring the assumption of losses by the shareholders and creditors of the entity in crisis.

It is important to add that these entities must ensure that, in the event of difficulties, they have a sufficient buffer between capital and the guaranteed deposits that can be used to recapitalize internally, without the taxpayers being affected or depositors being compromised. The BRRD1 calls this buffer the Minimum Requirements for Eligible Liabilities (MREL) and it is required of all entities.

This parameter is an additional and supplemental layer to the capital, liquidity and leverage requirements in an effort to ensure the feasibility and credibility of the internal recapitalization instrument, the bail-in.