New rules for managing failing banks come into force
News 1 February 2016
From today Sweden has a new system for managing failing banks. The new rules allow the government – with the Debt Office as the responsible authority – to maintain systemically critical functions of a failing bank without taxpayers needing to bear the cost. Instead, losses will be imposed on the bank’s owners and creditors.
The new rules establish a special procedure for handling a failing bank without putting it into bankruptcy and without injecting taxpayers’ money. This procedure is called resolution. It means that the government can take control of the bank and keep all or part of it open if necessary to avoid major disruption to the financial system. The new Resolution Act, which is based on the EU Bank Recovery and Resolution Directive, comes into force today.
The losses of a failing bank put into resolution will be distributed according to principles similar to those applied in bankruptcy. This means that losses are to be borne by shareholders and by writing down claims of creditors, such as investors in certain bonds issued by the bank.
Savings covered by deposit insurance are exempted from write-down. So deposits of up to the equivalent of 100 000 euros are protected regardless of whether the bank is put into resolution or bankruptcy.
As Sweden’s resolution authority the Debt Office is responsible for applying the new rules which affect banks, other credit institutions and investment firms.
Precautionary state support
The Debt Office also remains the authority responsible for state support to viable credit institutions according to the new Precautionary Support Act. Under the new act, the circumstances in which such support can be provided are more limited than under the previous legislation from 2008.
- More on bank crisis management (resolution)
- More on precautionary support
Linda Rudberg, Press Officer, +46 (0)8 613 45 38