Public interest assessment in resolution of small and medium-sized banks in the European Union

Andrzej R Stopczyński

Abstract

The assessment of the public interest rationale in bank resolution remains a contentious issue within the regulatory framework of the European Union (EU). The Bank Recovery and Resolution Directive (BRRD) was introduced to provide a structured approach to handling failing banks while minimizing systemic risk and protecting taxpayers. However, inconsistencies in the application of public interest assessments (PIAs) have led to divergent resolution practices across member states. This study analyzes 39 cases of banks classified as failing or likely to fail between 2015 and 2022, examining the key determinants influencing PIA decisions. Of these, the Single Resolution Board assessed public interest in 8 cases, while national resolution authorities handled 31 cases. This study empirically analyzes the key determinants of PIAs in EU bank resolution, focusing on systemic risk, bank size and bank localness. Using Firth’s logistic regression, the analysis reveals that local banks are disproportionately subject to resolution, suggesting that national authorities may prioritize regional economic stability over strict systemic risk considerations. The findings highlight a regulatory bias that challenges the consistency and predictability of resolution decisions. This study contributes to the ongoing debate on banking resolution by identifying key determinants of PIA and proposing policy recommendations to enhance the transparency and uniformity of resolution practices across the EU.