More than a decade after establishing its banking union, Europe has developed mechanisms to manage failing banks without automatically relying on taxpayers.

Yet significant differences between national legal systems continue to complicate crisis management. In a speech delivered on 1 September 2026, Fernando Restoy, Chair of the Financial Stability Institute, examined how Europe could simplify its bank resolution framework and strengthen financial integration.

Why Bank Resolution Matters

When a major bank encounters serious financial difficulties, authorities must decide whether to restructure it, transfer its operations or allow it to close. Their objective is to protect financial stability while minimising disruption and public expenditure.

Europe's Single Resolution Mechanism (SRM) was established to coordinate these decisions across participating countries.

Significant banks now have detailed resolution plans and must maintain sufficient resources to absorb potential losses. Nevertheless, Restoy identified three structural obstacles: complicated decision-making, overlapping national and European legislation, and restrictions on shared financial support.

Too Many Authorities Involved

A bank failure can demand immediate intervention, but European resolution decisions involve several institutions. The Single Resolution Board coordinates the process alongside the European Central Bank, the European Commission and national authorities. Depending on the circumstances, the Council of the European Union may also become involved.

Restoy explained that these arrangements reflect constitutional restrictions on the powers delegated to European agencies.

National insolvency laws add another complication. Different creditor protections and liquidation procedures can make resolving a cross-border bank particularly difficult, even when the institution operates within the banking union.

The Challenge Of Shared Funding

Financing a bank resolution presents another difficulty. European rules place considerable responsibility on shareholders and creditors before allowing access to collective financial resources.

The Single Resolution Fund generally becomes available only after shareholders and creditors have absorbed losses equivalent to at least 8% of a failing bank's total liabilities and own funds. Its contribution is also limited to 5% of total liabilities.

These restrictions increase the importance of banks maintaining substantial loss-absorbing resources, known as MREL.

Restoy argued that the resulting requirements are expensive and administratively complicated. He also linked the restrictions on shared funding to the continuing absence of a common European deposit insurance scheme.

Lessons From Other Banking Systems

The United Kingdom and United States offer alternative institutional arrangements. Their designated resolution authorities have broader powers to act directly, while their frameworks include procedures for authorising extraordinary financial support in exceptional circumstances.

Restoy suggested that Europe's existing arrangements could be simplified by harmonising national insolvency legislation, adjusting funding restrictions and reducing unnecessary complexity in MREL requirements.

Recent EU crisis management reforms have already expanded certain funding possibilities, although the current framework remains subject to eligibility conditions.

What Comes Next For Europe

Restoy distinguished administrative improvements from more extensive institutional reform. Simplifying reporting obligations and resolution planning could reduce costs, but changing the underlying framework would require legislative action and decisions about sharing financial risks.

Greater access to common funding could create additional flexibility during crises, although questions concerning taxpayer exposure and the distribution of financial responsibilities would remain.

The European Commission's July 2026 communication on banking competitiveness offers a basis for further legislative discussions. For Europe's banking union, the central issue is how to combine effective crisis management with a more integrated financial market while maintaining appropriate safeguards for depositors, creditors and public finances.