‘Twilight Troubles’. Early Intervention, Resolution Preparation and Triggers, and the Urgent Need to Reform Them

Abstract The Crisis Management and Deposit Insurance (CMDI) framework needs repair. Some elements may be hailed as essential (deposit insurance, transfers, creditor hierarchy). However, the reform of the ‘twilight zone’ framework, including early intervention measures (EIMs), resolution preparation and triggers, is obviously needed and its substance is hard to object to. This paper explains why, and how to go about it. EIMs overlap with supervisory measures, or are mired in legal uncertainty, and are therefore not used . Preparation for resolution is not openly acknowledged by the law. Resolution triggers make the system rigid and slow. Lack of coordination can leave entities in legal limbo. ‘Twilight’ measures sit badly with market abuse. The Commission’s CMDI reform proposal addresses most of these flaws. It eliminates overlaps and enhances consistency between EIMs and supervisory measures, acknowledges the need to prepare for resolution, and allows the triggering of resolution through a sensible combination of framed discretion, cooperation between supervisors and resolution authorities, and a Public Interest Assessment (PIA) that compares resolution and insolvency-based liquidation more fairly. These amendments do not sufficiently acknowledge the relevance of market forces and do not suffice for a functioning Banking Union, but they are certainly necessary for other reforms to yield their benefits.