Facilitating the continuation of critical operations and protecting taxpayers from costs
Resolution tools aim to ensure that a bank or other institution referred to in the Act on the Resolution of Credit Institutions and Investment Firms that is in serious financial difficulties can continue those of its operations that are important to society. At the same time, the resolution tools protect taxpayers from the costs of a potential crisis.
The objective of resolution is that a failing institution can be resolved in a controlled manner without serious disruption to the financial system. The powers assigned to the authorities ensure that the losses of failing institutions are first borne by the shareholders and creditors of the institution instead of taxpayers. The resolution authority must also ensure that resolution does not make creditors worse off than under normal insolvency proceedings.
When an institution is in crisis, the Financial Stability Authority assesses whether the institution has any critical functions that must remain operational in spite of the crisis. The FFSA subsequently renders a decision on placing the institution under resolution. If the decision is made not to place the institution under resolution, the FFSA must either make a decision on placing the institution under liquidation or petition a court to declare the institution bankrupt. If the institution is placed under resolution, the Financial Stability Authority can use resolution tools to restore the institution’s viability to a level that enables it to continue its critical functions.