EU Resolution Framework Reform: Key Changes for Banks under the CMDI Package

Regulation (EU) 2026/808, Directive (EU) 2026/806 and Directive (EU) 2026/804

Overview

On 20 April 2026, the EU published the final Crisis Management and Deposit Insurance (“CMDI”) reform package in its Official Journal. The package consists of three instruments: Regulation (EU) 2026/808, which amends the Single Resolution Mechanism Regulation (“SRMR”) – the EU rules governing how failing banks in the euro area are restructured or wound down; Directive (EU) 2026/806, which amends the Bank Recovery and Resolution Directive (“BRRD”) – the EU-wide framework setting out the tools and procedures for dealing with banks in distress; and Directive (EU) 2026/804, which amends the Deposit Guarantee Schemes Directive (“DGSD”) – the rules that protect depositors when a bank fails. Formally adopted on 30 March 2026, the package concludes a legislative process initiated by the European Commission’s April 2023 proposals and a political agreement reached between the European Parliament and Council on 25 June 2025. Most provisions will apply from 11 May 2028.

Wider scope and a lower threshold for resolution

The reform fundamentally changes when and how authorities decide to place a failing bank into “resolution” – that is, an orderly restructuring or wind-down process managed by public authorities, as opposed to ordinary insolvency proceedings under national law. Under the previous rules, authorities could only resolve a bank if doing so served the public interest at least as well as insolvency. The new framework reverses that logic: resolution is now the preferred route unless insolvency would be more effective – a significantly lower bar.

Importantly, these changes extend the practical reach of the resolution framework well beyond the largest, globally significant banks. Smaller and medium-sized institutions, including those predominantly funded by customer deposits, can now be brought into resolution where the public interest test is met. The objectives that justify resolution have also been broadened: authorities must now consider whether a bank’s failure would disrupt essential banking services not only at a national level but also at a regional one.

Tighter rules on which deposits can absorb losses

When a bank is resolved, losses are imposed on shareholders and creditors through a “bail-in” process. Banks must hold a minimum amount of liabilities that can absorb losses in this way – known as the minimum requirement for own funds and eligible liabilities, or “MREL”. The reform tightens the conditions under which certain deposits may count toward MREL:

• Deposits granting a right of early withdrawal no longer qualify, even where early withdrawal is subject to a contractual penalty.
• Banks must clearly disclose in their contractual documentation that such deposits count toward MREL and are therefore not protected by a deposit guarantee scheme (i.e. the national safety net that reimburses depositors up to €100,000 if a bank fails).
• Transitional provision: deposits taken before 12 May 2028 that meet the relevant conditions may remain eligible until 11 May 2029.
• Resolution authorities gain a general power to grant transitional periods for MREL compliance of up to three years – or four to six years where a bank’s resolution strategy changes from insolvency to resolution.

Using deposit guarantee funds to support resolution

One of the most significant innovations is the new mechanism allowing deposit guarantee scheme (“DGS”) funds – the industry-financed safety nets that protect depositors – to support the resolution of banks that lack sufficient bail-in-able liabilities. Under the existing rules, access to the Single Resolution Fund (“SRF”), the central euro-area resolution financing arrangement, requires the bank to have first imposed losses on shareholders and creditors equal to at least 8% of its total liabilities and own funds (“TLOF”). Many smaller banks cannot meet this threshold. DGS contributions can now count toward that 8% requirement, removing a structural barrier for smaller institutions.
However, DGS funding in resolution cannot exceed what a standard payout to insured depositors in insolvency would have cost (the so-called “least cost test”). Access is also subject to strict conditions, including prior MREL compliance and a credible exit strategy for the resolved institution.

Clearer ranking of depositors in a bank failure

The reform introduces a harmonised creditor hierarchy – a uniform EU-wide ranking that determines the order in which depositors bear losses. This replaces a patchwork of differing national rules and is structured in three tiers:

(i) covered deposits (i.e. deposits up to the €100,000 guarantee limit), which receive the highest priority (“super-preference”), meaning they are the last to bear losses;

(ii) deposits above the €100,000 limit held by individuals and small and medium-sized enterprises (“SMEs”); and

(iii) all other deposits.

This uniform ranking gives banks, investors, and depositors greater certainty about the treatment of deposits across all EU Member States and makes it easier for authorities to execute a bail-in.

Early intervention and precautionary measures

The package streamlines the triggers for early intervention – the powers that allow supervisors to step in before a bank reaches the point of failure – and consolidates these powers to enable faster action. Precautionary public financial support (exceptional government assistance to prevent a bank from failing) may now also cover measures dealing with impaired (i.e. deteriorated) assets. Where the state acquires a bank’s core equity capital instruments (i.e. Common Equity Tier 1, or “CET1”), this is capped at 2% of the bank’s total risk-weighted exposures (“TREA”) – a measure of the bank’s assets adjusted for the level of risk they carry. Institutions receiving such support must submit a remediation plan; failure to do so can trigger a determination that the bank is “failing or likely to fail”, opening the path to resolution.

Key dates and recommended next steps

• Entry into force: 10 May 2026 (Regulation); 20 days after publication (Directives).
• General application date: 11 May 2028.
• Transposition deadline: 24 months from entry into force (Directives).

Banks should begin:

• Reassessing resolution strategies in light of the expanded public interest test;

• Reviewing MREL-eligible liabilities, particularly deposit structures and contractual documentation;
• Updating early intervention indicators and internal escalation protocols; and
• Monitoring upcoming regulatory technical standards and revised reporting templates from the European Banking Authority and DGS authorities.