SKN | Europe’s Bank Resolution Framework Is Too Complex: What It Means for HNW Banking Structures

Key Takeaways:

• The European banking union has materially strengthened bank resilience, but its resolution architecture remains more complex than comparable frameworks in the UK and US.
• The main weaknesses involve multiple authorities, overlapping EU and national rules, and restrictions on how resolution funding can be deployed.
• For HNW clients, the issue is less about predicting a bank failure and more about understanding how quickly and predictably a banking relationship could be managed under stress.
• Swiss private banking structures should be reviewed with counterparty diversification, liquidity access and jurisdictional separation in mind.

Europe is entering the next phase of banking regulation with an uncomfortable contradiction: its banks are materially stronger than they were after the global financial crisis, yet the machinery designed to manage a major bank failure remains unusually complicated. Fernando Restoy, Chair of the Bank for International Settlements’ Financial Stability Institute, has argued that the European Union should address this complexity, particularly within the Single Resolution Mechanism. For wealthy clients, the significance is not regulatory housekeeping. It is whether the institutions holding capital can remain predictable when markets become disorderly.

Why Resolution Complexity Matters to Private Clients

The European resolution framework involves the Single Resolution Board, the European Central Bank, the European Commission and national authorities, depending on the circumstances. At the same time, European resolution rules interact with different national insolvency regimes.

That architecture was built around a legitimate objective: preventing taxpayers from automatically absorbing the cost of bank failures. But complexity can introduce another form of risk. During a crisis, speed, legal certainty and clarity over who has authority to act become financially important.

For an HNW client, this matters because private banking relationships often extend across deposits, securities custody, credit facilities, structured financing and corporate banking. A disruption at one institution can therefore affect substantially more than an investment portfolio.

The Hidden Issue Is Funding

One of the most important features of the European framework is its heavy reliance on banks’ own loss-absorbing capacity. The Single Resolution Fund is subject to strict conditions, including an 8% loss-absorption threshold before certain resolution funding can be accessed and a cap on the amount that can be provided.

This has contributed to detailed Minimum Requirement for Own Funds and Eligible Liabilities requirements, or MREL. The regulatory objective is sound: creditors and shareholders should absorb losses before public resources are used. The trade-off is a framework that becomes difficult to calibrate and operate precisely because no one knows in advance how a future bank failure will unfold.

That distinction matters for wealth owners. Capital strength is not the same as liquidity certainty. A well-capitalised institution can still face operational restrictions, market stress or legal complications during a resolution event.

Why Swiss Banking Clients Should Pay Attention

Swiss private banking is often used precisely because clients want jurisdictional diversification, confidentiality and a stable legal and operational environment. But a Swiss account does not automatically eliminate European counterparty exposure.

A globally mobile family may have Swiss custody, an EU operating company, UK financing, US investments and banking relationships in several jurisdictions. The relevant risk assessment is therefore not simply which bank is strongest. It is how assets, liabilities and liquidity are distributed across different legal entities and resolution regimes.

This is where sophisticated wealth architecture differs from simple bank diversification. The objective is to prevent one institution or jurisdiction from becoming a single point of operational failure.

What Wealth Owners Should Review Now

HNW clients should ask their advisers to map where each major asset is legally held, which entity provides custody, where liquidity is available and which jurisdiction governs the relevant relationship. Credit facilities deserve particular attention because a banking disruption can affect both sides of a balance sheet.

Clients should also distinguish between cash deposits, securities held in custody and assets exposed to the bank’s own balance sheet. These are not identical forms of counterparty exposure, and they should not be treated as interchangeable simply because they sit within the same private banking relationship.

For families operating across several countries, maintaining appropriate liquidity outside the jurisdiction of the principal operating bank can also provide valuable flexibility during periods of market or regulatory disruption.

Simplification Could Strengthen, Not Weaken, the System

The central message from the BIS debate is not that European banks are unsafe. In fact, European banking resilience has improved substantially: average CET1 ratios increased from 12.5% in 2014 to 16.3% in 2025, while the non-performing loan ratio fell from 6.5% to roughly 1.8% over the same period.

The challenge is operational efficiency. A resolution framework should be robust enough to absorb failure while remaining sufficiently clear for authorities, banks and creditors to understand how it will work under pressure.

For HNW clients, that principle translates into a practical rule: evaluate the resilience of the institution, but also evaluate the architecture around the institution. Strong wealth preservation is not simply about choosing strong banks. It is about ensuring that custody, liquidity, financing and jurisdictional exposure remain manageable if one part of the financial structure comes under stress.

For a confidential discussion regarding your cross-border banking structure, counterparty diversification and liquidity architecture, contact our senior advisory team.