Glossary term
Bank Resolution Plan
A bank resolution plan is a strategy for resolving a large or complex bank in distress without destabilizing the financial system or relying on taxpayer support.
Updated
Read time
What Is a Bank Resolution Plan?
A bank resolution plan is a strategy for resolving a large or complex bank in distress without destabilizing the financial system or relying on taxpayer support. In the United States, these plans are often called living wills.
The plan is supposed to show how the institution could be wound down, restructured, sold, recapitalized, or otherwise resolved while keeping critical operations functioning and limiting damage to the broader system.
Key Takeaways
- A bank resolution plan explains how a troubled bank could be resolved in an orderly way.
- Large and complex firms may have to submit resolution plans to regulators.
- The plan often covers legal entities, critical operations, funding, liquidity, technology, and operational continuity.
- Resolution planning aims to reduce bailout risk and systemic disruption.
- A plan can be challenged if regulators find it not credible or incomplete.
What the Plan Covers
A resolution plan typically maps the institution's legal entities, business lines, critical services, payment operations, funding needs, intercompany exposures, derivatives, technology systems, and cross-border dependencies. It also describes the strategy regulators and the firm could use if the institution entered severe distress.
For example, a large bank may need to show how deposits, payment services, custody functions, and other critical operations could continue while losses are imposed on shareholders or certain creditors. That planning can reduce the likelihood that failure turns into a disorderly market event.
Why Resolution Planning Exists
Resolution planning grew out of the recognition that some financial firms were too complex to fail cleanly without preparation. If regulators do not understand the legal structure, funding channels, and operational dependencies before a crisis, they may have fewer options when time is short.
The plan does not mean regulators expect the bank to fail. It means the system wants a credible playbook if the firm becomes distressed.
What Regulators Watch
Plan area | Reason to watch |
|---|---|
Critical operations | Identifies services that should continue during resolution. |
Legal structure | Shows which entities hold assets, liabilities, and licenses. |
Funding and liquidity | Tests whether the strategy can be executed under stress. |
Operational continuity | Covers systems, staff, vendors, and shared services. |
Cross-border issues | Addresses cooperation across regulators and jurisdictions. |
Resolution plans also force simplification. If a firm's structure is too tangled to resolve credibly, regulators may require changes to legal entities, service arrangements, liquidity positioning, or operational capabilities. The plan can therefore influence a bank before any failure occurs.
The plan also creates discipline before distress. A bank that cannot explain how critical services would keep running may need to change contracts, simplify entities, pre-position liquidity, or improve data access while conditions are still normal.
The Bottom Line
A bank resolution plan is a failure playbook for a large or complex financial institution. Its purpose is to make distress more manageable, protect critical functions, and reduce the chance that a bank failure becomes a systemic crisis.