Is direct recapitalisation of banks likely to occur in the current setting?

When the instrument was first proposed, it was to cut the link between troubled banks and sovereigns. However, it soon became clear that banking union mechanisms could achieve this aim without resorting to the direct recapitalisation instrument.

More specifically, the bail-in of private investors, in accordance with the Bank Recovery and Resolution Directive (BRRD), and the contribution of the Single Resolution Fund (SRF), has shifted the bulk of potential financing from the ESM to the banks themselves, along with their investors and creditors.

With all the components of Banking Union operational since January 2016, the ESM direct recapitalisation instrument will only be applied as an instrument of last resort, when all other measures, including the bail-in mechanism, have been exhausted.