Global Regulation Tomorrow

On 13 February 2023, the European Banking Authority (EBA) published a Final Report: Guidelines to resolution authorities on the publication of the write-down and conversion and bail-in exchange mechanic.

The Bank Recovery and Resolution Directive provides authorities with the powers to write-down and convert capital instruments, it also sets-out that Member States shall ensure that resolution authorities may apply the bail-in tool to achieve the resolution objectives. Authorities have been working on developing their approaches to exchange mechanic.

Bail-in is the main tool available to authorities to avoid using taxpayers’ money in case of failure of a large bank. It is a complex and largely untested tool. To ensure that authorities’ approach is credible and that institutions have the necessary information to prepare, the EBA is asking authorities that have not yet done so to start publishing, from January 2024, a high-level document setting out the key aspects of their favoured approach. In particular, they are asked to specify if they intend to make use of interim instruments and to set out a timeline of the bail-in process.

These guidelines provide a clear framework for resolution authorities to publish their approach to using the bail-in too. They are expected to publish a document defining roles of key stakeholder, describe their approach to write down and conversion, whether they intend to use interim instruments or not, and how the share delivery will take place and share a timeline of this process.