BaFin, Deutsche Bundesbank and FMSA (Bundesanstalt für Finanzmarktstabilisierung) have published a joint interpretation guide on the classification of certain liabilities of CRR institutions under insolvency law. The interpretation guide eliminates uncertainties as to the classification of structured notes and money market instruments.
By the Resolution Mechanism Act (Abwicklungsmechanismusgesetz – AbwMechG), as from 1 January 2017, a separate class under the insolvency claims in accordance with section 28 of the German Insolvency Statute (Insolvenzordnung – InsO) will be established for certain unsecured, non-subordinated liabilities of CRR credit institutions (see BaFinJournal December 2015). This does not apply to claims of lower-ranking insolvency creditors within the meaning of section 39 of the German Insolvency Statute. The new provision is included in section 46f para. 5 to 7 of the amended German Banking Act (Kreditwesengesetz n.F. – KWG). The purpose of the new provision is to improve the resolvability of CRR institutions.
Correspondingly to the new order in which creditors’ claims are satisfied in accordance with section 46f para. 5 of the amended German Banking Act, as from 1 January 2017, the competent resolution authority is required to first use all liabilities of the new ranking class which falls under the new provision in the resolution of a CRR institution in the context of creditor involvement, before it can use the remaining liabilities in accordance with section 38 of the German Insolvency Statute (Insolvenzordnung – InsO). So-called structured notes, which meet the criteria specified in section 46f para. 6 sentence 2 and para. 7 of the amended German Banking Act, as well as money market instruments do not fall into the new class.