SRB publishes document on bail-in approach in the Banking Union

28 June 2024

The SRB has published a document for banks, investors and other stakeholders on executing its bail-in decision...

When a bank1 is failing or likely to fail (FOLTF) and meets the other conditions for resolution, the Single Resolution Board (SRB), in close cooperation with the relevant national resolution authorities (NRAs), adopts a resolution scheme outlining the resolution actions to be taken with the aim of meeting the resolution objectives and principles. This may include the use of write-down and conversion powers (WDC), as well as the application of one or a combination of resolution tools to the bank placed in resolution, i.e., bail-in, sale of business, asset separation and bridge institution tools.
This document focuses on the bail-in tool and the application of WDC in support of any resolution tool2. Bail-in is an essential component of resolution authorities’ toolkits, enabling them to impose losses on owners and creditors of a failing bank and, if required, recapitalise the bank through the conversion of its relevant capital instruments and bail-inable liabilities into new equity. However, preparing for a bail-in may pose specific challenges, particularly in a cross-border context, such as ensuring predictability and transparency.
This document draws inspiration from work by the Financial Stability Board (FSB) and the European Banking Authority (EBA). The EBA’s Guidelines to resolution authorities on the publication of the write down and conversion and bail-in exchange mechanic (EBA/GL/2023/01, EBA GL) recommend that resolution authorities publish their exchange mechanic in the context of bail-in. The EBA guidelines define the exchange mechanic as “how [institutions and authorities] would effectively execute the write-down and conversion of capital instruments and the use of the bail-in tool”, listing the elements to be included in resolution authorities’ publications on this topic, such as stakeholders involved, description of write-down and conversion processes, timelines, templates and the functioning of interim instruments representing contingent entitlements, where such instruments are foreseen...

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