Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.5.2:4.5.2 Exercise of the PONV conversion power

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.5.2

4.5.2 Exercise of the PONV conversion power

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

When the determination is made that the conditions for resolution have been met and a resolution decision is adopted, the PONV conversion power should be exercised before any resolution action is taken.1 This section therefore starts with the discussion of the PONV conversion power. Sections 4.5.3 and 4.5.4 discuss the application of the resolution tools and the exercise of the resolution powers.

As set out in section 4.4.3.4, the exercise of the PONV conversion power entails that CET 1 items are reduced in proportion to the losses and to the extent of their capacity, after which the principal amount of AT 1 instruments is written down or converted in CET 1 instruments or both and/or the principal amount of Tier 2 instruments is written down or converted into CET 1 instruments or both.2 The PONV conversion power is exercised by the national resolution authorities, both in and outside the SRM.

It is not entirely clear from the SRMR that the PONV conversion power is exercised by the national resolution authorities, also if the SRB adopts the resolution scheme. Article 18(9) SRMR only refers to resolution actions, which include the application of resolution tools or the exercise of one or more resolution powers, but not the exercise of the PONV conversion power.3 That it is intended that national resolution authorities exercise the PONV conversion power may be derived from Article 22(1) SRMR. It can also be read in the resolution that was adopted by the FROB to adopt the measures required to implement the resolution scheme of the SRB in relation to Banco Popular that it exercised the PONV conversion power.4

The PONV conversion power should be distinguished from the bail-in tool, because (i) the triggers for the exercise of the PONV conversion power are different, (ii) the PONV conversion power is not a resolution action, (iii) the PONV conversion power is exercised in relation to relevant capital instruments and (iv) the resolution authority has no discretion in the exercise of the PONV conversion power.5

4.5.2.1 Triggers for the exercise of the PONV conversion power4.5.2.2 Exercise of the PONV conversion power is not a resolution action4.5.2.3 PONV conversion power is exercised in relation to relevant capital instruments4.5.2.4 No discretion in exercise of the PONV conversion power

Deze functie is alleen te gebruiken als je bent ingelogd.