Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.8.2.4:4.8.2.4 Safeguards

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.8.2.4

4.8.2.4 Safeguards

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Where resolution authorities apply the bail-in tool, the shareholders and creditors whose claims have been written down or converted to equity do not incur greater losses than they would have incurred if the bank in resolution had been wound up in normal insolvency proceedings immediately at the time when the resolution decision was taken (this is the NCWO principle, as discussed in section 4.5.5).1 Please note that this safeguard only applies in relation to the application of the bail-in tool. It does not in itself apply in relation to the exercise of the PONV conversion power.2

In relation to retail investors, the exercise of the PONV conversion power and the application of the bail-in tool may have consequences that are undesirable despite the applicable safeguards. As a result, in practice, certain compensatory measures are taken, although this is not arranged for under the resolution framework. Santander has for example launched a EUR 1 billion scheme to compensate retail clients that acquired shares and subordinated debt issued by Banco Popular in Spain.3 See also section 7.5.4.2.

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