4.3.3.3 Resolution tools

Documentgegevens:

mr. drs. R.E. van Lambalgen, datum 01-12-2017

Datum: 01-12-2017
Auteur: mr. drs. R.E. van Lambalgen
JCDI: JCDI:ADS587010:1
Vakgebied(en): Financieel recht / Europees financieel recht
Mededingingsrecht / EU-mededingingsrecht

The resolution tools enable resolution authorities to assume control of the failing bank.1 There are four resolution tools: i) sale of business, ii) bridge institution, iii) asset separation, and iv) bail-in.2

Sale of business tool

The sale of business tool3 makes it possible to rescue the sound parts of the bank and to maintain the critical functions by selling (parts of) the bank to a private sector purchaser. If only part of the bank is transferred, the residual entity shall be wound up under normal insolvency proceedings.4 A key feature of the sale of business tool is that the resolution authority can sell (part of) the bank without the consent of shareholders. To that end, Art. 63 BRRD provides that resolution authorities should have the power to take control of a bank under resolution and exercise all the rights and powers conferred upon the shareholders, other owners and the management body of the bank.

Bridge institution tool

The bridge institution tool5 is similar to the sale of business tool. The differ-ence between these two tools concerns the purchaser of the bank: in case of the sale of business tool, the purchaser is a private party, while in case of the bridge institution tool, the purchaser (i.e. the bridge bank) is wholly or partially owned by one or more public authorities (which may include the resolution authority) and is controlled by the resolution authority. The bridge institution tool can be used when there is no private sector purchaser willing to take over the bank under resolution.

Asset separation tool

The asset separation tool6 can be used to transfer assets, rights or liabilities of a bank under resolution to a separate vehicle.7 This tool can be used to create a ‘bad bank’. Since the asset separation tool effectively amounts to an asset relief measure, the BRRD provides that this tool should be used only in conjunction with other tools in order to prevent an undue competitive advantage for the fail-ing bank.8

Bail-in tool

The bail-in tool9 is undoubtedly one of the most prominent features of the BRRD.10 The bail-in tool is the power of a resolution authority to cancel the bank’s shares and to write down the bank’s liabilities or to convert them into equity.11 The bail-in tool will be discussed in more detail in the following subsection.

Toon alle voetnoten

Voetnoten

Voetnoten

The situation under the SRM is as follows. The resolution procedure is laid down in Art. 18 SRM-Regulation. Pursuant to Art. 18(6) SRM-Regulation, the SRB shall, when the three resolution criteria have been met, adopt a resolution scheme. The resolution scheme shall: (i) place the bank under resolution; (ii) determine the application of the resolution tools to the bank under resolution; (iii) determine the use of the Single Resolution Fund to support the resolution action. This resolution scheme is addressed to the national resolution authorities. The SRB shall – pursuant to Art. 28 SRM-Regulation – closely monitor the execution of the resolution scheme by the national resolution authorities.

Art. 37(3) BRRD.

Defined in point 58 of Art. 2(1) BRRD as “the mechanism for effecting a transfer by a resolution authority of shares or other instruments of ownership issued by an institution under resolution, or assets, rights or liabilities, of an institution under resolution to a purchaser that is not a bridge institution, in accordance with Article 38”.

Art. 37(6) BRRD.

Defined in point 60 of Art. 2(1) BRRD as “the mechanism for transferring shares or other instruments of ownership issued by an institution under resolution or assets, rights or liabilities of an institution under resolution to a bridge institution, in accordance with Article 40”.

Defined in point 55 of Art. 2(1) BRRD as “the mechanism for effecting a transfer by a resolution authority of assets, rights or liabilities of an institution under resolution to an asset management vehicle in accordance with Article 42”.

For an illustration of the asset separation tool, see the case of Magyar Kereskedelmi Bank (MKB), SA.40441, 16 December 2015.

With the exception of the asset separation tool (which must always be applied in combination with another resolution tool), the resolution tools may be applied individually or in any combination; this follows from Art. 37(4) BRRD.

Defined in point 57 of Art. 2(1) BRRD as “the mechanism for effecting the exercise by a resolution authority of the write-down and conversion powers in relation to liabilities of an institution under resolution in accordance with Article 43”.

10.

The bail-in was also one of the FSB Key Attributes (Key Attribute 3.5).

11.

Bail-in should not be confused with contingent convertible debt (CoCo’s). See: Gleeson 2012, p. 14-15.