Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.5.3.3:4.5.3.3 Specific conditions for the application of the asset separation tool

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.5.3.3

4.5.3.3 Specific conditions for the application of the asset separation tool

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.

Where the asset separation tool is applied, the following conditions apply in addition to the general conditions set out in section 4.5.3.1:

a)

The transfer can only involve assets, rights or liabilities of the bank in resolution;

b)

The transfer can only take place after the necessity test;1

c)

The asset management vehicle does not have to be authorized as a bank; and

d)

The asset separation tool can only be applied in combination with another resolution tool.2

Ad a: Scope

Under the asset separation tool only assets, rights or liabilities of the bank in resolution can be transferred. Shares and other instruments of ownership cannot be transferred under the asset separation tool.

Ad b: The necessity test

The asset separation tool may only be applied to transfer assets, liabilities or rights of a bank in resolution, if (a) the situation of the particular market for those assets is of such a nature that the liquidation of those assets in normal insolvency proceedings could have an adverse effect on one or more financial markets, (b) this transfer is necessary to ensure the proper functioning of the bank in resolution or bridge institution, or (c) this transfer is necessary to maximize liquidation proceeds.3 The necessity test does not apply in relation to the sale of business tool and bridge institution tool.

Ad c: No bank authorisation

An asset management vehicle does not necessarily have to be authorized as a bank.4 The BRRD and the SRMR do not provide for the requirement for an asset management vehicle to have a banking license. However, it will depend on the factual activities thereof, whether a banking license is required on the basis of CRD IV. In addition, competent authorities may have the possibility on the basis of national legislation to provide a certain period of time to unwind the activities of the bank when withdrawing its license.5

The status of the asset management vehicle being entitled to carry out (banking) transactions for the sole purpose of portfolio divestment while not having a banking authorisation, was the subject of a request for a preliminary ruling of the ECJ. HETA qualifies as an asset management vehicle that does not have a banking authorisation. HETA was created to deal with the bad assets from the Austrian banking group HGAA. In 2015, HETA notified the Austrian resolution authority, FMA, that it was likely to go into default. The FMA subsequently announced that it would apply the bail-in tool to HETA.6 In a request for a preliminary ruling, the Landgericht Frankfurt am Main requested the ECJ whether the BRRD is to be interpreted as meaning that its scope of application also covers an asset management vehicle which has no banking authorisation. This request was however withdrawn, as a result of which the ECJ was not able to give its view on the matter.7

The purpose of the asset management vehicle is to maximise the value of the assets, rights and liabilities through an eventual sale or winding up in an orderly manner. The BRRD and SRMR do not contain any provisions in relation to the way in which a sale should take place. It seems plausible that the same conditions apply as those that apply when a bridge institution sells assets, rights and liabilities. This would entail that the transfer has to take place on commercial terms, having regard to the circumstances, and conform certain marketing requirements.

In the case of HETA, press releases show that all sales by HETA take place through structured, open, transparent and international tender processes.8

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