11.10.1 Why are these characteristics relevant?

In several cases, the beneficiary bank does not continue as a standalone entity. Instead, the bank is taken over by another bank. For this type of situation, I have coined the term “T-context” (or “S/T/W-context” if only the good parts of the bank are taken over). Point 17 of the Restructuring Communication specifies that “the sale of an ailing bank to another financial institution can contribute to the restoration of long-term viability, if the purchaser is viable and capable of absorbing the transfer of the ailing bank, and may help to restore market confidence”.1 Point 17 further specifies that the acquiring bank should demonstrate that the integrated entity will be viable.2

The central requirement is thus that the acquiring bank is viable and capable of absorbing the transfer of the ailing bank. The conclusion that this requirement is met, is usually based on i) the fact that the acquiring bank has a strong financial position, ii) the fact that the acquiring bank is much larger than the ailing bank, iii) the fact that the acquiring bank has a good track record in extracting synergies, and iv) the fact that only the good parts of the ailing bank are transferred to the acquiring bank. These four circumstances are thus relevant characteristics.