Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.5.2.2:4.5.2.2 Exercise of the PONV conversion power is not a resolution action

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.5.2.2

4.5.2.2 Exercise of the PONV conversion power is not a resolution action

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Although the PONV conversion power is exercised by the resolution authorities, the exercise of the PONV conversion power is not a resolution action, contrary to the exercise of the bail-in tool. The importance of this distinction lies in the applicability of the principles and safeguards as discussed in more detail in section 4.5.5. The principles and safeguards only apply in case of resolution action; this includes the application of the resolution tools or the exercise of one or more resolution powers. This means that, if the PONV conversion power is exercised outside of resolution, the principles and safeguards do not apply. If the PONV conversion power is exercised in resolution, there will always be a combination with a resolution action as a result of which the principles and safeguards do apply. It is not clear from the resolution framework, whether it was indeed intended to not apply the principles and safeguards to the exercise of the PONV conversion power outside of resolution. In the author’s view, there is no logical explanation for this difference. See also section 4.5.5.

The distinctive character of the PONV conversion power also follows from the qualification of the exercise of the PONV conversion power as a crisis prevention measure, while a resolution action qualifies as a crisis management measure.1

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