Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.4.3.2:4.4.3.2 The bridge institution tool

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.4.3.2

4.4.3.2 The bridge institution 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.

The bridge institution tool entails the power of a resolution authority to transfer (once or more than once) to a bridge institution (a) shares or other instruments of ownership issued by a bank in resolution, or (b) all or any assets, rights or liabilities of a bank in resolution.1

A bridge institution is a legal person that is (i) wholly or partially owned by one or more public authorities which may include the national resolution authority or the national resolution fund and is controlled by the resolution authority, and (ii) created for the purpose of receiving and holding some or all of the shares, instruments of ownership, assets, rights or liabilities with a view to maintaining access to critical functions and selling the bank, or its assets, rights or liabilities, to one or more private sector purchasers.2 The resolution authority approves the bridge institution’s constitutional documents, management body and their remuneration and responsibilities, strategy and risk profile.3

A bridge institution is normally operated for two years, unless a sale – or merger – takes place prior to the expiry thereof. This may be extended by the resolution authority, if, for example, it is necessary to ensure the continuity of essential banking or financial services. After expiry of the – extended – period of time, or in case of a sale of all or substantially all assets, rights or liabilities to a third party, the bridge institution is wound up in normal insolvency proceedings.4 The application of the bridge institution tool is discussed in more detail in section 4.5.3.

The bridge institution tool has so far been applied in Portugal, Denmark and Italy.

In Portugal, the bridge institution tool has been applied in relation to BES.5 BES's sound business activities – all deposits and senior debt and most of the assets - were transferred to a bridge bank (Novo Banco), being the subsidiary of the Central Bank of Portugal.6 Novo Banco was sold to U.S. private equity firm Lone Star.7 Lone Star, negotiated and agreed with Portugal on the conditions for the sale of the bridge bank Novo Banco. In particular Lone Star agreed to inject EUR 1 billion in capital into Novo Banco and to implement an in-depth restructuring of the bank. In addition, Novo Banco planned to raise EUR 400 million on the market by means of issuing Tier 2 capital instruments. In turn, the Portuguese Resolution Fund agreed that if and when the capital ratio falls below a threshold due to losses on a legacy asset portfolio, it will inject capital of up to EUR 3.89 billion, and if the issuance of Tier 2 capital instruments cannot be completed successfully from private means, it will subscribe the remainder (the amount of which is offset against its commitment to inject capital). Finally, only to the extent that capital needs arise under severe adverse circumstances, which cannot be addressed by Lone Star or other market players, Portugal will provide limited, additional capital.8 The Commission has approved on the Portuguese aid for the sale of Novo Banco.9

In Denmark, the bridge institution tool has been applied in relation to Andelskassen. The Danish resolution authority, Finansiel Stabilitet, established a new subsidiary, Broinstitut I A/S, that took over the ownership of Andelskassen.10 Andelskassen was subsequently divested to Netfonds.11

In Italy, Banca Marche, Banca Etruria, Carife and Carichieti were put in resolution by a decision of the Banca d’Italia dated 21 November 2015. Part of the assets and liabilities (including bad loans) were transferred to four bridge banks. Subordinated debts that were not eligible for write-down were left in the banks in resolution, in order to be liquidated.12 On 10 May 2017, the four bridge banks were subsequently transferred to Unione di Banche Italiane S.p.A. (UBI), as a result of which they ceased to qualify as bridge banks and continued their business within the UBI Group.13

Deze functie is alleen te gebruiken als je bent ingelogd.