Public funding of failing banks in the European Union (LBF vol. 19) 2020/7.4.2.3:7.4.2.3 Deviations from burden-sharing cascade

Public funding of failing banks in the European Union (LBF vol. 19) 2020/7.4.2.3

7.4.2.3 Deviations from burden-sharing cascade

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The resolution framework does not provide for an exception to the burden-sharing requirement, if applying this requirement endangers financial stability or leads to disproportionate results. It does however provide that certain eligible liabilities are excluded from the scope of the bail-in tool, including covered deposits, but, e.g. also operational liabilities.1

The deposit guarantee schemes contribute to the resolution for the amount of covered deposits that would have been in scope of the bail-in tool, if these were not excluded.2

In addition, in exceptional circumstances the resolution authorities may (partially) exclude other liabilities where certain conditions are met.3 Lastly, the NCWO principle applies when the bail-in tool is used. As a result, creditors may not incur greater losses than they would have incurred in an insolvency situation.4

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