Public funding of failing banks in the European Union (LBF vol. 19) 2020/7.4.3.1:7.4.3.1 Different triggers, scope and authorities

Public funding of failing banks in the European Union (LBF vol. 19) 2020/7.4.3.1

7.4.3.1 Different triggers, scope and authorities

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With the introduction of the resolution framework, there are currently three burden-sharing requirements that may be applicable when a bank is failing: the exercise of the PONV conversion power, the application of the bail-in tool, and the application of the burden-sharing principle under the State aid regime for the banking sector.1 These requirements all have different triggers, a different scope and are applied by different authorities, as summarised in Table 15.

Table 15: Burden-sharing requirements under the resolution framework and the State aid regime

Burden-sharing requirement

Triggers

Scope

Decision-maker

Exercise of PONV conversion power

1. when the determination has been made that conditions for resolution have been met, before any resolution action is taken;

2. when the appropriate authority determines that unless the PONV conversion power is exercised the bank or the banking group will no longer be viable; or

3. when EPFS is required by the bank or banking group except in the case of precautionary recapitalisation.

Relevant capital instruments (CET 1, AT 1 and Tier 2 instruments)

Resolution authority

(FOLTF assessment is made by the national competent authority/ECB)

Application of bail-in tool

1. when the resolution authority determines that the bail-in tool is the tool that best achieves the resolution objectives that are relevant in the circumstances of the case; or

2. where resolution action involves the use of EPFS, with the exception of contributions by national resolution funds or the SRF, other than when used for loss absorption or recapitalisation.

Eligible liabilities (except for excluded liabilities, such as covered deposits and operational liabilities)

Resolution authority

(FOLTF assessment is made by the national competent authority/ECB)

Application of burden-sharing principle under the State aid regime

where a Member State awards restructuring or liquidation aid

Share capital and subordinated debt2

Member State with the approval of the Commission

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