12.6.1 Why are these characteristics relevant?

Burden-sharing is not only required by the bank’s shareholders, also the bank’s creditors have to participate in the bank’s restructuring (and/or resolution). This is sometimes referred to as “creditor participation”. It should be noted that not all creditors have to participate; burden-sharing is usually only required by the subordinated creditors. This changed with the introduction of the bail-in tool in the BRRD. Burden-sharing by senior creditors will be discussed in section 12.7.

Just as burden-sharing by shareholders can be achieved in different ways, burden-sharing by subordinated debt holders can be achieved in different ways: in some cases, a liability management exercise (LME) was conducted; in some cases, the subordinated debt was completely written-down; in some cases involving a transfer of the ailing bank to a larger, viable bank, the subordinated debt remained at the bank in liquidation. In addition, in many cases, a coupon ban was imposed on the bank.

The above-mentioned relevant characteristics constitute the various ways in which burden-sharing by subordinated debt holders can be achieved.