Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.8.2:3.8.2 Measures imposed by Member States through national legislation

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.8.2

3.8.2 Measures imposed by Member States through national legislation

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When contracts do not foresee any conversion clauses and measures cannot be imposed in cooperation with shareholders or creditors, Member States can adopt specific legislation.

In the case of Banca Tercas, it was, for example, considered that no additional sacrifice of subordinated debt-holders was legally feasible, since under the current law the latter could be forced to share losses only in the event of compulsory administrative liquidation.1

There are examples of Member States that have adopted specific legislation to impose e.g. mandatory conversion or write down as a pre-condition for granting State aid or to take over a bank without the consent of the general meeting.2 There are a number of safeguards in that respect. Below, the ‘no creditor worse off’ principle and the Second Company Law Directive3 are discussed.4

3.8.2.1 Compatibility with the ‘no creditor worse off’ principle3.8.2.2 Compatibility with the Second Company Law Directive

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