4.3.4.4 Scope of the bail-in

The bail-in applies to all liabilities of the bank, except the liabilities that are excluded pursuant to Art. 44(2) and (3) BRRD. The liabilities mentioned in Art. 44(2) BRRD are always excluded, while pursuant to Art. 44(3) BRRD, the resolution authority may exclude certain liabilities from the application of the bail-in. Covered deposits, secured/collateralized liabilities, short-term liabilities are some of the liabilities that are always excluded from the scope of the bail-in tool.

In the literature, a distinction is made between ‘capital liabilities’ and ‘operational liabilities’.1 Ideally, only the capital liabilities should be bailed in. Indeed, a bail-in of the operational liabilities could endanger the continuity of the critical functions of the bank. The operational liabilities should therefore be excluded from the scope of the bail-in tool.

It has been pointed out that as a result of the discretion to exclude certain lia-bilities in “exceptional circumstances”, the bail-in might proceed differently in each Member State, if there is no EU-definition of “exceptional circumstances”.2 This risk is, however, addressed by the Commission Delegated Regulation 2016/860.3

The bail-in tool has a wider scope than the burden-sharing required by the 2013 Banking Communication. As was explained briefly in chapter 3 and will be discussed extensively in chapter 12, the 2013 Banking Communication requires burden-sharing by shareholders and subordinated debt holders; burden- sharing by senior debt holders is not required.4