Securitisation and Regulation News

European Commission publishes “Discussion Paper on the Debt Write-Down Tool - Bail-In

European Commission released on Friday 30.3.2012 a discussion paper on the debt write-down tool - bail-in. The paper comes before a resolution proposal itself is published. Based on latest information this might happen in June 2012.

Main points of the discussion paper:
In order to achieve the objective of resolving the entity without causing major economic disruption, authorities will have to decide as to whether the best solution would be to restructure the entity

  • 1. as a going concern (through bail-in)
  • 2. as a gone concern (i.e. through a bridge bank or a combination of a bridge bank and bail-in) or to wind it down in full or in part.

If introduced, the debt write-down tool would give resolution authorities the power to write down the claims of unsecured creditors of a failing institution.

For bail-in of senior unsecured debt different bail-in possibilities are mentioned:

  • 1. Respectful of insolvency hierarchy of claims and would treat all the rest of the liabilities in the same way (i.e. senior debt, derivatives, non-excluded deposits)
  • 2. Sequential bail-in model: Under the sequential bail-in model long-term liabilities would be first to absorb residual losses after equity and equity like instruments; only if they were not sufficient in order to achieve the objectives, the authorities could proceed to apply the tool to short-term liabilities

To the document (PDF)