Bank Recovery and Resolution Directive; Exceptions to “Bail-In” of Liabilities

On February 4, 2016, the European Commission adopted a Delegated Regulation (C(2016) 379) which (taking into account advice given by the European Banking Authority in March 2015) specifies where exclusion from the application of write-down or conversion powers is allowed under Article 44(3) of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD).

The BRRD’s bail-in tool gives a resolution authority the power to bail in all the liabilities of a firm in resolution, subject to exclusions specified in Article 44 of the BRRD. In exceptional circumstances, Article 44(3) permits the resolution authority to exclude certain liabilities from the scope of the bail-in tool, if certain conditions are met. The Commission has the power under Article 44(11) to adopt a delegated act specifying the circumstances in which exclusions from the bail-in tool are necessary under Article 44(3).

The Delegated Regulation:

  • Lays down common rules to be applied whenever a resolution authority considers excluding a liability from the application of the bail-in tool under Article 44(3).
  • Clarifies when a liability can be excluded from bail-in based on the impossibility of bailing-in that liability within a reasonable timeframe.
  • Lays down the elements to determine the reasonable time after which a liability can be excluded from bail-in.
  • Clarifies when a liability can be excluded from bail-in based on the need to preserve certain critical functions and core business lines, to avoid widespread contagion or to avoid value destruction.

The Council of the EU and the European Parliament are now considering the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU.