EBA · 2017_3118 Rejected question

Exercise of the power to convert liabilities towards creditors

Regulation
Directive 2014/59/EU (BRRD)
Article
43(3), 43(5)(a), 44(2), 46(1)(b), 75, and 101(2)
Topic
Resolution tools and powers
Submitted by
Competent authority
Submitted
2017-01-20
More Q&As on this regulation →

Question

For the purpose of resolution, may the resolution authority exercise the power to convert liabilities towards creditors that would not incur losses under normal insolvency proceedings, where the power of write down has previously been exercised to ensure that the net asset value of the institution under resolution is equal to zero? More generally, how can the needs for recapitalisation be met when the total amount of remaining liabilities which are not excluded or protected by NCWO is not sufficient and the total losses are lower than 8% of the total liabilities?

Background

May the resolution financing arrangement contribute to pay compensation to such shareholders or creditors in accordance with Article 75 and 101 of Directive 2014/59/EU (BRRD) under the No Creditor Worse Off (NCWO) principle? Is this possible before the 8% threshold referred to in Article 43(5)(a) has been reached? If not, how can the ability in Article 43(3) BRRD be exercised when the total losses are lower than 8% of the total liabilities and creditors remaining are protected by principle NWCO or the total amount of remaining liabilities to be converted could not meet the needs for recapitalization?
No answer published yet.

Original source: European Banking Authority, Q&A ID 2017_3118

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

Similar Q&As

Conversion of eligible liabilities to equity

Answered 2022-01-21

PONV write-down leaving an institution failing or likely to fail

Answered 2016-11-18

Difference in treatment of viable subsidiaries for the application of write down and conversion of capital instruments and resolution tools and powers

Answered 2022-01-21

NCWO principle in a group resolution

Answered 2016-06-10

Interaction between Articles 37(2) and 59(3)

Answered 2022-01-21

More Q&As on this topic

Conversion of eligible liabilities to equity

Answered 2022-01-21

Principal amount in Articles 43-60

Answered 2022-01-21

Rights over or in relation to assets, rights and liabilities transferred

Answered 2022-01-21

Purpose of the use of the power to write down and convert capital instruments and eligible liabilities

Answered 2022-01-21

AST in combination with other resolution tools

Answered 2022-01-21

📋 Track EU financial regulation continuously

Forseti monitors EU financial regulation and delivers personalised alerts anchored to verified official sources.

Start free trial → Learn more

14-day free trial. No credit card required.