In the event of a bank failure, the EBA asks authorities to increase transparency regarding their approach to bail-ins
On 13 February 2023, the European Banking Authority (EBA) issued guidelines for resolution authorities on using the bail-in tool, which is intended to prevent taxpayers' funds from being used in the event of a bank's collapse. This tool allows the execution of the write-down and conversion of capital instruments depending on their seniority. The guidelines aim to ensure transparency and predictability.
By January 2024, the EBA has requested that authorities publish a high-level document outlining their preferred approach to the bail-in process, including interim instruments and a timeline. An interim instrument serves as a transitional instrument to which bail-in eligible liabilities convert to before definitive valuation. Upon this valuation, these interim instruments are converted into the final version, most likely equity. The document will include further timeline details and indicative templates or main features of legal instruments for use in the bail-in process. Any previously published information must be reviewed for compliance with the new guidelines.
According to the EBA, transparency, and predictability are critical to the credibility of the resolution framework and the protection of investors. The standards require the authorities to publish a detailed approach to the exchange mechanic, i.e, the operational steps necessary to execute the write down and conversion of relevant capital instruments. The bail-in tool is complex and largely untested, making it essential for authorities to publish a high-level document outlining their approach to ensure credibility and increase investor confidence. Authorities should continuously update that document as they gradually develop their approach on these matters.
For inquiries please contact:
RBI Regulatory Advisory
Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria | Tel: +43 1 71707 - 5923