4 Derivatives and Bail-in under the EU Bank Recovery and Resolution Directive

Subject(s):

Deposit insurance schemes — Deposit protection schemes — Recovery and Resolution Plan (RRP) — Special Resolution Regime (SSR) — Regulation of banks — Derivatives — European Banking Authority (EBA)

This chapter investigates issues arising from derivatives as liabilities subject to bail-in. It also analyses requirements on the valuation of derivatives, with a particular focus on the recognition of netting agreements. The final version of the Bank Recovery and Resolution Directive (BRRD) has settled the issue of the inclusion of liabilities arising from derivatives into the bail-in. It now remains to be seen how the problems surrounding the application of the bail-in tool to such liabilities will be resolved. The German Recovery and Resolution Act or Sanierungs- und Abwicklungsgesetz (SAG) provides some insight in this regard. While it does clarify some aspects of the BRRD, it is for the most part implementing the BRRD word by word. The chapter concludes with an examination of the impact of the various resolution powers with respect to liabilities arising from derivatives under any bail-in.