Part III The EU Resolution Regime, 10 Direct Bail-in in the European Union

Subject(s):

Bank resolution and insolvency — Equity — Claims

This chapter describes how the EU regime permits bail-in to be implemented directly by varying the terms of the obligations of the institution in resolution. Bail-in, by definition, is a process which applies to some but not all of the senior creditors of an institution—not all, since the object of the process is to protect some of these creditors. The primary appeal of the bail-in structure is the fact that there is no necessity to establish a new entity and transfer assets to it. As FDIC’s history of resolution demonstrates, this is a relatively straightforward process where the assets are all in one country and governed by the laws of that country. The chapter considers the basic mechanics of a direct bail-in, its impact on the pricing of the debt of the bank concerned, the interaction of the regime with private recapitalization, with subordinated and contingent capital and asset transfers.