EU BAIL-IN POWERS AND TRANSACTION STRUCTURING

Resolution authorities must ensure resolution action taken in accordance with following principles:

 the shareholders of the institution must bear first losses

 creditors of the institution bear losses after the shareholders in accordance with the priority of their claims under normal insolvency proceedings, except as expressly provided otherwise

 the management body and senior management of the institution are replaced except where their retention is considered necessary to achieve the resolution objectives

 except where otherwise provided, creditors of the same class are treated in an equitable manner

 no creditor shall incur greater losses than they would have incurred under normal insolvency proceedings

 covered deposits are fully protected

Before any resolution action (or writing down/converting capital instruments) can be taken, assets and liabilities of the institution must be valued by a valuer independent form the institution, as well as from the resolution authority and any other public authority • Among other things, this valuation is used to determine the extent to which capital instruments need to be written down/converted and the extent of any write-down or conversion where liabilities are bailed in, using the bail-in tool • Valuation based on prudent assumptions, including as to rates of default and severity of losses, but must assume no future provision of extraordinary public support or central bank assistance on emergency/non-standard terms

http://www.mofo.com/~/media/Files/Presentations/141016EUBailInPowersAndTransactionStructuring.pdf

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