The Irish Presidency's latest and possibly final compromise text attempted a "mixed approach" limiting national discretion through a mix of quantitative guidelines and Commission powers to intervene.
Key elements of the bail-in compromise included:
- Liabilities excluded from bail-in would include insured deposits, secured liabilities and client assets.
- Some liabilities arising from derivatives may also be excluded with resolution authority agreement
- In exceptional circumstances, other liabilities could also be excluded subject to restrictions and approvals from resolution authorities and the European Commission.
- Liabilities should be bailed-in in the order of CET1 capital, other capital instruments, other subordinated debt and then all other eligible liabilities, in accordance to normal insolvency proceedings.
Other elements which will likely fall to the Lithuanian presidency in July to finalise include:
- Minimum requirement for own funds and eligible liabilities - continues the case-by-case approach to setting minimum requirements based on its ease of resolvability, sufficiency of bail-in, liabilities not be bailed-in or be transferred to a third party, systemic significance, and use of Deposit Guarantee Scheme. The EBA to propose greater harmonisation by October 2016.
- Resolution planning - key elements extended to include minimum requirements for own funds and bail-in liabilities; description of essential operations and systems and a description of the impact on employees of implementing the plan.
- Early intervention - extended to include the power to require changes to the institution's business strategy and legal or operational structures; acquire information to prepare for the resolution of the institution; require contact to potential purchasers.
- Valuation - added details including the operation of an initial valuation followed by an ex post definitive valuation of net assets.
- European System of Financing Arrangements (ESFA) - brings together national financing arrangements, borrowing between national financing arrangements, and the mutualisation of national financing arrangements in the case of a group resolution. Target level of national resolution funds is to reach at least 0.8% of insured deposits over a 10 year period.
Despite the previous momentum apparently behind the EU wide rules it might now be within the context of banking union that many of these details are resolved.
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