Contractual recognition of bail-in under fire

Author: Ben Bschor | Published: 25 Sep 2015

The Association for Financial Markets in Europe (Afme) has published a model clause for the contractual recognition of bail-in, to be used by issuing banks.

The need for contractual recognition of bail-in applies to a wide variety of liabilities issued by European banks but governed by law of non-EU jurisdictions.

The Bank Recovery and Resolution Directive (BRRD) aims at ensuring that in the future taxpayers won’t have to bear the losses of failing banks. While essential parts of the BRRD came into effect at the beginning of 2015, EU member states are not required to implement other aspects, notably the bail-in tool, until next year.

The bail-in tool allows resolution authorities to impose a bank’s losses on shareholders and certain types of creditors. While the BRRD implements the tool on a statutory level within the EU, it would not be enforceable outside the union. As a result, article 55...



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