Bank Recovery and Resolution Directive Contractual Bail-In
The Bank Recovery and Resolution Directive equips regulatory authorities in Europe with tools designed to protect the stability of the financial system and financial markets in the European Economic Area in the event of bank failure or the failure of a systemically important investment firm. The directive introduces bail-in measures whereby investors and certain creditors of failing institutions are "bailed in" (i.e., the liabilities of the institution are written down or converted to equity) before there can be any resort to public funds.
In the case of liabilities which are governed by non-EU laws, the directive mandates that European institutions impose on their counterparties contractual provisions which will facilitate the bail-in of those counterparties in the event the institution fails, although under the governing law of the relevant contract, such action may not have been open to the European regulator.
This White Paper examines the consequences of contractual bail-in for counterparties to, and creditors and investors in, relevant European banks and other institutions.