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The first set of European Banking Authority’s (EBA) Guidelines focuses on conversion rates in bail-in. It highlights guiding principles resolution authorities are to apply when setting debt-to-equity conversion rates both in a bail-in context, or when the power to write down and convert capital instruments is not applied in conjunction with any resolution tool. These Guidelines point out the role of the valuation of assets and liabilities of failing institutions, mandated by the Bank Recovery and Resolution Directive (BRRD), in defining the expected value of the combined equity and debt claim after resolution, and their expected value in the hypothetical case the institution had entered normal insolvency proceedings. In addition, the Guidelines clarify when to set differential conversion rates for different classes of creditors.
The second set of Guidelines deals with the treatment of shareholders. It aims at clarifying the circumstances under which it is appropriate to cancel, transfer, or severely dilute shares or other instruments of ownership. In particular, resolution authorities should only favour dilution over cancellation where the net asset value of the institution is positive under the ex-ante valuation. Where more than one choice (cancellation, dilution or transfer) is available to Resolution authorities, the choice should be guided by the need to meet the resolution objectives
The third set of Guidelines on the interrelationship between the BRRD and the Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR) clarifies the treatment of instruments which meet the criteria for recognition as AT1 as per Article 52 of the CRR but are progressively grandfathered as per Article 484 of that Regulation due to the fact that they do not contain a Point Of Non-Viability (PONV) clause. These Guidelines prescribe that these instruments should be treated identically to AT1 instruments. In addition, they clarify the treatment of T2 instruments, which are progressively amortised in the final five years of residual maturity as per Article 64 of the CRR. Finally, these guidelines prescribe that the Resolution Authority should treat those instruments in the same way as T2 instruments included in the same class.
Guidelines on the interrelationship BRRD_CRR
Guidelines on the rate of conversion of debt to equity in bail-in
Guidelines on the treatment of shareholders in bail-in