1. Subject matter

1.1. These guidelines, which have been prepared pursuant to Article 50(4) of Directive 2014/59/EU (the BRRD), are on the setting of conversion rates of debt to equity in bail-in. They are also relevant to the conversion of relevant capital instruments at the point of non-viability, because Article 60(3)(d) makes compliance with Article 50, including the EBA guidelines, a condition for converting the relevant capital instruments.

1.2. Article 50(1) provides that resolution authorities, when applying the bail-in tool, may apply a different rate of conversion to different classes of capital instruments and liabilities. If they do, this must be done in accordance with: (i) the principle that the conversion rate shall represent appropriate compensation to the affected creditor for any loss incurred through write-down or conversion (Article 50(2)); and (ii) the principle that conversion rates applicable to liabilities that are considered senior under applicable insolvency law shall be higher than the conversion rate applicable to subordinated liabilities (Article 50(3)).

1.3. Article 50(4) requires that these guidelines indicate, in particular, how affected creditors may be appropriately compensated by means of the conversion rate, and the relative conversion rates that might be appropriate to reflect the priority of senior liabilities under applicable insolvency law.

1.4. Resolution authorities are not obliged by the BRRD to set differential conversion rates, and may choose, when applying the bail-in tool or the power to write down or convert capital instruments, to convert each instrument or liability into equity at the same rate, provided that they achieve the resolution objectives and respect the sequence of write-down and conversion in Article 48, the resolution principles in Article 34, the right to property under the Charter of Fundamental Rights of the European Union and, in the case of the bail-in tool, the ‘no creditor worse off’ safeguard embodied in Article 75. These guidelines provide guidance on the setting of conversion rates taking those factors into consideration.

1.5. These guidelines provide for the setting of differential conversion rates for classes of instruments which differ in their ranking in the relevant national insolvency creditor hierarchy for either statutory or contractual reasons. They do not provide for any setting of differential conversion rates for classes of instruments which differ in, for example, their regulatory or accounting treatment, but not in their ranking in the relevant national insolvency creditor hierarchy.

2. Scope and level of application

1.6. These guidelines are addressed to resolution authorities if they are compensating creditors with differential conversion rates while applying the bail-in tool to an institution, an entity referred to in Article 1(b), (c), or (d) of the BRRD, or to claims or debt instruments that are transferred to a bridge institution or under the sale of business tool or the asset separation tool and making use of the possibility of establishing differential conversion rates. They are also relevant to resolution authorities when applying the power to write down or convert relevant capital instruments at the point of non-viability. This is based on Article 60(3)(d), which requires that such instruments may be converted only when the conversion rate that determines the number of Common Equity Tier 1 instruments that are provided in respect of each relevant capital instrument complies with the principles set out in Article 50 and these guidelines.

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

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