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+1. Circumstances related to the valuation of the firm’s assets and liabilities 1.1. Before applying … |
1. Circumstances related to the valuation of the firm’s assets and liabilities 1.1. Before applying …Circumstances related to the valuation of the firm’s assets and liabilities 1.1. Before applying the bail-in tool or the power to write down or convert capital instruments at the point of non-viability, a fair, prudent and realistic valuation of the assets and liabilities of the institution shall be made in accordance with Article 36 (b) to (g) of Directive 2014/59/EU. 1.2. This valuation is intended to inform decisions to be taken by the resolution authority on the extent of cancellation or dilution of shares or other instruments of ownership and the extent of losses which should be recognised at the point of resolution. 1.3. An ex post independent valuation must also be made in accordance with Article 74(2) of Directive 2014/59/EU to determine whether the actual treatment that shareholders and creditors received as a result of resolution was worse than that which they would have received had the firm entered normal insolvency proceedings (the ex post valuation). An estimate of the treatment that each class of shareholders and creditors would have been expected to receive if the firm were wound up under normal insolvency proceedings must also be included alongside the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD, as required by Article 36(8) of the BRRD. 1.4. The appropriate treatment of shareholders and other instruments of ownership should be informed by the estimated net asset value of the institution according to the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD and the estimate produced pursuant to Article 36(8) of that Directive.
1.6. Conversely, where the net asset value of the institution is positive according to both the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD and the estimate produced pursuant to Article 36(8) of that Directive, the extent of cancellation or transfer should be partial and ensure that shareholders retain at least the net asset value in the estimate pursuant to Article 36(8). 1.7. If the net asset value according to the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD is zero or negative, it will be necessary to write down, at least partially, creditors more senior in insolvency to shares or other instruments of ownership. Writing down other creditors while shareholders retained some value would be inconsistent with both the sequence of writedown in Article 48 of Directive 2014/59/EU and the respect for the creditor hierarchy in insolvency required by the resolution principles of Article 34 of Directive 2014/59/EU. 1.8. If shares or other instruments of ownership have a positive value according to the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD, but a zero value according to the estimate pursuant to Article 36(8), resolution authorities may choose from a wider set of options consisting of: a) full cancellation or transfer; b) partial cancellation or transfer3 ; or c) dilution. In this case, to ensure consistency with the creditor hierarchy, with the sequence of writedown in Article 48 and with the principles for resolution in Article 34, resolution authorities should carefully evaluate which option will best comply with the BRRD principles and safeguards and achieve the objectives of the resolution. 1.9. In taking resolution actions, resolution authorities should avoid taking a resolution action which they expect would result in shareholders incurring a greater loss than they would have incurred in a winding-up under normal insolvency proceedings4 .
1.10. If shares or other instruments of ownership are not cancelled or transferred in full, they must be severely diluted by the conversion of liabilities into equity. 1.11. For the purpose of these guidelines, severe dilution is taken to mean that both shareholders’ percentage of ownership of the institution and the value of the instruments of ownership must be reduced, unless this would breach the safeguard provided by Article 73 of the BRRD. This situation will occur only if resolution is expected to preserve less value for claimants on the bank than normal insolvency proceedings. 1.12. When dilution occurs, the extent of dilution should be determined consistently with the provisions of Article 50 of Directive 2014/59/EU and the EBA Guidelines on conversion rates. Conversion rates set consistently with guiding principle 2 of the EBA Guidelines on the rate of conversion of debt to equity in bail-in should ensure that dilution is severe. This principle requires that conversion rates are set to ensure that shareholders bear first loss and to respect the creditor hierarchy. If a particular creditor class is expected to be worse off after resolution than before resolution according to the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD, the resolution authority should set a conversion rate equal to or close to zero for all classes of liabilities and instruments which have a more junior rank in insolvency. 1.13. In exceptional circumstances it may be the case that no liability holder is expected to contribute to loss absorption or recapitalisation in resolution. In that case conversion rates for capital instruments should be set to ensure that the resolution objectives are achieved and that the value of pre-resolution shares or other instruments of ownership is reduced. 1.14. Resolution authorities may opt to severely dilute existing holders of shares or other instruments of ownership only when the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD suggests that the shares or other instruments of ownership have a net positive value. In these circumstances, severe dilution could also be applied in combination with a partial cancellation or partial transfer of shares or other instruments of ownership. 1.15. Resolution authorities should not use severe dilution if the net asset value of the institution is zero or negative according to the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD, to ensure consistency with the principles of Article 34 of Directive 2014/59/EU that shareholders bear first loss and the insolvency creditor hierarchy should be respected. 1.16. When the resolution authority considers that the institution has positive net asset value on the basis of the valuation carried pursuant to Article 36 (4)(b) to (g) of the BRRD, but a zero value in the estimate produced pursuant to Article 36(8) of that Directive, the resolution authority should take whichever of the options listed in Article 47(1)(a) or (b) of Directive 2014/59/EU it considers best achieves the resolution objectives. 1.17. In some circumstances, the power to write down or convert capital instruments in Article 59 of Directive 2014/59 EU may be triggered without also triggering resolution. The extent of writedown or conversion must be the amount required to achieve resolution objectives, as assessed in accordance with Article 60(1)(b) and (c). This amount may be zero, for example, if Article 59 is triggered because extraordinary public financial support (including when a central bank provides emergency liquidity assistance on an indemnified basis, or guarantees newly issued liabilities) is provided to a well-capitalised institution which is not deemed failing or likely to fail in accordance with Article 32 of Directive 2014/59/EU. 1.18. In such cases, resolution authorities should not reduce Common Equity Tier 1 (CET1) or write down or convert relevant capital instruments, because the bank is not failing or likely to fail and to do so is not necessary to meet resolution objectives. The table below summarises the points made in this section: Circumstance relating to value Appropriate actions Inappropriate actions of shareholder claims Positive net asset value under 1. Partial cancellation 1. Full cancellation both the valuation carried 2. Partial transfer 2. Full transfer pursuant to Article 36 (4)(b) to
estimate produced pursuant to Article 36(8) of that Directive Positive net asset value under 1. Full or partial cancellation None (but conversion rates must the valuation carried pursuant 2. Full or partial transfer be appropriate) to Article 36 (4)(b) to (g) of the BRRD but zero or negative 3. Dilution net asset value under and the estimate produced pursuant to Article 36(8) of that Directive Zero or negative net asset 1. Full cancellation 1. Partial cancellation value under both the valuation 2. Full transfer 2. Partial transfer carried pursuant to Article 36 (4)(b) to (g) of the BRRD and 3. Dilution the estimate produced pursuant to Article 36(8) of that Directive 3 ‘Partial cancellation/transfer’ means that dilution (Article 47(1)(b)) is combined with ‘cancellation’ or ‘transfer’ (Article 47(1)(a)) without cancelling or transferring in full the instruments (i.e. the shareholders and the owners of other instruments retain some value). A partial transfer could also be effected by conducting a stock split to create additional shares which are transferred to holders of capital instruments or creditors. 4 If this is the case, they would almost certainly also have a positive going-concern value, because resolution is usually expected to be value-preserving compared with insolvency. 1. Forbhreathnú
1.1 Tagairtí1.2 Ceanglais aitheanta1.3 Caighdeáin ghaolmhara2. Ceanglais aitheanta
3. Caighdeáin ghaolmhara
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