1. Resolution authorities shall apply the write-down or conversion tool in accordance with the priority of claims applicable under normal insolvency proceedings, in a way that produces the following results:
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(a)
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Tier 1 items are reduced first in proportion to the losses and to the extent of their capacity and the resolution authority takes one or both of the actions specified in Article 36(1) in respect of holders of Tier 1 instruments;
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(b)
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the principal amount of Tier 2 instruments is written down or converted into Tier 1 instruments or both, to the extent required to achieve the resolution objectives or to the extent of the capacity of the relevant capital instruments, whichever is lower;
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(c)
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the principal amount of Tier 3 instruments is written down or converted into Tier 1 instruments or both, to the extent required to achieve the resolution objectives or to the extent of the capacity of the relevant capital instruments, whichever is lower;
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(d)
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the principal amount of, or outstanding amount payable in respect of, the rest of eligible liabilities in accordance with the hierarchy of claims in normal insolvency proceedings, including the ranking of insurance claims provided for in Article 275(1) of Directive 2009/138/EC, is written down or converted into Tier 1 instruments or both, to the extent required to achieve the resolution objectives.
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Where the level of write-down based on the provisional valuation as referred to in Article 25 is found to exceed requirements when assessed against the definitive valuation as referred to in Article 24(2), a write-up mechanism may be applied to reimburse creditors and, subsequently, shareholders to the extent necessary.
When deciding on whether liabilities are to be written down or converted into equity, resolution authorities shall not convert one class of liabilities, while a class of liabilities that is subordinated to the class remains unconverted into equity or not written down.
Member States shall ensure that all claims resulting from own-fund items have, in national laws governing normal insolvency proceedings, a lower priority ranking than any claim that does not result from an own-fund item. For the purposes of this subparagraph, to the extent that an instrument is only partly recognised as an own-fund item, the whole instrument shall be treated as a claim resulting from an own-fund items and shall rank lower than any claim that does not result from an own-fund item.