The implementation of the Directive 2014/59/EU (the so-called Banking Resolution and Recovery Directive, “BRRD”) establishes a harmonised regime within the EU for the prevention and management of crisis in banks and investment companies and it aims to manage banking crises in order to ensure the continuity of their critical financial and economic functions, while minimising the impact of their failure on the economy and financial system, as well as the costs for taxpayers, through the use of resolution tools headed by the private sector.
The Italian national regulation implementing the BRRD briefly states that, when the conditions are met for the initiation of crisis management procedures for an institution which is failing or likely to fail, the Bank of Italy, in its capacity as Italian Resolution Authority, can provide for:
a) the write down or conversion of shares, other holdings and capital instruments issued by the relevant institution;
b) when the measure stated in point (a) does not allow the failure or risk of failure to be remedied, the adoption of resolution tools concerning the institution or its administrative compulsory winding-up.
Among the resolution tools there is the so-called bail-in, which is the mechanism for effecting the exercise by a resolution authority of the write down and conversion powers in relation to liabilities of an institution.
All liabilities (including derivatives) of an institution under resolution are subject to bail-in, other than the liabilities excluded from the scope of the bail-in.
The provisions of the BRRD are also applicable to parties under the supervision of other Resolution Authorities of the European Union, as well as to the banks and investment companies with registered offices in third countries and branches in the European Union, in accordance with the rules as implemented into the relevant national legal systems. Therefore, the provisions of the BRRD and related resolution tools, including the bail-in, are also applicable to capital securities and liabilities of these parties in accordance with the relevant national regulations implementing the BRRD and as applied by the relevant national Resolution Authorities. Appropriate knowledge of the legal framework of the BRRD also through appropriate advisors is therefore highly recommended and customers are expressly advised to proper assess all relevant risks, which may vary depending on the relevant local jurisdiction into which the BRRD has been or will be implemented.