Guidelines on the rate of conversion of debt to equity in bail-in

Status: Final and translated into the EU official languages

These Guidelines clarify when and how different conversion rates from debt to equity should be set for different types of liability. They propose the criteria that resolution authorities need to take into account when setting conversion rates, and in particular how they should take account of valuation information.

Consultation on Guidelines on the rate of conversion of debt to equity in bail-in (EBA/CP/2014/39)

Summary
11/11/2014

The European Banking Authority (EBA) lunched today a public consultation on Guidelines on when and how different conversion rates from debt to equity should be set for different types of liability. These Guidelines are part of a series of EBA regulatory mandates under the Bank Recovery and Resolution Directive (BRRD), which aim to ensure that the bail-in power is an effective way of absorbing losses and recapitalising banks in resolution, and that resolution authorities and other stakeholders have a clear understanding of the terms on which it should be applied. The consultation will run until 6 February 2015.
 
In particular, these Guidelines, together with those on the treatment of liabilities in bail-in and the draft Technical Standards on valuation in resolution, aim to clarify how valuation information should help determine the terms of bail-in. 
 
These set of Guidelines clarifiy when and how different conversion rates from debt to equity should be set for different types of liability. Resolution authorities should set conversion rates, first, to seek to ensure that no shareholder or creditor receives worse treatment than they would have done in insolvency. This should be assessed on the basis of the ex ante valuation to inform resolution decisions, and the ex ante valuation estimate of outcomes in insolvency. Subject to that, conversion rates should be set to ensure that the resolution principles of the BRRD, in particular respect for the creditor hierarchy, are complied with. 

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 6 February 2015.
 
A public hearing will then take place at the EBA premises on 12 January 2015 from 10:00 to 13:00 UK time. All contributions received will be published following the close of the consultation, unless requested otherwise.

Legal basis 

These Guidelines have been developed according to Article 47 and 50 of the BRRD which mandate the EBA to (i) produce Guidelines specifying the circumstances under which it would be appropriate to cancel, transfer or severely dilute existing shares and (ii) on the setting of conversion rates