The provisions regarding exclusion of "secured liabilities“ from bail-in contained in in Articles 2(2)(67) and 44(2)(b) of Directive 2014/59/EU (BRRD) seem to be ambiguous. We seek clarification as to whether liabilities guaranteed by third parties can be subject to bail-in?
Rec 70 of the BRRD states: “It is not appropriate to apply the bail-in tool to claims in so far as they are secured, collateralised or otherwise guaranteed. However, in order to ensure that the bail-in tool is effective and achieves its objectives, it is desirable that it can be applied to as wide a range of the unsecured liabilities of a failing institution as possible. […]” According to Article 2(1)(67): 'secured liability' means a liability where the right of the creditor to payment or other form of performance is secured by a charge, pledge or lien, or collateral arrangements including liabilities arising from repurchase transactions and other title transfer collateral arrangements. According to Article 44(2)(b) “Resolution authorities shall not exercise the write down or conversion powers in relation to the following liabilities whether they are governed by the law of a Member State or of a third country: […] (b) secured liabilities including covered bonds and liabilities in the form of financial instruments used for hedging purposes which form an integral part of the cover pool and which according to national law are secured in a way similar to covered bonds” Given the ambiguity that appears to exist between Articles 2(1)(67) and Article 44(2)(b). Clarification is sought as to whether liabilities guaranteed be third parties can be subject to bail in?
Guarantees or liabilities guaranteed by third party are not considered as secured liability in the meaning of Article 43(2)(b) because that concept must be interpreted as covering only liabilities secured/guaranteed by assets of the institution under resolution.
This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.
Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Directive 2014/59/EU (BRRD) and continues to be relevant.