Does the reference to “value” in Article 48(2) refer to the “face value” (“notional amount”) or to the “market value”?
Article 48(2) of Directive 2014/59/EU (BRRD) states: “When applying the write down and conversion powers, resolution authorities shall allocate the losses […] equally between shares or other instruments of ownership and
eligiblebail-inable liabilities of the same rank by reducing the principal amount of, or outstanding amount payable in respect of, those shares or other instruments of ownership and eligiblebail-inable liabilities to the same extent pro rata to their value […]”.
The provision regarding write-down and conversion powers is unclear: the value of an instrument may fluctuate therefore the reference to “value” in Article 48(2) of Directive 2014/59/EU (BRRD) seems ambiguous. It is not clear if value refers to the “face value” (“notional amount”) or to the “market value”.
The reference to “their value” in Article 48(2) of Directive 2014/59/EU (BRRD) should be understood as an outstanding amount due. This amount is not always the same as the face value (notional amount). For instance, for certain claims it may include accrued interest while for liabilities arising from derivative contracts it would be established in accordance with Article 49 of Directive 2014/59/EU (BRRD), as part of the ex-ante valuation carried out under Article 36 BRRD.
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 onits 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 updated in the light of the changes introduced to Directive 2014/59/EU (BRRD).