Article 37 BRRD lists the general principles that should inform the use of resolution tools. In this context, Article 37(2) BRRD provides that capital instruments and eligible liabilities in accordance with Article 59(1) BRRD must be written down or converted before the remaining creditors may be called to bear losses as a result of the application of a resolution tool. This reflects the general principles referred to in points (a) and (b) of Article 34(1) BRRD, whereby shareholders bear first losses and creditors bear losses in accordance with the order of priority of their claims under normal insolvency proceedings (given that the claims arising from capital instruments are the most subordinated claims). Thus, the timeline prescribed under Article 37(2) BRRD foresees that, once the conditions for resolution are met, the resolution authority, first, exercises its write-down or conversion powers and, only afterwards, applies the envisaged resolution tool, as a result of which the institution’s creditors other than the holders of capital instruments and eligible liabilities pursuant to Article 59(1) BRRD would suffer losses.

Since a resolution tool may be applied only when the conditions for resolution are met, only the scenario under letter (a) of Article 59(3) BRRD is relevant for the purpose of this question. In this respect, and consistently with the prescription and timeline under Article 37(2) BRRD, Article 59(3) BRRD requires that, when conditions for resolution are met, resolution authorities may exercise write-down or conversion powers only if the resolution action would result in losses (as identified by the valuation carried out under Article 36 BRRD, which is required by Article 59(10) BRRD) being borne by the shareholders and creditors captured by Article 59 or their claims being converted. This must take place before or together with the application of the resolution actions, not afterwards, as further specified in Article 37(2) BRRD.

In light of the above, no inconsistency may be identified between the two provisions.

Disclaimer:

The answers clarify provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.