Question ID
2017_3557
Legal act
Directive 2014/59/EU (BRRD)
Topic
Resolution tools and powers
Article
63
Paragraph
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Type of submitter
Competent authority
Subject matter
Difference between a reduction to zero and a cancelation
Question

Can you explain what is the difference between a reduction to zero and a cancelation referred to in Article 63(1)(e), (g) and (h) of Directive 2014/59/EU (BRRD)?

Background on the question

Can you please explain if the instrument is no longer viable when reduced to zero, i.e. if it is cancelled at that point? According to the provisions (Article 63(1)(e), (g) and (h) BRRD), resolution authorities have:

(e) “the power to reduce, including to reduce to zero, the principal amount of or outstanding amount due in respect of eligible liabilities, of an institution under resolution”;

(g) “the power to cancel debt instruments issued by an institution under resolution […]”;

(h) “the power to reduce, including to reduce to zero, the nominal amount of shares or other instruments of ownership of an institution under resolution and to cancel such shares or other instruments of ownership”.

Can you explain why:

Bail-inable liabilities cannot be cancelled, but merely “reduced to zero”?

The principal amount of or outstanding amount due in respect of debt instruments cannot be reduced?

Submission date
Final publishing date
Final answer

The reduction to zero referred to in Article 63(1)(e), (g) and (h) of Directive 2014/59/EU (BRRD) would permit that the instrument continues to exist with a 0 value.

To cancel the instrument as referred to in Article 63(1)(e), (g) and (h) of Directive 2014/59/EU (BRRD) would render the instrument legally inexistent.

The intention behind Article 63(1)(e), (g) and (h) was to cover both possibilities, both for eligiblebail-inable liabilities, including debt instruments, and “relevant capital instruments” as well as shares and other instruments of ownership. The list in any event is non exhaustive, and the resolution authority should have at its disposal all powers needed in order to exercise the resolution tools foreseen in the Directive.

Also, it is possible to reduce the principal amount in respect of debt instruments, which are not eligible for own funds, if they are eligiblebail-inable liabilities.

For debt instruments which are “relevant capital instruments“ according to Directive 2014/59/EU (BRRD), the write down power is foreseen in Article 59.

Disclaimer:

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.

Status
Final Q&A
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Note to Q&A

Update 26.03.2021: This Q&A has been updated in the light of the changes introduced to Directive 2014/59/EU (BRRD).

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.