Proposal for a Directive amending Directive 2014/59/EU as regards the ranking of unsecured debt instruments in insolvency hierarchy

Author (Corporate)
Series Title
Series Details (2016) 853 final (23.11.16)
Publication Date 23/11/2016
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Further information:

This proposal is part of the Commission's efforts to implement the TLAC standard in the Union together with a number of other proposals amending the existing Union recovery and resolution framework. The proposal amends Article 108 of the BRRD by partially harmonising the bank insolvency creditor hierarchy as regards the priority ranking of holders of bank senior unsecured debt eligible to meet the BRRD rules, and the TLAC standard on loss absorbency and recapitalisation capacity for banks, in particular the 'subordination' requirement.

Background information:

Over the years the European Union implemented a reform of the financial services regulatory framework to enhance the resilience of financial institutions, largely based on global standards agreed with the EU’s international partners. The reform package includes, among other, the Directive 2014/59/EU - the Bank Recovery and Resolution Directive (BRRD) - on recovery and resolution of institutions. These measures were taken in response to the financial crisis that unfolded in 2007-2008, during which the absence of adequate crisis management and resolution frameworks forced governments to rescue banks.

At the global level, the Financial Stability Board (FSB) published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey. The TLAC standard requires global systemically important banks, referred to as global systemically important institutions in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution.

In its Communication of 24 November 2015, the Commission committed to bring forward a legislative proposal by the end of 2016 so that the TLAC standard can be implemented by the agreed deadline of 2019.

The European Commission adopted in November 2016 a proposal containing targeted amendments to the Bank Recovery and Resolution Directive (BRRD) related to the insolvency ranking of holders of debt instruments issued by Union banks.

The Council of the European Union adopted its stance on the proposed amendments on 16 June 2017, while the European Parliament's ECON committee approved the draft report comprising its position on 10 October. An informal agreement between the institutions on a compromise text was reached on 25 October and it was endorsed by the Council's COREPER on 15 November.

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Related Links
ESO: Background information: EU banking reform: Strong banks to support growth and restore confidence
EUR-Lex: SWD(2016)377: Impact assessment
EUR-Lex: SWD(2016)378: Executive summary of the impact assessment
EUR-Lex: COM(2016)853: Follow the progress of this proposal through the decision-making procedure
EP: Legislative Observatory: Bank recovery and resolution: ranking of unsecured debt instruments in insolvency hierarchy
Council of the European Union: Press Release, 15.11.17: Banking: Creditor hierarchy, IFRS 9/large exposures rules approved
Legislative Train: Ranking of Unsecured Debt Instruments in Insolvency Hierarchy
EPRS: Briefing: Ranking of unsecured debt instruments in insolvency hierarchy

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