Bail-in

The bail-in is a bank resolution tool according to which the rescue of banks in difficulty will also have to take place by finding the necessary resources within the bank itself.

As of 1 January 2016, the EU Directive 2014/59/EU on Recovery and Resolution of Credit Institutions and Investment Firms BRRD (Bank Recovery and Resolution Directive), transposed in Italy by Legislative Decrees Nos. 180 and 181 of 16th November 2015, was fully implemented, introducing harmonised rules in all European countries to prevent and manage the crises of these institutions, limiting the possibility of public intervention by the State.

 

What is the bail-in?

The bail-in is a bank resolution tool according to which the rescue of banks in distress will also have to take place by finding the necessary resources within the bank itself. Subjecting a bank to resolution means initiating a restructuring process. The first step is the total or partial reduction of the nominal value of the shares until the loss is compensated. It then proceeds according to a clear hierarchy:

 

Instruments subject to bail-in

  • Grade 1: shares and other capital-like financial instruments (such as savings shares and convertible bonds)
  • Grade 2: subordinated securities without collateral
  • Grade 3: unsecured claims (e.g. unsecured bank bonds)
  • Grade 4: deposits belonging to natural persons and small and medium-sized enterprises (for the portion exceeding €100,000)

 

Main liabilities excluded from bail-in

  • Deposits protected by the Deposit Guarantee Scheme up to 100,000 euro
  • Investment Funds and Administered Securities
  • Guaranteed bank bonds (e.g. covered bonds)
  • Managed savings products (e.g. investment funds), safe deposit boxes
  • Payables to employees, tax, social security and suppliers