EBA asks authorities to increase transparency on their approach to bail-in in case of banking failure

The European Banking Authority (EBA) published its final Guidelines addressed to resolution authorities for the publication of their approach to the bail-in tool implementation.
Both the credibility of the resolution structure and the protection of investors depend on transparency and predictability. With the help of these Guidelines, officials will be able to write down and convert capital instruments as well as use the bail-in tool (also known as a „exchange mechanic“) in an efficient manner.
The main tool available to the authorities to prevent the use of taxpayers‘ money in the event of a major bank failure is bail-in, but this is complicated and largely untested. The EBA is requesting authorities that have not yet done so to start publishing, starting in January 2024, a high-level document outlining the main aspects of their preferred approach in order to ensure that authorities‘ approach is credible and that institutions have the information they need to prepare. They are specifically required to state whether they plan to utilize interim instruments and to provide a schedule for the bail-in procedure. Authorities who have already released information are required to confirm that it adheres to these guidelines.
The document to be published by authorities will also include
1. clear description of potential interim instrument,
2. further details for the timeline and
3. where available, indicative templates or the main features of the legal instruments to be used to formally implement bail-in.
These Guidelines add to the draft guidelines on transferability (eventid=17636) and the previously released Guidelines for Institutions and Resolution Authorities on enhancing banks‘ resolvability (eventid=14856). Resolvability testing is currently the subject of consultation (eventid=18154), and additional work on resolvability transparency is in progress.