Creditor participation

from Wikipedia, the free encyclopedia

Creditor participation ( English bail-in ) the assistance of designated creditors of a financial institution (ie the investors in the financial products ) at its losses in the rehabilitation or settlement in the case of imminent insolvency .

General

The English term bail-in was coined as the counterpart to bail-out , i.e. the assumption of debts and repayment or assumption of liability by third parties. Creditor participation is an instrument that enables a bank to convert its liabilities into own funds in the event of the bankruptcy of a credit institution .

Problem of moral risk

With the deposit of funds in a bank (e.g. in the form of an overnight money , savings credit or a bond such as savings bonds from the bank), the investor becomes a creditor of the bank. If the bank goes bankrupt , the customer bears a risk of credit default : creditors can participate in the loss if the bankruptcy estate exceeds the outstanding claims and the resulting loss is not covered by capital (or subordinated debt) (which is the usual case).

If the bank is to be restructured or wound up in the event of impending insolvency before insolvency, recapitalization , i.e. an injection of fresh capital , is usually necessary. This can come from the shareholders, from a competitor taking over the bank, from a rescue fund or the state. Without the participation of the creditors, the creditor will be protected from the losses of bankruptcy in such a bank rescue. This is criticized under the aspect of moral risk : banks with risky business policies or poor management have only limited access to fresh equity; Despite the increased risk of insolvency and reduced creditworthiness , business activity continues to be financed through borrowing, with the need to pay investors higher interest rates. In the event of a bank bailout, the investors in the bank to be rescued received the risk premium in the form of higher interest rates, but did not have to bear the costs of bailing out the bank.

As a result of the financial crisis from 2007 onwards, the possibility of investor joint liability in banking crises was increasingly discussed. The first proposal for creditor participation is an article From bail-out to bail-in by Paul Calello and Wilson Ervin 2010 at The Economist . Since then, the concept has also been implemented in legislation, for example in the USA in 2010 in the Dodd – Frank Act and in the EU in 2014 in the resolution directive (EU directive on the restructuring and resolution of credit institutions, English abbreviation BRRD).

implementation

EU settlement directive

The provisions on creditor participation are a core element of the resolution directive passed in May 2014 (EU directive on the restructuring and resolution of credit institutions, English abbreviation BRRD). They stipulate that at least 8 percent of certain bank liabilities must be written down or written off or converted into equity before public funds can be used for restructuring or liquidation. Deposits from natural persons or small or medium-sized enterprises (SMEs) as well as deposits that are subject to deposit protection are largely excluded from the participation of the creditors; In addition, a number of other liabilities (secured liabilities, certain interbank instruments, salaries, taxes, etc.) are explicitly excluded.

The uniform European bank resolution mechanism for banks directly supervised by the ECB, which was adopted at the same time in May 2014 and entered into force on January 1, 2015, has adopted the provisions on creditor participation from the Resolution Directive. It was also decided that these “bail-in provisions” should be implemented in national law by January 1, 2016 for all other banks in the euro area.

Germany

With the Restructuring Act of 2010, a form of creditor participation was already regulated in the Credit Institutes Reorganization Act (KredReorgG) for holders of bank bearer bonds ( Section 9 KredReorgG and Section 12 KredReorgG). According to § 12 KredReorgG, the reduction or deferral of claims from creditors can also be provided for in the reorganization plan. The reduction provided for in § 12 KredReorgG can go up to 100 percent of the claim - i.e. the total loss from the perspective of the creditor - if - again - a credit institution is to be "reorganized".

In December 2014, the implementation law for the resolution directive was passed; thus the provisions there on the participation of creditors in Germany were implemented from January 1, 2015 - for future cases.

Further examples

Cyprus aid

In the Cyprus crisis in March 2013, aid from the EU states for Cyprus and the Cypriot banks was explicitly linked to creditor participation. Investors in the banks who had investments of over 100,000 euros and thus corresponding claims against the financial institutions were involved in the restructuring of the banks without their consent by reducing their claims by up to 50 percent. The measure was not based on a law, but on agreements between the EU and Cyprus.

Italy, Portugal at the end of 2015

In the effort to rescue the Banco Espírito Santo in Portugal in 2014 and some small cooperative banks (Banca delle Marche, Banca Popolare dell'Etruria, Cassa di Risparmio di Ferrara and Cassa di Risparmio di Chieti) in Italy in 2015 - in addition to the equity of those affected Banks - unsecured and subordinated bonds involved in the losses as part of a bail-in process.

In the case of the Italian cooperative banks, it is accused that risky subordinated bonds and equity-like securities were sold to ignorant retail investors who did not correctly assess the risk of these investment products and who believed that they had acquired savings deposits with the protection of the statutory deposit guarantee.

literature

  • Michael Burkert, Friedrich L. Cranshaw: "Bail-in" - creditor participation in a banking crisis and the handling of trust relationships . In: German journal for commercial and insolvency law . tape 25 , issue 10, 2015, p. 443-463 , doi : 10.1515 / dwir-2015-0119 .

Web links

Individual evidence

  1. ^ A b Chiara Casi: Bail in - la gestione delle crisi bancarie . In: Bail in e la nuova gestione delle crisi bancarie . ( academia.edu [accessed October 10, 2019]).
  2. ↑ From bail-out to bail-in. In: The Economist. January 28, 2010, accessed August 11, 2018 .
  3. ^ The birth of bail-in. In: International Financial Law Review. March 12, 2015, accessed August 11, 2018 .
  4. ^ Peter Spiegel: Cypriot bank deposits tapped as part of € 10bn eurozone bailout. In: FT.com. March 16, 2013, accessed March 22, 2013.
  5. ↑ NZZ.ch on August 4, 2014: Ailing Banco Espírito Santo is split in two - billion-dollar bank rescue in Portugal
  6. ↑ spiegel.de on August 4, 2014: EU rescue package: Portugal supports Banco Espírito Santo with billions in aid
  7. ↑ European Commission: State aid: Commission approves resolution plans for four small Italian banks (Banca Marche, Etruria, Carife and Carichieti). November 22, 2015, accessed February 10, 2016 .
  8. ↑ NZZ.ch on December 13, 2015: Bank failures in Italy - protests by small investors