Ten questions and ten answers about the new rules on bank bailouts (the so-called bail-in) that will take effect from 1 January. In a guide, the ABI, the Italian Banking Association, has listed the questions “such as” with accompanying answers. The work is in collaboration with twelve consumer associations (Acu, Adiconsum, Adoc, Assoutenti, House Consumer, Consumer Protection Center Users, Active Citizenship, Codacons, Confconsumatori, Consumers League, Consumer Movement, Unc), the Foundation for Financial Education and saving and the Federation of Banks, Insurance and Finance.
Here is an excerpt of the ten “key” questions to which the guide responds:
1) Why were introduced the new European rules ?
The European institutions have introduced new rules to manage a possible banking crisis, starting with the new assumption that the cost of the crisis must be supported primarily within the bank itself, as with other companies.
2) What do you expect the new rules?
The strengthening of preventive measures to which each bank must follow. These included the preparation of a recovery plan, which includes the bank what to do in case of adverse events. The authorities also will take action, in early, to urge the implementation of recovery plans, replacing the administration and control, launch special administration.
3) if Prevention is not enough?
In the event of a banking crisis, the resolution authority responsible for supervision and crisis management – ie the ECB and the Bank of Italy – will have a set of measures, adjusted according to the severity of the situation, involving, as a last instance, the start of the procedure known as “resolution”.
4) What is the dispute resolution process?
It is a package of measures that may be required to the bank in crisis by the authorities for a resolution as quickly as possible to restore the situation. Among the various means of resolution is the so-called bail-in or internal rescue.
5) How does the bail-in or save inside?
With the bail-in capital of the bank in crisis is reconstituted by the absorption of losses from shares and other financial instruments held by investors of the bank: the last financial stocks could be reduced, even total, or a conversion into shares as in the case of subordinated bonds. If this reduction is not enough, a similar treatment could be reserved for the debentures. In any case, any loss to the creditors of the bank can never be greater than that which would occur in the event of liquidation (closure) of the same.
6) What instruments applies the bail-in?
The basic principle of the bail-in is that those in riskier financial instruments will contribute to a greater extent to the possible reorganization: the shareholders are therefore the first to be called to intervene. Only afterwards, and only if the shareholders’ contribution was insufficient, will be called to help those in other categories of instruments, according to a predetermined priority scheme of action which provides, in succession:
- Equities and other financial instruments similar to the capital, as the savings shares and convertible bonds;
- Subordinated unsecured;
- Unsecured, such as bank bonds;
- Deposits in excess of EUR 100 thousand of individuals and small and medium enterprises, only for the part exceeding 100 thousand.
Until 31 December 2018, deposits in excess of 100,000 Euros of business and interbank loans contribute to the resolution equally over other unsecured claims. Since 2019, vice versa, they will contribute only after the bank bonds.
7) What about accounts and deposits up to 100 thousand euro?
Absolutely nothing. Up to 100 000 EUR per depositor, in fact, current accounts, deposit accounts (also bound), savings accounts, certificates of deposit and bank drafts names have long been protected by the Deposit Guarantee Funds whose members are all banks operating in Italy . Over the threshold of 100 thousand euro, deposits are not automatically involved in the bail-in, but can be only the financial requested instruments riskier (shares, subordinated bonds, securities without warranty, and so on) was not sufficient to restore the bank .
8) What happens to joint accounts?
In the case of a joint account with two people the maximum amount guaranteed is € 200 thousand, while in the case of two accounts held by the same person at the same bank the guaranteed amount is still 100 thousand. The guarantee of the Fund, in fact, not about the bill but is established for each depositor per bank.
9) What other tools are excluded from the bail-in?
In addition to deposits up to 100 thousand EUR are excluded from the bail-in:
- Covered bonds (eg covered bonds);
- The securities deposited in a securities account (if you have not been issued by the bank involved in the bail-in);
- The willingness of customers kept at the bank, such as the contents of safe deposit boxes;
- The debts of the bank to employees, suppliers, tax authorities and social security institutions or with regard to pay, pension benefits and services essential to the operation of the bank. They can however be excluded from the bail-in even more categories of instruments according to an assessment which will be made from time to time by the new European resolution authority or by the national resolution.
10) bail-in is applicable to instruments purchased before January 1, 2016?
Yes. In the event of a bank crisis, the bail-in can also be applied to the securities already owned by customers before this date.
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