Resolution tools may be applied only when all the following conditions are simultaneously met:
(a) the credit institution is declared as failing or likely to fail;
(b) there is no reasonable prospect that any alternative private sector measures or supervisory action would prevent its failure within a reasonable timeframe;
(c) a resolution action is necessary in the public interest.
The current institutional framework provides the resolution authorities with a range of resolution tools from which to choose and apply those that can best achieve the resolution objectives in view of the circumstances of the case.
These tools are the following:
1. The sale of business tool
This refers to the transfer, by decision of the resolution authority, to a purchaser that is not a bridge institution of shares or other instruments of ownership issued by an institution under resolution, or all or any assets, rights or liabilities of an institution under resolution. The acquirer must have authorisation to carry out the business activities that it acquires by virtue of the transfer order.
2. The bridge institution tool
Under this tool, the resolution authority sets up a bridge institution to which it then transfers shares or other instruments of ownership issued by the institution under resolution, or all or assets, rights or liabilities of the institution under resolution. The bridge institution must be a legal person, have the necessary authorisation to carry out the activities or services transferred to it as a result of resolution proceedings and comply with the applicable supervisory requirements. It is established for a defined period of time which may not exceed two years, extendable under certain conditions.
3. The asset separation tool
This refers to the transfer, by decision of the resolution authority, of assets, rights liabilities, of an institution under resolution or a bridge institution to one or more asset management vehicles. An asset management vehicle is a legal person which is wholly or partially owned by one or more authorities which may include the Resolution Fund or the resolution authority, is controlled by the resolution authority and is set up for the purpose of receiving some or all of the assets, rights and liabilities of an institution under resolution or bridge institution. Asset management vehicles should manage the assets transferred to them with a view to maximising their value until their sale or orderly liquidation.
4. The bail-in tool
Under the bail-in tool, the liabilities of an institution under resolution can be written down orf converted into equity following a decision of the resolution authority. This tool can be used to recapitalise an institution under resolution to the extent necessary to restore its ability to comply with the conditions for its authorisation and so continue performing its authorised activities, if there is reasonable prospect that the application of this tool will restore the institution’s long-term viability.
Furthermore, the resolution authority can use this tool in combination with any of the other three tools (1 to 3) to reduce the principal amount of the liabilities to be transferred to a purchaser, bridge institution or asset management vehicle.