This case note analyses the judgment of the First Chamber of the EU Court of Justice rendered in an appeal, whereby the European Data Protection Supervisor (EDPS) asked the Court to set aside the judgment of the General Court of the European Union of 26 April 2023, SRB v EDPS (T-557/20, EU:T:2023:219).In the earlier judgment, the General Court annulled the revised decision of the EDPS of 24 November 2020, adopted following the request from the Single Resolution Board (SRB) for review of an EDPS decision concerning five complaints from several complainants.The note discusses the background of the dispute and the findings of the CJEU.It particularly focuses on two key points: first, the 'relative approach' confirmed by the CJEU for determining whether data is considered 'personal'; and second, the practical implications of this approach.It finally sheds light on legislative efforts (ie, Digital Omnibus proposal) to codify recent CJEU case law, particularly with regard to SRB, on the definition of personal data.

The Single Resolution Mechanism (SRM), which has been in operation since 2016, is particularly complex. It is headed by a ‘specific’ agency, the Single Resolution Board (SRB), but national authorities as well as national legal frameworks continue to play a decisive role in its operation. The Meroni doctrine also sets limitations on the extent to which (discretionary) powers may be delegated to the SRB. For this reason, very complex mechanisms had to be devised to guarantee that the European Commission and the Council would be sufficiently involved. Also, the SRM only applies to Banking Union Member States (i.e., euro area Member States and states in close cooperation). The co-existence of the Internal Market/EU27 on the one hand and the Banking Union on the other is a further source of complexity, as is the fact that the SRM partially relies on international law (the Single Resolution Fund and perhaps the European Stability Mechanism in the future). In short, the complexities within the SRM are many, and this article sheds light on them by considering complexities of a procedural, institutional and legal nature. It concludes by demonstrating that complexity has increased over time, yet it is probably unavoidable at this stage of European integration. However, efforts could still be made to simplify the applicable legal framework.

Comparative Analysis of the Resolution of Laiki Popular Bank and Bank of Cyprus vs Banco Popular: Before and After the Single Resolution Board

This article provides an analysis of the judgment of the Grand Chamber of the Court of Justice (the Court) of 15 July 2021 delivered in Joined Cases C-584/20 P and C-621/20 P (Commission and SRB v Landesbank Baden-W??rttemberg), which offers valuable insights into the question of the scope of the obligation to state reasons. In particular, the judgment clarifies how that obligation should be weighed, if necessary, with the obligation to protect the confidential data within the EU decision-making process. While the judgment specifically pertains to a decision of the Single Resolution Board regarding the calculation of ex-ante contributions to the Single Resolution Fund, its implications extend to all areas of EU law where the EU administration relies on confidential information in order to adopt a decision. Additionally, the judgment holds particular significance for the National Resolution Authorities of the Member States non-participating in the Banking Union, since they are required to calculate ex‐ante contributions to their national resolution financing arrangement and must, for this purpose, rely on the methodology provided by the EU legislator, as interpreted by the Court. Finally, the authors argue that regardless of its significance, the judgment leaves several questions unanswered regarding the adequacy of the reasoning of an administrative decision based on confidential data.

Banking crises are a feature of the modern financial system. However, their impact and probability can be mitigated by building trust in the banking sector. This is primarily achieved by banks themselves. However, with vigilant ex-ante monitoring and swift and decisive action when a banking crisis emerges, regulators can shore up trust in the banking sector. The Single Resolution Board, as the banking union’s central resolution authority, is a key element of the post-global financial crisis regulatory framework and has been promoting trust in the banking sector by making banks more resolvable.

We investigate whether the bank crisis management framework of the European banking union can effectively bar the detrimental influence of national interests in cross-border bank failures. We find that both the internal governance structure and decision-making procedure of the Single Resolution Board (SRB) and the interplay between the SRB and national resolution authorities in the implementation of supranationally devised resolution schemes provide inroads that allow opposing national interests to obstruct supranational resolution. The amendments to the framework recently proposed by the European Commission would not alter the assessment materially. We also show that the Single Resolution Fund (SRF), even after the ratification of the reform of the European Stability Mechanism (ESM) and the introduction of the SRF backstop facility, is inapt to overcome these frictions. We propose a full supranationalization of resolution decision-making. This would allow European authorities in charge of bank crisis management to operate autonomously and achieve socially optimal outcomes beyond national borders.

This article offers a thorough comparative law overview, analysis and discussion of the liability regimes which apply to financial supervisors and resolution authorities at the level of selected individual EU Member States and in major jurisdictions worldwide. There is a growing tendency to limit their liability in one way or another. The extent to which they are protected against liability claims, and the exact shape that this takes, is, however, not uniform across the jurisdictions studied. At the same time, a counter-movement is emerging, as limitations of liability are by no means undisputed and are under attack on various grounds. The large variety of approaches to liability of financial supervisors and resolution authorities is especially a concern within the European Banking Union (EBU). The European Central Bank (ECB) and the Single Resolution Board (SRB) collaborate closely with the National Competent Authorities (NCAs) and the National Resolution Authorities (NRAs) within the framework of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), respectively, so liability questions will often be intertwined. Yet, the applicable liability standards often differ, and different courts will have jurisdiction. In the view of the authors it would be preferable to adopt a uniform liability standard for the ECB/SRB and the NCAs/ NRAs. In line with this, the authors would be in favour of including a provision in the SSM Regulation/SRM Regulation to the effect that the Court of Justice of the European Union (CJEU) has exclusive jurisdiction in relation to the liability of both the ECB/SRB and the NCAs/NRAs.

Abstract 900 In bank resolution, swift and effective cooperation of different actors is of essence, particularly in cross-border cases. While the same can be said about cross-border insolvency management generally, the European framework for the recovery and resolution of failing banks and, in particular, the centralisation of resolution powers within the Single Resolution Mechanism stand out as particularly complex – and, at the same time, remains to some extent untested to the present date. Against this backdrop, the present article explores the statutory framework for cooperation between the Single Resolution Board, the European Central Bank in its capacity as supervisory authority within the Single Supervisory Mechanism, National Resolution Authorities and Third Country authorities. It concludes that, while the legal and institutional arrangements governing inter-agency cooperation are generally sound, operationalisation in actual cases might still be exposed to unexpected disruptions, especially in cases where political interests are at stake.

Abstract 936The three financial appeal bodies established in the EU (Board of Appeal of the European Supervisory Authorities, Administrative Board of Review of the SSM, and Appeal Panel of the Single Resolution Board) have certainly a number of advantages. Particularly, their technical expertise in matters of financial supervision and resolution makes them well placed to understand the intricacies, complexities and reactions of financial markets. The members of these bodies are individuals of high repute, with a proven record of relevant knowledge and professional experience and are not bound by any instructions, thereby acting independently and in the public interest. Yet, there are also drawbacks as the nature of these financial appeal bodies is hybrid, quasi-judicial, combining features from both advisory committees and courts of justice. Also, the legal regime applicable to these financial appeal bodies is both complex and not uniform. The rationale of the new European financial regulatory regime post GFC, which prompted the creation of the appeal bodies, resides in the primacy of financial stability and public interest considerations. Although there is no doubt that administrative decisions need to be motivated if they are to be reviewed, most of such decisions in the area of banking and finance are very complex and yet timing is crucial for them to be effective. On these grounds, legitimacy and accountability are of utmost importance for any democratic system to properly function; however, the more complex the activity, the more difficult it is to establish clear standards of conduct and specific outcomes.937

Zusammenfassung Nach Veröffentlichung der damals jüngsten Entscheidung des Joint Board of Appeal der ESAs vom 21. 7. 2022 in ZBB 2022, 240 findet sich nachfolgend die aktuellste Entscheidung einer weiteren Institution, die im Zuge der Bankenunion eingerichtet wurde, dem Beschwerdeausschuss des Einheitlichen Abwicklungsausschusses (SRB Appeal Panel), Art. 85 Abs. 1 VO (EU) Nr. 806/2014. Gem. Art. 85 Abs. 3 der Verordnung kann jede natürlich oder juristische Person einschließlich der Abwicklungsbehörden Beschwerde gegen einen der aufgeführten Beschlüsse des Abwicklungsausschusses einlegen, sofern dieser gegen sie gerichtet oder sie unmittelbar von diesem betroffen ist. Die in der nachfolgenden Entscheidung verhandelten MREL waren auch bereits Thema der Entscheidung 3/22 des Beschwerdeausschusses vom 13. 2. 2023. Ausführungen zu dieser finden sich bei Lamandini/Ramos Munoz, ZBB 2023, 158 – in diesem Heft.

The response to the global financial crisis (GFC) of 2007–2008 has famously been described as the problem of too-big-to-fail.1 In the middle of a worsening crisis, financial regulators had to recognize that bank bailouts were the only way to stabilize financial markets. One of the two priorities of regulatory reforms post-crisis was to address the too-big-to-fail problem by introducing a resolution procedure for systemically important financial institutions.2 Among financial regulators (with the notable exception of the USA), contingent convertible bonds (CoCos) were seen as a major innovation to address the too-big-to-fail problem and quickly became a popular “bail-in” instrument to facilitate the instant recapitalization of a distressed bank. The quick deleveraging that could be achieved with CoCo conversions would serve the dual roles of recapitalizing “a going-concern bank” and reducing the resolution costs for a “gone concern” bank. During the press conference on March 19, 2023 the Swiss Financial Market Supervisory Authority (FINMA) announced that, as part of the emergency package in response to the loss of trust and the run on Credit Suisse, the contingent convertible bonds that were part of the Credit Suisse Additional Tier 1 (AT1) regulatory capital had been written off.3 The decision by FINMA took many by surprise and provoked a flood of negative market commentary, with the commonly stated view that conversion violated the priority order of claims between debt and equity. Indeed, in the final rescue deal, the shareholders of Credit Suisse retain around $3 billion of equity value, while the CoCo bond principal write-down amounted to a wipeout of $17 billion for CoCo investors. Implicitly corroborating this commentary, the European Central Bank (ECB), the Bank of England, and other regulators made public statements on the Monday following the Credit Suisse deal that they do not intend to follow the FINMA approach and that they intend to respect the usual priority order of claims in resolution.4 How can these divergent views of regulators be reconciled? Why did the Credit Suisse AT1 CoCo bondholders face losses before shareholders were wiped out? What are the lessons for the effectiveness of post-GFC too-big-to-fail reforms? This article provides clarification of these important questions. CoCo bonds are designed to absorb losses of a distressed going-concern bank at conversion, thereby helping to capitalize the bank. Their primary purpose is to reduce the need for a capital injection by the government in times of crisis when nobody else is willing to provide additional external capital. Such public support is costly to taxpayers and exacerbates moral hazard. CoCo bonds have two main contract features: the loss absorption mechanism and the trigger that activates that mechanism (illustrated in Graph 1).5 CoCos can absorb losses either by converting into common equity or through a principal write-down (partial or full). The trigger can be either mechanical (i.e., defined in terms of a capital ratio) or discretionary (subject to supervisory judgment). The trigger defines the point at which the loss absorption mechanism is activated. The mechanical trigger activates the loss absorption mechanism when the capital of the CoCo-issuing bank drops below a pre-specified fraction of its risk-weighted assets. The bank's equity capital can be measured either based on book value or market value. The discretionary, or point of non-viability (PONV), trigger is activated based on the supervisor's assessment of the bank's possible insolvency. PONV triggers give regulators authority to convert, if and when they decide that the issuer has reached that state. Because the PONV is difficult to determine ex ante, PONV triggers introduce uncertainty about the timing and circumstances leading to the activation of the loss absorption mechanism by the regulator. CoCo bonds typically have more than one trigger. In case of multiple triggers, the loss absorption mechanism can be activated when any trigger is breached. Under Basel III rules, all regulatory capital CoCos are required to have a discretionary PONV trigger. The activation of the discretionary trigger, which was present in all CoCos issued by Credit Suisse, was exactly what allowed FINMA to write down Credit Suisse AT1 capital instruments on March 19, 2023. The loss absorption mechanism is the second contract feature of CoCos. Once the trigger is activated, CoCos can be either converted to equity at a pre-defined conversion rate or subject to a principal write-down. In either case, the conversion delevers the bank and/or boosts its equity capital ratio. For conversion to equity CoCos, the conversion rate can be based either on the market price of the stock at the time of conversion, or on a pre-specified price, like the stock price at the time of issuance. It is also possible to have a combination of market price and prespecified price floor, where the latter defines the floor for the conversion rate and hence protects existing equity holders from unlimited dilution. The various options for setting the conversion price lead to different exposures to dilution risk for existing equity holders, and thus create varying incentives to avoid conversion by existing equity holders. In the case of the principal write-down CoCos, the haircut can be either full or partial. However, most of the principal write-down CoCos of Credit Suisse were full write-down CoCos. The write-down CoCos potentially encourage risk taking by managers acting in the interest of shareholders. The regulatory treatment of CoCos under Basel III and the supplementary requirements of national regulators shape the design choices of CoCo contract features of issuing banks (that can be seen in Graph 2). Under the Basel III framework, CoCos must satisfy two requirements to qualify as regulatory capital. The first requirement, which applies to both AT1 and T2 instruments, is satisfied by the PONV trigger. The second requirement is the going-concern rule, which specifies that the minimum trigger level of CET1/RWA to qualify as AT1 is 5.125%. In addition, AT1 instruments must be perpetual. Importantly, these features are not necessarily outcomes of optimal financial contracting between the issuer and its investors. The regulatory rationale for CoCos is to improve banks’ resilience to financial shocks by strengthening their capital buffers in a crisis, while also providing investors with an investment opportunity that is distinct from debt and equity. By issuing CoCos, banks can raise capital while limiting the dilution costs of current shareholders at issuance and reduce the likelihood of becoming insolvent or requiring a government bailout. In particular, CoCos allow banks to seamlessly recapitalize during times of financial stress. The conversion or write-down of CoCos allows the bank to transfer some of the losses to CoCo investors, ensuring that the costs of bank failures are borne by investors rather than taxpayers. In addition to reducing the cost of distress, the possibility of CoCo conversion provides bankers with incentives to limit the probability of distress. CoCos can be an attractive investment opportunity for long-term investors who understand and are able to take losses in a crisis. CoCos typically offer higher yields than traditional bonds due to their contingent nature, their low priority ranking (on par or even lower than equity investors), and the high systematic component in their risk. Because institutional mandates often block traditional fixed income investors from taking positions in conversion to equity CoCos, the market yield on the instruments may also contain a premium for sophisticated and flexible investors in terms of market segregation. In their 2013 Primer on CoCos published by the Bank for International Settlements, colleagues Stefan Avdjiev, Anastasia Kartasheva, and Bilyana Bogdanova show that the yield-to-maturity of newly issued CoCos are on average 2.8% higher than the subordinated debt, and 4.7% higher than the senior unsecured debt, of the same bank.6 However, the popularity of CoCos could also be partly driven by the search for yield in a low interest rate environment, which have been touted by financial advisors that sometimes misrepresented the product as a relatively safe way of boosting yield. CoCos are often perceived as similar to total loss absorbing capacity (TLAC) instruments, since they are also financial instruments designed to “bail-in” troubled systemically important banks. There are, however, key differences between the two. The primary purpose of CoCos is to delever a bank amid a crisis, by writing down debt or providing equity capital, or both. CoCos are thus designed to maintain the equity cushion of a going concern bank. TLAC, which are usually T2 capital, are additional loss absorption requirements for global systemically important banks (GSIBs) like Credit Suisse to enable a single point of entry resolution. The goal of TLAC is to ensure that the holding companies of systematically important banks have sufficient capacity to absorb losses so that their operating affiliates can continue operating without putting their liabilities at risk. By contrast, CoCo conversion could take place while the bank is still a going concern. A 2020 article in the Journal of Financial Economics we wrote with Stefan Avdjiev and Bilyana Bogdanova provides the first comprehensive analysis of bank CoCo issuance.7 Out of the 731 Coco issues raising over $500 billion between 2009 and 2015, European issues took the largest share (39%), while U.S. was absent from the list. At the time of the Credit Suisse trigger event, the global AT1 CoCos market was estimated to be $254 billion.8 About 56% of these CoCos include a mechanical trigger. Though in the first years of our sample mandatory conversion CoCos were prevalent, principal write-down CoCos have become more popular over time, eventually dominating the market. Finally, slightly more than half (55%) of the CoCos up to 2015 were classified as AT1 capital, while most of the T2 CoCos tend to be issued by banks in emerging economies. Our 2020 Journal of Financial Economics article also shows that the propensity to issue a CoCo is higher for larger and better capitalized banks. Presumably only relatively healthy banks, with remote conversion risk, are able to issue CoCos at a reasonable cost. Another reason is that the principal beneficiaries from a CoCo issue are senior bondholders, whereas shareholders expose themselves to dilution risk. The same JFE article shows that the CDS spreads of CoCo issuers decline upon the announcement of a CoCo issue, indicating that they generate risk-reduction benefits and lower costs of debt. While the average reduction in CDS spread was 2.7 basis points, the drop was more prominent for conversion CoCos (5.0 bps), including those with mechanical triggers (3.3 bps). Conversion CoCos with mechanical triggers are also associated with a reduction of 6.2 bps in CDS spreads. Only Additional Tier 1 instruments contributed to the reduction of CDS. Finally, CoCo issuances have no statistically significant impact on the issuers’ stock prices, except for the case of principal write-down CoCos with high trigger levels, which involve no dilution risk for shareholders and for which stock price responses have been significantly positive on average. Such a contrast suggests a potential moral hazard on shareholders’ part to take excess risk, since the cost will be first borne by the holders of write-down CoCos. CoCos that convert to equity offer a superior design from the point of view of reducing bank fragility. In the case of Credit Suisse, all outstanding CoCos were principal write-down CoCos, and this is the reason why their investors received no equity stake in the merger with UBS. Had they issued conversion to equity CoCos, they would have received shares in the merged company. The collapse of Silicon Valley Bank (SVB) on March 10, 2023 sent shockwaves through the financial system and quickly drew investors’ attention to the prominent weaknesses at Credit Suisse, which was impelled to seek up to CHF 50bn in liquidity support from the Swiss National Bank (SNB) on March 16, 2023. This dramatic move failed to quash speculation, or slow down deposit withdrawals, to the extent that 2 days later the SNB and FINMA announced that they had begun proceedings to organize a takeover of Credit Suisse by UBS. The Swiss financial regulatory authorities had decided that the best way to avert another GFC was to rescue Credit Suisse through a merger with a strong financial institution, following the playbook of the Federal Reserve and US Treasury in 2008 with its rescue of Bear Stearns through a merger with JPMorgan and what has colloquially become known as the “Jamie deal” in reference to the CEO of JPMorgan.9 It is revealing to contrast these two deals, as the contexts are different and the limits on the legal authorities of regulators are different. The Federal Reserve and Treasury did not have nearly the same authority to push through a merger as the Swiss government under the Swiss emergency law. The Federal Reserve had to invoke section 13(3) of the Federal Reserve Act to claim authority to provide liquidity support “under unusual and exigent circumstances” to a broker-dealer. Beyond the authority to provide liquidity support the Federal Reserve (and US Treasury) had no means other than moral suasion to get the management of Bear Stearns and JPMorgan to agree to merge at a proposed price of $2 per Bear Stearns share. They had no authority to sidestep shareholder agreements at both Bear Stearns and JPMorgan, and they could not write down Bear Stearns liabilities outside Chapter 11 bankruptcy. The only way the deal could be structured outside bankruptcy was as a purchase-and-assumption deal whereby JPMorgan agreed to assume all Bear Stearns liabilities. However, even at the price of $2 per share, this was seen as too risky by JPMorgan management and might not receive the blessing of JPMorgan shareholders. To overcome this hurdle the Federal Reserve agreed to back up the deal by setting up an innovative collateralized special purpose vehicle—Maiden Lane LLC. This vehicle would be financed with a junior tranche of $1 billion from JPMorgan and a $29 billion senior tranche of the Federal Reserve, and it would purchase up to $30 billion worth of troubled assets of Bear Stearns, thereby de-risking the Bear Stearns balance sheet. The Federal Reserve and Treasury also had to make concessions to Bear Stearns shareholders by eventually raising the share price to $10.10 Although this deal was in and back some in financial a later a similar merger between and the The Swiss regulatory authorities were in a better to a deal between Credit Suisse and UBS. They could shareholder a resolution of and they did not have to public at risk by setting up a special purpose vehicle to the Credit Suisse balance sheet. they had to do was trigger the write-down of Credit Suisse CoCos that had been designed and issued for a contingent FINMA did that, that government support Credit will trigger a write-down of the value of all AT1 shares of Credit Suisse in the of around and thus an in The principal write-down of these AT1 instruments allowed for a of the Credit Suisse balance sheet. that one of the main of the Bear Stearns and later in the of has been that the of in all these a moral hazard in in this the write-down of the Credit Suisse AT1 bonds would not only the Credit Suisse balance also market that of systemically important financial would be in a crisis. Although the write-down of Credit Suisse CoCos following the rescue of Credit Suisse was it in financial and a crisis in the AT1 bond market. in Credit Suisse AT1 bonds were that their bonds had been written down even Credit Suisse shareholders the first in the CoCo To many as we have this to be an of a and of at the Financial market is to be by a of the of and by the decision to an equity deal at the of bond There had been a of a similar CoCo write-down in when was over by in that case shareholders had been wiped so that was at an that part of the that equity the most junior had been It is not investors who were also financial regulators outside potential in the billion AT1 bond of the quickly on that a resolution in the European we would follow the and we to it to the investors, to avoid to be we have no to respect this the Monday following decision the with the and issued the common equity instruments are the first to absorb and only their full would Additional Tier 1 be required to be written This approach has been in and will continue to the of the and in crisis from and regulatory only to It was only a of a days before of The and quickly announced that a was in the Credit Suisse rescue as “a resolution up as a and on the and responses that has when other regulators and point that in a resolution would have investors like the and of a global in that, this is to can trust any debt issued in or for that if can the are made to be did in the terms ex and the of AT1 most of the CoCos issued by Credit Suisse are principal write-down CoCos with similar For the CoCo issued in on the following based on Credit Suisse ratio. a or to a a the full principal of the will be and written and of the in the for the of and The that will if Credit Suisse common equity 1 by its risk assets as of any balance in the case of of these instruments, other by is below and FINMA has not agreed in writing to of CET1/RWA that a full conversion or as not it is satisfied that circumstances or have or will the of the CET1/RWA to a level that it to be In addition, the following will if either FINMA that it has that a conversion or of the with the conversion or of claims in respect of all other regulatory capital instruments issued by a of the Credit Suisse that, to their terms or by of are of converted into equity or at that time, to improve capital are at the time or an requirement to from becoming or to a part of its as they or from to on its or to improve capital at the time or an of support from the public and in the that or will the of capital and without in the of would have become to a part of its as they due or to on its The of either or both of these two is also to as the of or the The additional Credit Suisse on AT1 bonds “under FINMA has the to proceedings with respect to under Swiss is subject to the resolution under Swiss and if the have not been subject to a could convert the into equity or the in case, in or in be that, in the case of any conversion into FINMA would follow the order of priority under Swiss which other that the would have to be converted to the conversion of any of subordinated debt that not qualify as regulatory capital with a write-down or conversion in the case of any FINMA may not be required to follow any order of which other that the could be in or in part to the of any or all of equity are not to FINMA its authority under these to trigger conversion it that Credit Suisse had reached the The Credit Suisse CoCos were not “gone concern” CoCos concern” CoCos. By these CoCos, FINMA the AT1 as they were to to allow for a recapitalization so that Credit Suisse could be back to a point insolvency. A first has been by and FINMA on that the AT1 bond write-down was and that FINMA did not in the collapse of up on Credit Suisse with both its stock price and its CDS spread Financial an in investors’ perceived probability of a and the announcement of the billion from the SNB did not these Though investors the possibility that could be a on Credit Suisse as in the CDS the below suggests that investors did not a write-down of AT1 bonds on the of the takeover of Credit Suisse It is difficult to what of investors the possibility of a write-down of AT1 bonds even if shareholders were not wiped the of the Credit Suisse CoCo bond issued in in these bonds higher interest than bonds as for the risk of a write-down. higher investors in a low interest rate environment, and their high yields were part of a major like this one in by a Credit Suisse the of CoCo market a yield of around even European bonds in at around so we still value in subordinated financial bonds The average European bank would need to of its capital to investors in AT1 bonds may not have been of the they were that CoCos were as issued by systemically important financial might also be of the that CoCos are junior to equity. This is for the view by the CEO of banks market AT1 bonds as and get with the yields on The surprise of decision can also be seen in the AT1 bond market following the write-down. the below was a in this market in the days following the Credit Suisse in addition to the of the contingent of CoCos. the market has since for the CoCo write-down in was no of CoCo conversion one could from the Credit Suisse CoCos as CoCo conversion or write-down up the balance of a bank in and stabilize financial could only and our analysis in our 2020 Journal of Financial Economics article could at only what investors at the time of issuance. the Credit Suisse only one many lessons can be from this The first is that the way CoCos have been structured is a of some sophisticated investors to have been about the between going-concern and CoCos. often did not that was a and for those who it was not to the The of going concern CoCos is to allow the bank could by a that before equity investors are wiped Another of that to a of uncertainty in the Credit Suisse is the of multiple triggers, an trigger when a capital is and a discretionary trigger that the financial could if it that the issuer had reached the This to and costly It also the risk of to investors. One of the with the discretionary trigger is what the PONV is have been regulators ex and to regulatory The that the and that they had to that they did not intend to from priority to the AT1 bond market is revealing of the extent of regulatory that is in these instruments, which to the and discretionary triggers, and their the in the probability of a CoCo There are no financial that can be to price these contingent with decision to write down Credit Suisse AT1 the by the and and the in the AT1 bond market following the write-down have the market for this important instrument and of capital for banks. It would be a if the of the Credit Suisse were the of CoCos from bank regulatory capital when the Credit Suisse CoCos have their for a and which the of the merger deal with and so Swiss taxpayers to losses from Credit In its decision FINMA also a healthy financial in AT1 bond by investors that their investment the first of risk and that due is before in these and of CoCo is with all the around the Credit Suisse One design that has been in the of of CoCos following the financial crisis that is worth is the CoCo design proposed by one of the present with in our article in The proposed design has main and The more is a CoCo without or discretionary trigger, an for the issuer to convert the claim into equity. Under this the CoCo-issuing bank would in purchase a to issue equity at a pre-specified price, as to the convertible bonds for which the the conversion This is the design for a going-concern It is not a for debt a capital for the issuing bank. It in a of in equity that the issuing bank to raise equity capital at terms in a crisis. In with we that a capital the costs of holding an equity capital for banks by to raise equity capital only when it is at a cost. Because this CoCo design is structured as a convertible bond collateralized for the the optimal conversion point is based on and thus the of the CoCo is an a uncertainty and around the instrument is Another of this instrument is that it provides a to equity capital. The CoCo bond the issuer the to issue capital at terms in a difficult time, often in and thus its equity capital This CoCo design in a of capital with the that the issuer can decide when it is to thus the on regulators to decide when it is to the equity capital under this design the issuer the CoCo into equity when the equity value is thereby recapitalizing the bank and strengthening its balance when it is Finally, the convertible CoCo design the of the in the conversion decision (and all the associated legal as is the case due to the discretionary trigger requirements of AT1 capital instruments under Basel In the of the Credit Suisse CoCo investors have the Swiss regulatory authority for a rescue that to investors’ assets following the Credit Suisse takeover by The collapse of Credit Suisse an important for financial their to up resolution for the the and of of resolution has so the risk of a like Credit Suisse that the Swiss regulatory authorities decided that a purchase and deal with by the SNB was to the Financial at the between the Swiss regulatory authorities and Credit Suisse on March where the SNB the CHF 50bn they also another will merge with and before This is not a on the would have been a for the financial system and the of around the another at the were also a is not for the Swiss we on the we would and one of the of the Swiss Federal in an with the that Credit Suisse have an financial a systemically important bank be up to the to this would be In however, the would be The of Credit Suisse would have other banks into the one this The is that financial regulators must the current approach to the too-big-to-fail problem and resolution. What is the point of TLAC and if when push to regulators a over resolution. One important positive of the Credit Suisse crisis, however, is that it has that $17 billion of CoCos can be written without the system into the This quick and debt write-down has some way in the too-big-to-fail problem and has significantly the cost of Credit Suisse for the Swiss all the too-big-to-fail the Credit Suisse CoCos did their financial on the of contingent capital like CoCos that can be activated to a bank's regulators also need to the of CoCo in terms of their conversion mechanism and their trigger triggers that are in CoCos offer regulators a possibility to in the middle of the crisis. the regulatory it difficult to price the risk of conversion as we in thereby the effectiveness of In we proposed an CoCo providing the issuing bank an to convert into are more and flexible instruments designed to give banks the opportunity to recapitalize during a crisis, and they are more to price the trigger is at the of the and CoCo requirements that enable recapitalization of a troubled bank be the of regulators in and in the and

This Note assesses the bank recovery, resolution, and crisis preparedness regime in Ireland. It analyzes laws, policies, procedures, institutional capacity and coordination arrangements for bank failure resolution and for managing financial distress and crises. The assessment is focused on banks under the direct remit of the Central Bank of Ireland and does not evaluate the role played by the European Central Bank and the Single Resolution Board for Ireland’s largest banks. The Note also assesses steps toward adopting a recovery and resolution regime for insurers. The Note is guided by international standards, in particular the Key Attributes of Effective Resolution Regimes for Financial Institutions promulgated by the Financial Stability Board.

Abstract The crisis management and deposit insurance (CMDI) framework in the euro area requires a reset. This article explains why and proposes a new framework. This could start as early as 1 January 2024 when significant institutions in the euro area will have met requirements to have enough subordinated obligations outstanding to recapitalize the bank if it were to fail. The proposed framework has four components: a single lender of last resort (the European Central Bank); a single presumptive path for resolution (exit via the use of bail-in to facilitate orderly liquidation of the failed bank by the Single Resolution Board under a solvent wind-down strategy); an investor of last resort in a bank’s gone-concern capital (its national deposit guarantee scheme); and a Single Deposit Guarantee Scheme (the Single Resolution Fund with a backstop from the European Stability Mechanism). Together, these measures would limit forbearance, assure bail-in did not touch deposits, promote competition, limit recourse to taxpayer money, standardize resolution procedures for all banks, complete Banking Union and guarantee that a euro of covered deposits would remain a euro, all without forcing national deposit guarantee schemes to reinsure one another. Last but not least the proposed framework would promote financial stability.

The EU reform project ‘Banking Union’ has dominated the discussion on EU banking law in recent years. After the establishment of the European System of Financial Supervision (ESFS) comprising inter alia the European Banking Authority (EBA) in 2011, the Banking Union was proclaimed by the Commission in September 20121 and since then has been gradually implemented. While the European Deposit Insurance Scheme (EDIS) is highly contested and has been stuck in the legislative process for years,2 the two other columns of the Banking Union have been set in place. These are the Single Supervisory Mechanism (SSM) on the supervision of banks with a strong involvement of the European Central Bank (ECB) and the Single Resolution Mechanism (SRM) on the resolution of banks. With the SRM-Regulation,3 adopted in July 2014, a new European agency,4 the Single Resolution Board (SRB), was established. What is more, a Single...

Abstract Executive bodies can acquire constitutive powers, even if subject to detailed substantive strictures. Constitutive powers give executive bodies the possibility to transform normative understandings of the meaning of norms and of the goals of public action into legal forms. These bodies thus engage in a jurisgenerative process that enables them to progressively delimit their legal mandates in reaction to socio‐economic and political realities. The article illustrates this argument by examining the power of the EU Single Resolution Board (SRB) to determine the resolution of a bank in crisis. It concludes that, in view of constitutive powers, the normative demands that the EU legal system places on executive and administrative bodies must be reconsidered. On that basis and to that effect, mechanisms of accountability should be reconceptualised and reoriented.

An objective of the European Union’s Banking Union is to prevent Member States from having to subsidise banks. The Single Resolution Mechanism may have limited but has not eliminated state aid to banks. This is shown by the relevant statistics, the number of positive Commission decisions and the provisions of the Single Resolution Mechanism Regulation. State aid is allowed in three situations: when a bank is resolved, when it is liquidated and when it is solvent but needs temporary liquidity or more capital. This article identifies a difference between the European Commission and the Single Resolution Board in the interpretation of the concept of “public interest”. The article further argues that this difference may not contradict the objectives of the Banking Union if state aid is still necessary to prevent damage to regional economies.

Considerations on the application of the NCWO principle under the SRM Regulation

Removing the regulatory barriers to cross-border banking

Abstract1. Bank crises and the treatment of retail investors in the BRRD era. – 2. The problem of misselling in the context of self-placement of securities issued by banks. – 3. The (loose) interplay between investor protection and bank resolution in the current regulatory environment. – 4. The Single Resolution Board’s policy on the treatment of retail clients’ holdings for the purpose of MREL eligibility. – 5. Art. 44 a BRRD 2 on the «selling of subordinated eligible liabilities to retail clients». – 6. The need for a more effective integration between investor protection and bank resolution discipline: from an ex-post to an ex-ante approach. The role of product governance under MiFID 2. – 7. Concluding remarks.

A Proposal for a Temporarily Amended Version of Precautionary Recapitalisation Under the Single Resolution Mechanism Regulation involving the European Stability Mechanism