The European Banking Authority (EBA) has issued three sets of final Guidelines on bail-in under the Bank Recovery and Resolution Directive (BRRD). These Guidelines complement existing regulation and guidance to facilitate the use of the bail-in power as a way of absorbing losses and recapitalising banks in resolution. In particular the Guidelines clarify how valuation information should help determine the terms of bail-in.
The first set of Guidelines focuses on conversion rates in bail-in. It highlights guiding principles resolution authorities are to apply when setting debt-to-equity conversion rates both in a bail-in context, or when the power to write down and convert capital instruments is not applied in conjunction with any resolution tool. These Guidelines point out the role of the valuation of assets and liabilities of failing institutions, mandated by the BRRD, in defining the expected value of the combined equity and debt claim after resolution, and their expected value in the
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