On November 6, 2015, the German Resolution Mechanism Act (Abwicklungsmechanismusgesetz – “Act”) entered into force.
Among other things, the Act modified the ranking in insolvency of certain senior unsecured debt instruments (Schuldtitel – “Debt Instruments”) issued by German banks. The reason behind the modification which will apply from January 1, 2017 was to facilitate the application of the bail-in tool introduced by the Bank Recovery and Resolution Directive, or BRRD (Directive 2014/59/EU), to Debt Instruments without the risk of violating the no-creditor-worse-off principle. On August 5, 2016, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”) and the Federal Agency for Financial Market Stabilization (Bundesanstalt für Finanzmarktstabilisierung – “FMSA”) issued joint interpretive guidance with respect to the relevant provisions of the Act (“Guidance”). The Guidance provides helpful clarification regarding the ranking of certain types of bank debt.