On November 23, 2016, the EU Commission published legislative proposals amending Directive 2014/59/EU (BRRD) with a view to inter alia (A) introducing a new pre-resolution moratorium tool and (B) modifying creditor hierarchy in insolvency.
Moratorium Tool - The EU proposal introduces a 5-day suspension (“moratorium”) tool which could be used in early intervention, i.e. before the institution has reached the point of non-viability or is placed in resolution.
Creditor Hierarchy - The EU proposal introduces a new rank in insolvency (“senior non preferred”) for long term debt instruments, which will rank senior to regulatory capital and subordinated debt, but junior to other unsecured liabilities. These debt instruments would therefore be bailed-in before other unsecured liabilities (such as operational liabilities, derivatives and deposits), which is designed to improve the resolvability of EU institutions and facilitate compliance with the Financial Stability Board’s “total loss absorbing capacity” (TLAC) standard.
This proposal builds upon legislation recently enacted in certain Members States including France, Germany and Italy, and closely aligns with the French “Sapin 2” law enacted on December 9, 2016.