By Morrison & Foerster LLP
Excerpt: 2011 Emerging Issues 5849
SUMMARY: One important aspect of the
international response to the financial crisis is the ongoing work in relation
to proposals that banks and other financial institutions be required to issue
debt with "bail-in" features, i.e. debt that is subject to write-down
or conversion into equity in certain circumstances. This commentary sets forth
possible structures that could meet these objectives.
One important aspect of the international response to the financial crisis is
the ongoing work in relation to proposals that banks and other financial
institutions be required to issue debt with "bail-in" features, i.e.
debt that is subject to write-down or conversion into equity in certain
circumstances. The Financial Stability Board and Basel Committee for Banking
Suspension are continuing to consider proposals in this regard, particularly in
relation to institutions regarded as systemically important. A recent working
document published by the DG Internal Market and Services of the EU Commission
(the "EU Paper") set out various technical details of a possible EU
framework for bank recovery and resolution. Amongst the more controversial
aspects of the EU Paper is a proposal that a mechanism be introduced allowing relevant
regulatory authorities of member states to require a bank to write down or
convert to equity some or all of the debt owed to its unsecured creditors
(subject to certain exemptions) upon the occurrence of specified trigger
Feedback to the EU Paper so far, including from the European Central Bank, has
highlighted that such approach is likely to have a significant impact on the
way banks obtain funding and should not be introduced without a full impact
assessment being carried out. The EU Paper is therefore subject to development
and change and the EU Commission may make significant changes to its approach
following completion of the consultation process. We understand that concerns
in relation to the EU proposals and the other international initiatives referred
to above are already leading some investors away from unsecured senior bank
debt and towards covered bonds. ...
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About the Authors:
Jeremy Jennings-Mares is a partner in the Morrison &
Foerster's Capital Market practice. His practice specializes in structured
products, derivatives and structured financings, including structured notes,
derivatives, and medium-term note programs and other cross-border debt
securities offerings. He is a contributor to Covered Bonds Handbook,
published by Practicing Law Institute (2010).
Peter Green, a partner at Morrison & Foerster, focuses primarily on
structured credit and structured products transactions. He represents
investment banks, issuers, investors and other providers of financial services
in relation to public offerings and private placements of debt instruments. He
has advised in relation to the unwinding and restructuring of a number of such