Having made a decision on placing an institution under resolution, the Financial Stability Authority is empowered to apply resolution tools as referred to in Chapters 8–11 of the Resolution Act. These include write-downs and conversions of liabilities (bail-in), sales of business, bridge institutions and asset management vehicles. Resolution tools can be used only after an institution's assets have been evaluated in the manner referred to in Chapter 5 of the Resolution Act and the bail-in of the shareholders has been effected in the manner referred to in Chapter 6 of the Act. Several tools can be used simultaneously for restructuring the operations of an institution.
As regards decisions on the use of resolution tools, the competence of the Financial Stability Authority supersedes what is provided for elsewhere in the Act on the competence and decision-making of an institution's administrative bodies. Consequently, the Financial Stability Authority is entitled to make decisions as referred to in Chapters 8–11 of the Act without the involvement of an institution's managing director, board, supervisory board, if any, or annual general meeting or other body exercising supreme decision-making powers in the institution. However, ordinary organisational bodies have their own tasks and powers in so far as these do not fall within the remit of the Financial Stability Authority by virtue of the Act or the Authority's decision.
Write-down and conversion of liabilities (Bail-in)
The right of the Financial Stability Authority, as provided for in Chapter 8 of the Act, to write down the nominal value of liabilities and convert liabilities into regulatory capital instruments applies to all liabilities, except for those specified in section 4 of the said Chapter. Excluded from eligible liabilities are repayable deposits covered by deposit insurance; secured liabilities; liabilities based on employment relationships, except for variable remuneration; accounts payable relating to goods and services; liabilities with original maturities of less than seven days vis-à-vis other institutions; and liabilities arising from payments and securities settlement. In certain situations, the Financial Stability Authority may exercise discretion for excluding from bail-in also other liabilities and, correspondingly, may offset the amount equivalent to such exceptions by lowering the value of other eligible liabilities. However, in doing so, the Authority must take into account the general principle of the Act under which creditors must not be placed in a position inferior to that in an institution's bankruptcy.
According to the Act, an institution is obliged to submit a proposal for restructuring its activities subsequent to the write-downs of liabilities and their conversions into regulatory capital instruments, as provided for in Chapter 8. It should be noted that Chapter 6 of the Act provides for the write-down of equity items in terms of book value.
Sale of business
Sale of business as a resolution tool covers, in addition to partial transfer of assets and liabilities to another undertaking, also mergers through combination or absorption and de-mergers, as well as forced sale and further disposal of an institution's shares or participations. Transferable assets and liabilities must be publicly offered to purchasers unless it jeopardises the resolution objectives.
In the event of applying the bridge institution tool, an institution's assets and liabilities may be transferred to an existing institution. The Financial Stability Authority is to exercise control in that institution, but such a bridge institution may also have other public or private owners. The purpose of a bridge institution's activity is always to enable continuity of critical business operations of an institution placed under resolution and further disposal of the assets and liabilities transferred to the bridge institution. The Financial Stability Authority ensures that a bridge institution is, among other things, duly authorised and registered and has the necessary resources for business continuity. Upon application by the Financial Stability Authority, the Financial Supervisory Authority (FIN-FSA) may grant a bridge institution a fixed-term derogation from capital and liquidity requirements.
The Financial Stability Authority must decide on a bridge institution's merger, de-merger, sale of its shares or other dissolution as soon as possible and no later than in two years (three years in exceptional cases) of receipt of transferred operations. In terminating the operation of a bridge institution, the Financial Stability Authority must make a public purchase offer for the bridge institution's shares or participations or assets. The Financial Stability Authority is to opt for the most favourable offer that does not jeopardise the resolution objectives and the smooth functioning of the financial markets.
ASSET MANAGEMENT VEHICLE
In applying the above resolution tools, the Financial Stability Authority may set up one or more limited liability companies (asset management vehicle) and decide on the transfer, in one or more instalments, of the assets and liabilities of an institution under resolution or of a bridge institution to an asset management vehicle. The articles of incorporation of an asset management vehicle must indicate that it is an asset management vehicle as referred to in the Act. The Financial Stability Authority may decide on the transfer of the assets and liabilities of an institution under resolution or of a bridge institution to an asset management vehicle if they cannot be sold without incurring losses or causing disruptions to the functioning of the financial markets or if ensuring the appropriate operation of an institution under resolution or of a bridge institution so requires. The Financial Stability Authority must determine the consideration against which assets or liabilities are transferred to an asset management vehicle, thereby complying with the provisions on the valuation of assets in Chapter 5 of the Act.
The Financial Stability Authority is required to subscribe for at least such proportion of the shares of an asset management vehicle as constitutes more than half of the total number of votes carried by all the vehicle's shares. The Financial Stability Authority must sell the asset management vehicle's shares, decide on the merger or de-merger of the asset management vehicle or dissolve the asset management vehicle as soon as this is feasible without such termination of the operations causing significant losses or significant disruptions to the financial markets or jeopardising the achievement of the resolution objectives.