Response to eBA consults on technical standards on impracticability of contractual recognition of bail-in
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We consider that contingent liabilities should not be subject to bail in. Applying bail-in on such liabilities may negatively affect the bank-customer relationship and may disrupt the provision of the relevant trade finance services. Bail-in of such liabilities would most probably undermine the confidence of the relevant clients of the bank without improving the net asset value of the bank in resolution, since these liabilities are off-balance sheet. Hence, undesirable ripple effects could be caused to the trade finance chain, frustrating underlining trade transactions, without improving the bank’s financial position.
This is line with our position demonstrated and communicated to the Single Resolution Board (SRB).
Therefore, since such liabilities should not be subject to bail in, there will be no question of incorporating the contractual recognition of bail in language.
Q3. Do you agree that the categories of liabilities in the above table do not meet the definition of impracticability for the purpose of Article 55(6)a)?
We disagree with the following statement included in the consultation: 'Contingency is not a condition of impracticability per se; as long as the liability (contingent or not) stems out of a contract, that contract should include contractual recognition. If the characteristics of the contract do not allow such a clause, that relevant condition should be identified (from those proposed in the draft RTS). However, the contingent nature of the liability cannot be seen as a reason for impracticability.'We consider that contingent liabilities should not be subject to bail in. Applying bail-in on such liabilities may negatively affect the bank-customer relationship and may disrupt the provision of the relevant trade finance services. Bail-in of such liabilities would most probably undermine the confidence of the relevant clients of the bank without improving the net asset value of the bank in resolution, since these liabilities are off-balance sheet. Hence, undesirable ripple effects could be caused to the trade finance chain, frustrating underlining trade transactions, without improving the bank’s financial position.
This is line with our position demonstrated and communicated to the Single Resolution Board (SRB).
Therefore, since such liabilities should not be subject to bail in, there will be no question of incorporating the contractual recognition of bail in language.