In order to carry out the resolution of an institution, the competent authorities are equipped with various tools and procedures that can be applied without shareholder approval.
Sale of business
This tool enables the resolution authority to sell the institution (or parts of its business) to one or more purchasers.
Bridge institution
This entails transferring all or part of the institution’s functions, assets and liabilities to a “bridge bank” controlled by the resolution authority. This ensures the continuation of the institution’s activities until it is sold, which should generally happen within two years.
Asset separation
In some cases, to facilitate applying another resolution tool, certain assets and liabilities may be transferred from a failing institution to a specialist asset management vehicle for their sale within a certain period of time, thereby maximising their value, avoiding disruptions on the financial markets and/or ensuring the proper functioning of the institution under resolution. The asset management vehicle operates under the control of the resolution authority.
Bail-in
This tool allows for an institution’s asset and solvency position to be restored by writing down and converting its debt instruments. Write-downs enable those losses not covered by the institution’s own funds to be absorbed, and the debt instruments are converted into equity to recapitalise the institution, turning the holders of these debt instruments into new shareholders.
The institution must also undergo a restructuring plan that addresses the reasons for its failure and restores its future viability.