Competent authorities have different tools and procedures available to carry out the resolution of an entity:
Sale of business tool
Allowing the resolution authority to sell the entity (or parts of its business) to one or more buyers, without the need for the consent of its shareholders.
Bridge institution tool
When no immediate buyer is found, the critical functions of the entity are maintained through a “bridge bank” controlled by the resolution authority. In this manner, it is possible to preserve the activities of the entity until it is sold, which should generally happen in a maximum period of two years.
Asset separation tool
In some cases, it is convenient to separate certain assets and liabilities from the unviable entity in order to enable implementation of other resolution tools and transfer them to an asset management vehicle, which becomes responsible of their management with the objective of selling them maximizing their value.
The asset management vehicle and the bridge bank operate under the control of the resolution authority.
It allows the resolution authority to amortise capital instruments and, where appropriate, certain debt instruments in order to absorb the losses incurred by the entity. Subsequently, other debt instruments are converted into equity, in order to recapitalize the entity, thus becoming the holders of these debts the new shareholders.
Additionally, the entity must undergo a restructuring plan so that the causes that produced its unviability are corrected.