Banking Resolution

Glossary

The European banking resolution framework, term by term. Definitions cite their legal basis in BRRD, SRMR and related standards.

A

Additional Tier 1 (AT1)Additional Tier 1 instruments are perpetual, deeply subordinated bank securities with discretionary coupons that convert to equity or are written down when the issuer's capital falls below a contractual trigger — the first debt layer to absorb losses.Asset separation toolThe asset separation tool transfers impaired or problem assets of a bank in resolution to a dedicated asset management vehicle — a “bad bank” — to be managed or sold over time; it may only be used together with another resolution tool.

B

Bail-inBail-in is the resolution tool that absorbs a failing bank's losses by writing down or converting its capital instruments and eligible liabilities in creditor-hierarchy order, so shareholders and creditors — not taxpayers — bear the cost of failure.Bridge institution toolThe bridge institution tool transfers a failing bank's critical functions to a temporary, publicly controlled bank — a bridge — keeping them running until a private sale or orderly wind-down, normally within two years.

C

Creditor hierarchyThe creditor hierarchy is the statutory ranking of a bank's capital and liabilities that fixes the order in which they absorb losses: equity first, then AT1, Tier 2, other subordinated debt, senior non-preferred, and ordinary senior claims.

F

Failing or likely to fail (FOLTF)“Failing or likely to fail” is the supervisory determination that a bank infringes — or will soon infringe — its authorisation requirements, cannot pay its debts as they fall due, or requires extraordinary public support. It is the trigger of the resolution sequence.

G

G-SIIA G-SII — global systemically important institution — is the EU designation of a banking group on the FSB's global systemically important bank list, carrying an additional capital buffer and the TLAC minimum requirement.

M

MoratoriumThe moratorium is the power to suspend a failing bank's payment and delivery obligations for up to two business days, buying the resolution authority time to complete a determination or prepare a resolution action.MRELMREL — the minimum requirement for own funds and eligible liabilities — is the buffer of capital and bail-inable debt every EU bank must maintain so that losses and recapitalisation in resolution fall on investors, not taxpayers.

N

No creditor worse off (NCWO)No creditor worse off is the safeguard that no shareholder or creditor may bear greater losses in resolution than they would have borne had the bank been wound up in normal insolvency; any shortfall is compensated from the resolution fund.

P

Public interest assessmentThe public interest assessment is the resolution authority's judgement on whether resolving a failing bank is necessary to protect critical functions, financial stability or public funds — or whether normal insolvency proceedings suffice.

R

ResolutionResolution is the orderly restructuring of a failing bank by a public authority using statutory tools — instead of normal insolvency — to preserve its critical functions, protect financial stability and impose losses on shareholders and creditors.Resolution entityA resolution entity is the company within a banking group at which resolution tools would be applied under the group's resolution plan — the entity that issues external MREL and defines its resolution group.Resolution planA resolution plan is the authority-owned playbook for a bank's failure: the preferred resolution strategy, the tools to apply, the MREL needed to execute them, and the analysis of impediments to resolvability — updated at least annually.

S

Sale of business toolThe sale of business tool lets a resolution authority transfer some or all of a failing bank's shares, assets and liabilities to a private purchaser without shareholder consent — the tool behind every completed European resolution to date.Senior non-preferred debtSenior non-preferred debt is a statutory class of unsecured bank debt that ranks below ordinary senior liabilities but above subordinated instruments — created in 2017 so banks can meet subordinated MREL requirements without disturbing existing creditors.Single Resolution FundThe Single Resolution Fund is the banking union's industry-financed resolution fund, built from bank contributions and controlled by the SRB. It may support a resolution only after shareholders and creditors have absorbed losses of at least 8% of total liabilities.

T

Tier 2 (T2)Tier 2 instruments are subordinated bank debt with an original maturity of at least five years that counts as gone-concern regulatory capital, absorbing losses after Additional Tier 1 but before senior classes.TLACTLAC — total loss-absorbing capacity — is the FSB's minimum standard of capital and bail-inable debt for global systemically important banks, implemented in the EU through the Capital Requirements Regulation.

W

Write-down and conversion powerThe write-down and conversion power lets resolution authorities cancel or convert a bank's capital instruments — and, since 2019, internal MREL liabilities — at the point of non-viability, before or alongside any resolution tool.