What the concept describes
The bail-in waterfall is the sequence in which losses are imposed when a resolution authority applies the bail-in tool. Rather than allowing the authority to choose which creditors bear losses, the law fixes a strict order that mirrors the creditor hierarchy: each layer must be exhausted before the next is touched, so that the most junior claims absorb losses first and the most senior last. It gives the tool its predictability, and it is the operational expression of the "no creditor worse off" safeguard.
The order of write-down and conversion
Article 48 of the BRRD sets the order. Common Equity Tier 1 is reduced first, wiping out or heavily diluting shareholders. Additional Tier 1 instruments are written down or converted next, followed by Tier 2 instruments, then other subordinated debt that does not qualify as regulatory capital. Only once those layers are exhausted does the authority reach eligible senior liabilities — first senior non-preferred instruments, then ordinary senior debt — imposing losses within each rank on a pro rata basis. Deposits protected by a guarantee scheme and other excluded liabilities are never reached.
Write-down of capital instruments
The upper rungs of the waterfall — CET1, AT1 and Tier 2 — can also be written down or converted independently of a full bail-in, at the point of non-viability, under the separate write-down and conversion power (BRRD Articles 59 to 62). In practice the two mechanisms run together: capital instruments are written down at the point of non-viability, and the bail-in tool then continues down the waterfall into eligible liabilities to absorb any remaining losses and recapitalise the institution.
Why the order matters for investors
The waterfall is what gives each seniority class its risk profile. An investor in an Additional Tier 1 instrument stands only one rung above equity and can be converted or written down while more senior creditors are untouched; a senior preferred holder sits near the top and is reached only in a severe loss. This is why the instruments in this database carry an explicit seniority class: that class determines where a holding sits in the waterfall, and therefore how likely it is to absorb losses. The "no creditor worse off" safeguard guarantees that no investor ends up worse than they would have been had the whole bank instead gone into normal insolvency proceedings.