Failing or likely to fail (FOLTF)

Definition

“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.

The determination

FOLTF is a formal judgement, normally made by the supervisor — the ECB for significant banking union institutions — after consulting the resolution authority. Article 32(4) BRRD lists the grounds: infringement of prudential requirements justifying withdrawal of authorisation, assets below liabilities, inability to pay debts as they fall due, or the need for extraordinary public financial support, each assessed on an actual or near-future basis.

What it does and does not decide

FOLTF opens the resolution sequence but does not decide its outcome. After the determination, the resolution authority assesses whether private alternatives exist and whether resolution is in the public interest; a negative answer sends the bank to national insolvency. In practice the determination has been triggered both by liquidity collapse (Banco Popular, Sberbank Europe) and by balance-sheet insolvency (PNB Banka).