Overview

The point of non-viability (PONV) is the trigger for the write-down and conversion of a bank's capital instruments. When a resolution authority (or the competent supervisor) determines that an institution has reached the point at which it would no longer be viable unless action is taken, the authority must write down or convert its relevant capital instruments, and certain eligible liabilities, into equity. The concept ensures that shareholders and subordinated creditors absorb losses before public support is provided.

Distinguishing PONV from FOLTF

The PONV is closely related to, but distinct from, the determination that an institution is failing or likely to fail (FOLTF). FOLTF is one of the conditions for placing a bank into resolution as a whole. The write-down and conversion power at the point of non-viability can be exercised either independently of a broader resolution action or together with it. In practice the framework sets out the specific circumstances that constitute the point of non-viability, which include a determination that the institution is failing or likely to fail, but the power operates as its own mechanism directed at capital instruments and eligible liabilities. The key practical point is that reaching the point of non-viability compels loss absorption by capital instruments regardless of whether the full resolution toolkit is deployed.

How it works

At the point of non-viability the authority writes down or converts instruments in order of the creditor hierarchy: Common Equity Tier 1 absorbs losses first, followed by Additional Tier 1 and then Tier 2 instruments, before any bail-in of further eligible liabilities. The action is taken on the basis of a valuation and is subject to the no-creditor-worse-off safeguard, which ensures no affected holder ends up worse than in insolvency. This ordering is the reason AT1 and T2 instruments carry contractual or statutory loss-absorption features tied to non-viability.

Loss absorptionlosses flow downwards ↓
CET1 — equityabsorbed first
Additional Tier 1AT1Perpetual; first debt layer written down or converted
Tier 2T2Subordinated; absorbs losses after AT1
Senior Non-PreferredSNPStatutory bail-in layer created for MREL
Senior PreferredSPOrdinary senior unsecured; bail-inable in extremis
Covered bonds & securedCOVExcluded from bail-in; backed by cover pool
Covered deposits≤€100kProtected by DGS; never bailed in
Creditor hierarchy under BRRD — bail-in order (simplified)Art. 48 BRRD

The write-down and conversion of capital instruments at the point of non-viability is set out in the BRRD (Arts. 59-62), and within the banking union in the SRM Regulation (Art. 21). The conditions for resolution, including the failing-or-likely-to-fail assessment, are in BRRD Art. 32 and SRM Regulation Art. 18.

Relevance for banks and investors

For investors in AT1 and T2 instruments, the point of non-viability is the decisive risk event: it can extinguish or dilute their claims before a formal resolution is even opened. Understanding how PONV relates to, but differs from, FOLTF, and how it sequences losses through the capital stack, is essential to pricing subordinated bank capital and to reading the terms of individual instruments.