What they are

Secured liabilities are claims on a bank that are backed by a specific pool of assets or by financial collateral. Typical examples are covered bonds, secured funding such as repurchase agreements, and derivatives supported by collateral or netting arrangements. Because the creditor can look to the collateral for repayment rather than to the general estate of the institution, these claims are treated differently in resolution from ordinary unsecured debt.

The exclusion is not absolute or blanket. It protects the secured claim only up to the value of the collateral that stands behind it. If a liability is over-collateralised, the surplus collateral does not shield the creditor; if it is under-collateralised, the shortfall, the portion not covered by the asset, is treated as an ordinary claim and can be bailed in like any other eligible liability.

How it works in resolution

When a resolution authority applies the bail-in tool, it must respect the boundary between the secured and unsecured elements of a liability. The secured part cannot be written down or converted, because doing so would defeat the collateral bargain and undermine confidence in secured funding markets; the unsecured part remains within the scope of bail-in. In practice this means the authority, informed by the independent valuer's work, has to establish the value of the collateral to determine how much of each secured liability is genuinely excluded.

Secured liabilities sit alongside covered deposits and client assets as one of the categories that the framework carves out from bail-in. The rationale is to preserve the functioning of collateralised markets and to avoid destabilising instruments, such as covered bonds, that fund core lending. Authorities retain the ability to require that the collateralised part be respected while still reaching the residual unsecured exposure.

The exclusion of secured liabilities from bail-in is set out in BRRD Article 44(2), which lists the liabilities that resolution authorities may not write down or convert. That provision excludes secured liabilities, including covered bonds and liabilities in the form of financial instruments used for hedging that form an integral part of the cover pool, but only to the extent of the collateral. The general bail-in powers to which these exclusions apply are in BRRD Articles 43 and 44 and SRMR Article 27.

Practical relevance for banks and investors

For banks, the treatment of secured liabilities shapes how much of the balance sheet is available to absorb losses in resolution; heavily collateralised funding reduces the pool of bail-inable liabilities and can affect a bank's ability to meet MREL with the right quality of instruments. For investors, the distinction is central to pricing: a holder of a fully collateralised claim is largely insulated from bail-in, while a holder of an under-secured or unsecured claim is exposed. Assessing the degree of collateralisation is therefore part of judging where a given instrument sits in loss-absorption terms.