Security Blanket: Secured Debt Gains Appeal


During the financial crisis, certain national authorities imposed losses on holders of senior unsecured debt obligations of financial institutions either in connection with or as a condition to capital injections or other recapitalisation efforts. In the aftermath of the financial crisis, the notion that holders of senior unsecured debt of financial institutions should bear losses prior to any taxpayer funded recapitalisations has gained momentum and this approach is now reflected in various regulatory proposals. It is reflected globally in new legislation and regulatory proposals that banks and other financial institutions be required to issue debt with ‘bail-in’ features – that is debt subject to write-down or to conversion into equity under certain circumstances. In the EU, a consultation paper setting out the technical details of a proposed framework for bank resolution contemplated the imposition of bail-in features for certain debt. Additional clarity is expected before the end of this year with the publication of a draft EU Directive on Recovery and Resolution Plans. It is anticipated that the approach outlined in the directive might include enhanced powers for regulatory authorities to write off or convert into equity all senior unsecured debt, subject to certain exemptions, and a requirement that banks issue specified amounts of ‘bail-in’ debt. In the United States, the orderly liquidation authority provisions under the Dodd-Frank Act create a construct for creditor hair cuts in the context of a liquidation.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.