The European Banking Authority has published final Guidelines on the setting of rates of conversion of debt to equity in bail-in under the Bank Recovery and Resolution Directive. The Guidelines are addressed to national resolution authorities with the objective of clarifying how valuation information should inform the determination of the terms of bail-in.

The BRRD provides that resolution authorities, when applying the bail-in tool, may apply a different rate of conversion to different classes of capital instruments and liabilities. A resolution authority may only do so if: (i) the conversion rate represents appropriate compensation to the affected creditor for any loss incurred through write-down or conversion, and (ii) the conversion rates applicable to liabilities that are considered senior under applicable insolvency law are higher than the conversion rate applicable to subordinated liabilities. The EBA Guidelines indicate how affected creditors may be appropriately compensated by means of the conversion rate, and the relative conversion rates that might be appropriate to reflect the priority of senior liabilities under applicable insolvency law. The Guidelines are also relevant to the conversion of relevant capital instruments at the point of non-viability.

The Guidelines should be read in conjunction with the Guidelines on the treatment of shareholders in bail-in, the final Guidelines on the interrelationship between the BRRD sequence of write down and conversion and the Capital Requirements Directive and Capital Requirements Regulation as well as related secondary legislation under the BRRD on valuation and bail-in.

Relevant resolution authorities should implement the Guidelines into national resolution practices within six months of publication of the official translations, or notify the EBA of their reasons for non-compliance.

View the Guidelines on the rate of conversion of debt to equity in bail-in.

View the Guidelines on the interrelationship between the sequence of write down under BRRD and CRD IV.

View the Guidelines on the treatment of shareholders in bail-in.