Eligible liabilities for resolution entities

(1) Liabilities may be included in the amount of own funds and eligible liabilities of resolution entities only where they satisfy the conditions set out in Articles 72a, 72b and 72c of Regulation (EU) No 575/2013, with the exception of the condition set out in Article 72b(2)(d). Insofar as Article 92a or 92b of Regulation (EU) No 575/2013 applies under sections 49 to 54, eligible liabilities are those within the meaning of Article 72k and of Part 2, Title I, Chapter 5a, of Regulation (EU) No 575/2013.
(2) By way of derogation from Article 72a(2)(l) of Regulation (EU) No 575/2013, liabilities arising from debt instruments with embedded derivatives, such as structured debt instruments, that otherwise satisfy the conditions set out in subsection (1), first sentence, may be included in the amount of own funds and eligible liabilities where 1. the nominal amount of the liability arising from the debt instrument is already known, fixed or increasing at the time of issuance and is not affected by an embedded derivative component, and the total amount of the liability arising from the debt instrument, including the embedded derivative component, can be valued daily by reference to an active and liquid two-way market for an equivalent instrument without credit risk, in accordance with Articles 104 and 105 of Regulation (EU) No 575/2013, or 2. the debt instrument contains a contractual term specifying that, in the event of insolvency proceedings and resolution of the issuer, the value of the claim is fixed or increasing and is not higher than the originally paid-up amount of the liability. Debt instruments, including their embedded derivatives, may not be subject to a netting arrangement, and are not valued under section 93(3). Liabilities arising from debt instruments with embedded derivatives may be included in the amount of own funds and eligible liabilities only for the part corresponding to the nominal amount referred to in the first sentence, point 1, or the fixed or increasing amount referred to in the first sentence, point 2.
(3) Where liabilities are issued by a subsidiary undertaking established in the Union that is part of the same resolution group as the resolution entity, to one of its shareholders that is not part of the same resolution group, those liabilities may be included in the amount of own funds and eligible liabilities of that resolution entity where the following conditions are satisfied: 1. the issuance of the liabilities satisfies the conditions under section 49f(2), point 1; 2. the control of the resolution entity over the subsidiary undertaking is not impaired by the exercise of the power to write down or convert those liabilities under sections 65 and 66; and 3. the liabilities issued do not exceed the amount required under section 49f(1), from which is deducted the sum of the liabilities issued, either directly or indirectly through other undertakings of the same resolution group, to and acquired by the resolution entity, and the amount of own funds issued under section 49f(2), point 2.
(4) Without prejudice to the requirement under section 49c(5) or section 49d(1), point 1, a portion of the requirement referred to in section 49e equal to 8 per cent of total liabilities, including own funds, must be met, by resolution entities that are a global systemically important institution, or by resolution entities subject to the requirements under section 49c(5) or (6), with own funds and with subordinated eligible instruments or with liabilities under subsection (3). The resolution authority may permit a level below 8 per cent of total liabilities including own funds, but above the amount resulting from applying the formula (1 – X1 / X2) x 8 per cent of total liabilities including own funds, to be met, by resolution entities that are a global systemically important institution, or by resolution entities subject to the requirements under section 49c(5) or (6), with own funds and with subordinated eligible instruments or with liabilities under subsection (3), provided that all the conditions under Article 72b(3) of Regulation (EU) No 575/2013 are satisfied. For this purpose, as regards the possible reduction under Article 72b(3) of Regulation (EU) No 575/2013, X1 = 3.5 per cent of the total risk exposure amount calculated under Article 92(3) of Regulation (EU) No 575/2013, and X2 = the sum of 18 per cent of the total risk exposure amount calculated under Article 92(3) of Regulation (EU) No 575/2013 and the amount of the combined buffer requirement. Where the determination under the first and second sentences results, for resolution entities subject to section 49c(5), in a requirement of more than 27 per cent of the total risk exposure amount, the resolution authority limits, for the resolution entity concerned, the portion of the requirement under section 49e that is to be met by the use of own funds, subordinated eligible instruments, or liabilities under subsection (3), to an amount equal to 27 per cent of the total risk exposure amount, where the resolution authority has come to the assessment that 1. access to the resolution financing arrangement is not considered, in the resolution plan, as an option for resolving that resolution entity, and 2. where point 1 does not apply, the resolution entity can meet the requirements under section 7a(3) and (4) of the Restructuring Fund Act, as applicable, through the requirement under section 49e. In the assessment under the fourth sentence, the risk of disproportionate effects on the business model of the resolution entity concerned must also be taken into account. The fourth sentence does not apply to resolution entities to which section 49c(6) applies.
(5) In the case of resolution entities that are neither global systemically important institutions nor resolution entities to which section 49c(5) or (6) applies, the resolution authority may decide that a portion of the requirement referred to in section 49e, up to a level of 8 per cent of the undertaking's total liabilities including own funds, or up to the amount calculated using the formula under subsection (7), whichever is higher, is to be met with own funds, with subordinated eligible instruments, or with liabilities under subsection (3), provided that the following conditions are satisfied: 1. the non-subordinated liabilities referred to in subsections (1) and (2) rank, in the insolvency hierarchy, at the same level as liabilities that are excluded from the write-down and conversion powers under section 91(2) or section 92(1); 2. there is a risk that, on account of the intended use of write-down and conversion powers, creditors of claims arising from non-subordinated liabilities that are not excluded from the application of those powers under section 91(2) or section 92(1) would bear greater losses than in a liquidation under insolvency proceedings; 3. the amount of own funds and other subordinated liabilities does not exceed the amount required to ensure that the creditors referred to in point 2 do not suffer greater losses than would have been the case in a liquidation under insolvency proceedings. Where the resolution authority determines that, within an insolvency ranking of liabilities that includes eligible liabilities, the amount of liabilities that are excluded, or could with reasonable likelihood be excluded, from the application of the write-down and conversion powers under section 91(2) or section 92(1), amounts in total to more than 10 per cent of that category, the resolution authority assesses the risk referred to in the first sentence, point 2.
(6) For the purposes of subsections (4), (5) and (7), total liabilities also include derivative liabilities, provided that the counterparty's netting rights are fully recognised. The own funds of a resolution entity that are used to meet the combined buffer requirement are eligible for the purposes of meeting the requirements under subsections (4), (5) and (7).
(7) By way of derogation from subsection (4), the resolution authority has the power to decide that the requirement under section 49e is to be met, by resolution entities that are a global systemically important institution, or by resolution entities subject to the requirements under section 49c(5) or (6), with own funds, with subordinated eligible instruments, or with liabilities under subsection (3), insofar as the sum of those own funds, instruments and liabilities does not exceed the higher of the following amounts, on account of the resolution entity's obligation to comply with the combined buffer requirements and with the requirements under Article 92a of Regulation (EU) No 575/2013, section 49c(5) and section 49e: 1. 8 per cent of the undertaking's total liabilities, including own funds, or 2. the amount calculated using the formula A x 2 + B x 2 + C, where A, B and C are the following amounts: A = the amount resulting from the requirement under Article 92(1)(c) of Regulation (EU) No 575/2013; B = the amount resulting from the requirement under section 6c(1) of the Banking Act; C = the amount resulting from the combined buffer requirement.
(8) The resolution authority may exercise the power referred to in subsection (7), in respect of resolution entities that are a global systemically important institution or are subject to section 49c(5) or (6) and that satisfy one of the conditions under the second sentence, for no more than 30 per cent of all resolution entities that are a global systemically important institution or are subject to section 49c(5) or (6) and for which the resolution authority sets the requirement under section 49e. The resolution authority takes the following conditions into account when exercising the power: 1. in the preceding assessment of resolvability, material impediments to resolvability were identified, and a) after measures to reduce the impediments to resolution were initiated under section 59(6), no remedial action was taken within the time frame prescribed by the resolution authority, or b) the material impediment identified cannot be removed by any of the measures to reduce impediments to resolution under section 59(6), and the exercise of the power under subsection (7) would partly or fully offset the negative effects of the material impediment on resolvability; 2. the resolution authority is of the opinion that the feasibility and credibility of the resolution entity's preferred resolution strategy is limited, having regard to its size, its interconnectedness, the nature, scale, risk and complexity of its activities, its legal form, and its ownership structure; or 3. the requirement under section 6c(1) of the Banking Act shows that the resolution entity, being a global systemically important institution or subject to section 49c(5) or (6), is among the 20 per cent of institutions with the highest risk for which the resolution authority sets the requirement under section 49(1). For the purposes of the percentages under the first and second sentences, the resolution authority rounds the calculated result up to the next whole number.
(9) The resolution authority takes the decisions referred to in subsections (5) and (7) after consulting the supervisory authority. In taking these decisions, the resolution authority also takes into account 1. the depth of the market for the resolution entity's own funds instruments and the subordinated eligible instruments, where applicable the pricing of those instruments, and the time needed to carry out the transactions required to implement the decision, 2. the amount of eligible liabilities instruments that satisfy all the conditions referred to in Article 72a of Regulation (EU) No 575/2013, with a residual maturity of less than one year from the time the decision is taken, in order to make quantitative adjustments to the requirements under subsections (5) and (7), 3. the availability and amount of instruments that satisfy all the conditions referred to in Article 72a of Regulation (EU) No 575/2013, with the exception of the condition referred to in Article 72b(2)(d) of Regulation (EU) No 575/2013, 4. whether the amount of liabilities excluded from the application of the write-down and conversion powers under section 91(2) or section 92(1), that rank in normal insolvency proceedings at the same level as, or a lower level than, the highest-ranking eligible liabilities, is significant when compared with the resolution entity's own funds and eligible liabilities; where the amount of excluded liabilities does not exceed 5 per cent of the amount of the resolution entity's own funds and eligible liabilities, the excluded amount is regarded as not significant; above that threshold, the significance of the excluded liabilities is assessed by the resolution authority, 5. the resolution entity's business model, funding model and risk profile, and its stability and ability to contribute to the economy, and 6. the effects of any restructuring costs on the recapitalisation of the resolution entity.