Exclusion of the application of the creditor participation instrument in individual cases

(1) The resolution authority may, in an individual case, exclude specific bail-inable liabilities or specific categories of eligible liabilities, in whole or in part, from the scope of the creditor participation instrument, where 1. it is not possible to apply the creditor participation instrument to the liability concerned within a reasonable period, despite the resolution authority's reasonable efforts; 2. the exclusion is strictly necessary and proportionate to achieve the continuity of critical functions and core business lines, so that the institution or group entity can continue business, services and transactions of fundamental importance; 3. the exclusion is strictly necessary and proportionate to avoid a risk of contagion that would disturb the functioning of the financial markets, including financial market infrastructures, in a manner that could cause a serious disturbance to the economy of Germany, of another Member State, or of the European Union; this concerns, in particular, deposits held by natural persons, micro-enterprises, and small or medium-sized enterprises, the amount of which exceeds the covered deposits, or 4. the application of the creditor participation instrument to those liabilities would result in a destruction of value such that the losses borne by other creditors would be higher than if those liabilities were excluded from the creditor participation instrument.
(2) In exercising its discretion under subsection (1), the resolution authority has regard to the following: 1. the principle that losses are borne, in the first instance, by the shareholders, and only thereafter by the creditors of the institution or group entity, in accordance with the ranking of their liabilities; 2. the amount of loss-absorbing capacity that would remain available to the institution or group entity if the liability or category of liabilities were excluded from the scope of the creditor participation instrument; 3. the availability of sufficient funds to finance the resolution actions.
(2a) In exercising its discretion under subsection (1), the resolution authority further has regard to whether liabilities owed to institutions and group entities that are part of the same resolution group but are not themselves resolution entities should be excluded, in order to ensure the effective implementation of the resolution strategy. In exercising the discretion under the first sentence, only liabilities not exempted from the application of the write-down and conversion powers under section 91(2), point 8, are taken into account.
(3) Before making use of the possibility of an exclusion under subsection (1), the resolution authority notifies the Commission of the intended exclusion. Where the intended exclusion requires either a compensating contribution from the Restructuring Fund or financing from an alternative funding source under section 94, and the requirements of this provision, in conjunction with delegated acts of the Commission under Article 44(11) of Directive 2014/59/EU, are not satisfied, the resolution authority gives the Commission the opportunity to prohibit the intended exclusion, or to propose a modification of the intended exclusion, within 24 hours. The resolution authority may agree to a longer period.