Abstract

The new European rules provide that in exceptional circumstances, where the bail-in tool is applied, the resolution authority may exclude or partially exclude certain liabilities from the application of the write-down or conversion powers. One of these exceptional circumstances is the need to avoid widespread contagion, which may be interpreted as shielding small investors against qualified investors (as appears to have happened in Italy, albeit in a different manner, in the management of the crisis of the «4 banks», Monte dei Paschi and lately the two Venetian banks). This is not only a question of investor/depositor protection, but also pertains to the issue of resolution financing. In the case in which a liability or a class of liabilities (e.g. all liabilities held by retail investors) is excluded from a bail-in, the consequences of such exclusion will have to be borne by other creditors and by resolution funds.