Addressing a small group of journalists on Thursday 5 April, the chair of the Single Resolution Board (SRB), Elke König, said that the treatment of bonds issued by Eurozone banks under British law after the United Kingdom leaves the EU will be a question to follow closely.
This is because once Brexit has taken place, these bonds will become third-country issuances and European banks may not be able to use them as equity that can be mobilised in the event of bank resolution (MREL).
Around €100 billion in bonds in circulation are believed to be concerned, said Dominique Laboureix, a member of the SRB. Italy, Germany, France and Finland are among the major issuers, he explained, adding that they tend to be dispersed across the entire European banking sector.
Depending on the form that a possible transition period may take, the question may not arise, König said. But if no agreement is reached on the mutual recognition of these bonds, Eurozone banks may have to issue new loans in order to cover any equity deficits.
Without wishing to prejudge the withdrawal agreement, she said that several options were possible, possibly involving the inclusion of retroactive clauses or replacing the bond with an eligible asset.
These preliminary figures are not set in stone, she stressed, and the aim is above all to make banks aware of the risks that may arise. She said that another question to be monitored in the future would be the impact of the relocation strategies to be set in place on the resolvability of banks.
Banco Popular. During the same meeting, König also referred to the first case of a bank resolution, that of Banco Popular, particularly the highly anticipated finalisation of the report by the consultancy firm Deloitte to determine whether the former shareholders and creditors of the bank would have been treated better if the bank had launched an ordinary insolvency procedure (see EUROPE 11953).
The assessment is expected to be finalised in the coming months and König feels that it is “fairly unlikely” that it will conclude that there would have been better treatment if the insolvency route had been chosen. She said that the 100 or so appeals and complaints made (see EUROPE 11851, 11844) came as no surprise and expressed her hopes that the various court decisions to be returned would help to clarify the situation for the future. (Original version in French by Marion Fontana)