New Draft Bill Confirms Bail-In Protection For Repos And Securities Lending Transactions

Legal Status

• Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms ("BRRD") was implemented in Austria effective 1 January 2015, including write-down / conversion measures and the bail-in tool.  
• The bail-in tool allows the resolution authority to apply write-down or conversion measures not only to liabilities under a capital instrument, but also to all other eligible liabilities. These also include liabilities under derivative transactions, as well as repurchase (repos) and securities lending transactions.
   
• Art 49 of BRRD contains a safeguard for derivatives that aims to prevent resolution authorities – when deciding on a potential bail-in – from "cherry picking" only those derivatives which are "out of the money" from the failing institution's perspective. Art 49 BRRD requires that resolution authorities shall exercise the