Contractual Recognition Of Bail-In Powers

Not just another clause for banks to add to their contracts, the compulsory inclusion of references to new bail-in powers in certain contracts will focus customers' minds on the ability of resolution authorities to diminish the value of those contracts or even cancel them. But which contracts are included and what should the clause say? Pending the publication of final rules, Rosali Pretorius and Tom Harkus look at some of the key issues.

Summary

Firms to which the new UK rules apply (Covered Firms) include all UK banks and building societies. For certain of its unsecured liabilities, a Covered Firm must include wording in the relevant contract if it is governed by a non-EEA law (e.g. New York or Swiss law). The wording recognises, and binds their counterparties to, the Bank of England's (BoE) ability to write down, convert, amend and even cancel the Covered Firm's liabilities under the contract, using its new bail-in powers. ("Bail-in" refers to a resolution