The Role of Hybrid Securities in the BRRD

Abstract

The BRRD is a cornerstone of the single European bank resolution mechanism. Such a mechanism is urgently needed, as financial institutions conduct their business on a cross-border or even a pan-European basis, while legislation of member states differs significantly on insolvency issues. Financial markets are highly integrated beyond national borders, so the failure of a financial institution will also have cross-border consequences. Therefore, the lack of harmonization in the feld of bank resolution threatens the stability of financial markets – a condition that has been identified as essential for both the establishment and functioning of the internal market (BRRD Recital 4). The BRRD regime equips regulators or resolution authorities with tools, powers and measures that enable them to act both on going-concern and gone-concern bases. It is explicitly mentioned that governmental financial stabilization tools, including temporary public ownership, may be going-concern tools of last resort (BRRD Recital 8). It is also strongly emphasized that the use of tools and powers provided under the BRRD regime may affect the property rights of shareholders and jeopardize equal treatment of creditors. However, it must also be stressed that any difference in the treatment of creditors of the same class can be justified when such different treatment is carried out in the public interest, in a proportionate and non-discriminatory manner (BRRD Recital 13).