Article 7 · Commission Delegated Regulation (EU) 2016/860

Contents

Article 7Exclusion on grounds of preservation of certain critical functions and core business lines under Article 44(3)(b) of Directive 2014/59/EU#

1.Resolution authorities may exclude liabilities or a class of liabilities on the basis of it being necessary and proportionate to preserve certain critical functions where they consider that liability or class of liabilities to be linked to a critical function for whose continuity that liability or class of liabilities should not be bailed-in, where either of the following elements is satisfied:

(a)the bail-in of the liability or class of liabilities would undermine the function due to the availability of funding or to a dependence on counterparties, such as hedging counterparties, on infrastructure or on service providers to the institution, which may be prevented from or unwilling to continue transactions with the institution following a bail-in;

(b)the critical function in question is a service provided by the institution to third parties which depends on the uninterrupted performance of the liability.

2.Resolution authorities may only exclude liabilities which are required for risk management (hedging) purposes in the context of critical functions where both of the following conditions are satisfied:

(a)the risk management (hedging) is recognised for prudential purposes and is essential for maintaining operations related to critical functions;

(b)it would be impossible for the institution to replace an unwound risk management measure on reasonable terms within the time required for maintaining the critical function.

3.Resolution authorities may only exclude liabilities for the purposes of maintaining a funding relationship where both of the following conditions are satisfied:

(a)the resolution authority assesses that the funding is essential for maintaining a critical function;

(b)in view of Article 6 of this Regulation, it would be impossible for the institution to replace the funding within the time required for maintaining the critical function.

4.Resolution authorities shall not exclude a liability or class of liabilities solely on the basis of any of the following:

(a)its maturity;

(b)the expectation of an increase in funding costs which does not jeopardise the continuity of the critical function;

(c)the expectation of a future potential profit.

5.Resolution authorities may exclude liabilities or a class of liabilities on the basis of it being necessary and proportionate to preserve a core business line where the exclusion of that liability is critical to maintaining the ability of the institution under resolution to continue key operations, services and transactions, and to achieve the resolution objectives set out in points (a) and (b) of Article 31(2) of Directive 2014/59/EU.

Defined terms · 2

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Direct contagion
means a situation where the direct losses of counterparties of the institution under resolution, resulting from the write-down of the liabilities of the institution, lead to the default or likely default for those counterparties in the imminent.
Indirect contagion
means a situation where the write-down or conversion of institution's liabilities causes a negative reaction by market participants that leads to a severe disruption of the financial system with potential to harm the real economy.

Commission Delegated Regulation (EU) 2016/860

Article 7Exclusion on grounds of preservation of certain critical functions and core business lines under Article 44(3)(b) of Directive 2014/59/EU#

Defined terms · 2

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Article 7Exclusion on grounds of preservation of certain critical functions and core business lines under Article 44(3)(b) of Directive 2014/59/EU#

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