The initiation and conducting of resolution procedures under the Federal Act on the Recovery and Resolution of Banks (BaSAG) are among the material duties of the FMA in its capacity as the national resolution authority.
The following resolution tools in particular are among the resolution actions that are available to the resolution authority for the resolution of institutions:
- Bail-in tool:
The FMA may instruct that certain eligible liabilities of the institution are written down or are converted into instruments of ownership in the institution (stakes e.g. shares). In simple terms, the creditors of an institution contribute towards its restructuring, by having their claims reduced and/or converted into stakes in the institution. Items that are excluded from bail-in include covered deposits, secured liabilities as well as liabilities towards employees, wage or salary claims, pension benefits, etc.
- Sale of business tool:
The FMA in its capacity as the resolution authority may transfer the ownership in the institution (stakes e.g. shares) or of its assets, rights or liabilities to a willing third party for an appropriate consideration. In the application of this resolution tool, the entity is transferred to a purchaser that then continues to operate the institution.
- Bridge institution:
Where the resolution objectives require, for example in order to maintain critical functions, the FMA may also transfer ownership of the institution (stakes e.g. shares) or its assets, rights or liabilities to a bridge institution. The bridge institution is a majority public owned credit institution, and which is temporarily exclusively controlled by the FMA in order to ensure public interest. Subsequently the bridge institution may be transferred to a purchaser who then continues to operate the bridge institution either in its entirety or at least significant parts of it in its restructured, recovered form.
- Asset separation (wind-down unit):
Under certain conditions, the FMA may also transfer ownership of the institution (stakes e.g. shares) or its assets, rights or liabilities to a wind-down unit. The wind-down unit is majority public owned, and is controlled by the FMA , with the purpose as a rule of enabling an orderly portfolio wind-down. In contrast to the bridge institution in that the wind-down unit is not a credit institution and the focus as a rule is the orderly disposal of assets, or best possible disposal of the former institution’s assets. The wind-down unit may only be applied in combination with another of the aforementioned resolution tools.
In addition to resolution tools, the FMA also has a number of resolution powers at its disposal that may be applied either in preparation for, or during, a resolution (see the resolution powers listed in Articles 58 to 69 BaSAG , e.g. the power to assume control, to change directors or supervisory board members, to appoint an administrator for resolution, to change contracts); furthermore, Article 47a BaSAG regulates the power to temporarily suspend payment and delivery obligations (known as a “moratorium”), in order to provide the resolution authority with a bit more time (up to 48 hours) for reviewing whether a resolution is to be conducted, or which resolution actions are to be taken.
Resolution actions are ordered as a rule by means of an emergency administrative decision (Mandatsbescheid) pursuant to Article 116 BaSAG . The special feature of such an emergency administrative decision is that it may be issued without an investigative procedure having had to be conducted beforehand. This permits the resolution authority to act quickly to counteract the threat to the institution’s continued existence as well as the impending consequences of an unorderly insolvency on financial market stability, and in order to maintain the necessary confidence of market participants.
In the case of the FMA having issued an emergency administrative decision pursuant to Article 116 BaSAG , the affected persons (e.g. The institution’s owners or creditors) have the possibility to appeal against it. Such an appeal must be made in writing within three months of publication of the FMA ’s decision. Once this deadline has expired, the FMA shall initiate an investigative procedure by its own initiative, in which the relevant facts for the decision are obtained. This procedure is intended for reviewing the emergency administrative decision and ends with the FMA issuing an administrative decision in relation to the challenge procedure (Vorstellungsbescheid), which replaces the emergency administrative decision, and which may confirm, repeal or amend the latter’s content. The right of appeal to the Federal Administrative Court (Bundesverwaltungsgericht) exists against the FMA ’s administrative decision in relation to the challenge procedure. Where an administrative decision in relation to a resolution action becoming legally final, the FMA publishes this on its website by means of an edict confirming legal effect (Rechtskraftedikt).
In this regard, special conditions apply for certain significant (groups of) institutions and ones that are active on a cross-border basis, for which the SRB is competent: for such entities, the SRB makes the relevant decision as supervisory body about the actions to be applies, which are required to be implemented nationally by the FMA on behalf of the SRB . Pursuant to Article 86 SRM-R in accordance with Article 263 TFEU the European Union’s legal safeguards system is also available with regard to such an SRB decision.
The material tasks of the FMA in its capacity as national resolution authority also include initiation and conducting of resolution proceedings in relation to central counterparties (CCPs ) in accordance with Regulation (EU) 2021/23 and the Central Counterparties and Trade Repositories Act (ZGVG; Zentrale Gegenparteien Vollzugsgesetz). For CCPs , the resolution authority has at its disposal the sale of business tool as well as the bridge central counterparty tool. In addition, the resolution authority may however also
- apply the position and loss allocation resolution tool: by doing this contracts with clearing members may be terminated, any profits from clearing members that are not failing written down or an additional cash call conducted by them; or
- apply the write-down and conversion resolution tool: this serves to write down or convert instruments of ownership (stakes e.g. shares) and debt instruments as well as other unsecured liabilities. In simplified terms the owners and creditors of a CCP contribute towards its recovery, in that their investments are cancelled or diluted and the claims of certain creditors are reduced and/or converted into stakes in the institution.
The instruction of resolution actions for CCPs is also by means of an emergency administrative decision (Mandatsbescheid) pursuant to Article 4e ZGVG , which is comparable to an emergency administrative decision pursuant to Article 116 BaSAG ; with regard to the possibility to contest the decision until the edict confirming legal effect (Rechtskraftedikt) is published, please refer to the remarks above in relation to institutions. Overall, the resolution procedure for CCPs can be considered to be very similar to the procedure for institutions.