Bailin and Front loading: Difference between pages

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== Statutory bailin ==
Front loading as applied to derivatives is a term that describes the obligation to clear centrally an [[OTC]] [[derivative instrument]] or contract that is applied retrospectively.
   
Sometimes 'bail-in'.


A technique used as part of the resolution of a failed bank under statutory authority.  
It arises because there is a gap between the time that a [[CCP]] is authorised under [[EMIR]] and [[ESMA]]’s decision to mandate [[central clearing]] of certain derivatives.  During the early implementation stages of EMIR and the clearing obligation it may not be known at the time of executing a derivative trade whether it ultimately will be subject to frontloading or not.


The Resolution Authority (RA) makes an assessment of the extent of expected losses and reconstructs the bank's capital accordingly.
It is not known at the outset whether to price the transaction on the assumption that it will, or will not, be subject to central clearing during the life of the transaction.  


In reconstructing the bank's capital the RA imposes losses on creditors, including preferred shareholders and depositors. 


The allocation of the total expected losses follows the creditor hierarchy that would apply in a liquidation, until the total expected losses are covered.
==See also==
*[[Central clearing]]
*[[Central counterparty]]  (CCP)
*[[Derivative instrument]]
*[[EMIR]]
* [[European Securities and Markets Authority]]  (ESMA)
* [[Over the counter]]  (OTC)


The remaining (surviving) layers of debt are partially converted to equity to recapitalise viable parts of the business.


The viable parts of the business are thus enabled to continue under new ownership.  
==External link==
[http://regtechfs.com/clearing-and-present-danger-nasdaq-omxs-emir-ccp-authorisation/ Clear(ing) and present danger] ''www.regtechfs.com''


 
[[Category:Financial_products_and_markets]]
The RA is normally given significant discretion in how the reconstruction - including bailin - is applied.
 
 
 
== Contractual bailin ==
 
Contractual bailin refers to a provision in the terms of certain bank debt that are to be converted automatically to equity or written off, if conditions specified in the contract obtain.
 
 
== See also ==
* [[Resolution Authority]]
* [[Multiple Point of Entry]]
* [[Single Point of Entry]]
* [[Cash in the new post-crisis world]]
 
[[Category:Compliance_and_audit]]
[[Category:Risk_frameworks]]

Revision as of 17:26, 24 June 2022

Front loading as applied to derivatives is a term that describes the obligation to clear centrally an OTC derivative instrument or contract that is applied retrospectively.

It arises because there is a gap between the time that a CCP is authorised under EMIR and ESMA’s decision to mandate central clearing of certain derivatives. During the early implementation stages of EMIR and the clearing obligation it may not be known at the time of executing a derivative trade whether it ultimately will be subject to frontloading or not.

It is not known at the outset whether to price the transaction on the assumption that it will, or will not, be subject to central clearing during the life of the transaction.


See also


External link

Clear(ing) and present danger www.regtechfs.com