Bailin and Outright Monetary Transactions: Difference between pages

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'''1. Statutory bailin'''
(OMT).


A technique used as part of the resolution of a failed bank under statutory authority.  
Part of the [[open market operations]] of a central bank in which the central bank buys or sells securities outright - i.e. without the re-sale or re-purchase legs of [[reverse repurchase agreement]]s or [[repurchase agreement]]s.


The Resolution Authority (RA) makes an assessment of the extent of expected losses and reconstructs the bank's capital accordingly.
This was a new tool for the European Central Bank in 2012 - and controversial, especially in Germany - though its use by other banks has not been so dogged by controversy.


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.
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.
The RA is normally given significant discretion in how the reconstruction - including bailin - is applied.
'''2. 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.
Sometimes written ''bail-in'' or ''bail in''.
== See also ==
* [[Loss absorbing capacity]]
* [[Resolution Authority]]
* [[Multiple Point of Entry]]
* [[Single Point of Entry]]
*[[SLAC]]
* [[Cash in the new post-crisis world]]
* [[Bailout]]
[[Category:Compliance_and_audit]]
[[Category:Risk_frameworks]]
[[Category:Risk_frameworks]]

Revision as of 19:06, 28 August 2014

(OMT).

Part of the open market operations of a central bank in which the central bank buys or sells securities outright - i.e. without the re-sale or re-purchase legs of reverse repurchase agreements or repurchase agreements.

This was a new tool for the European Central Bank in 2012 - and controversial, especially in Germany - though its use by other banks has not been so dogged by controversy.

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