In addition to the above five principles, the resolution framework should also distinguish between various classes of financial creditors based on the quality of security available to them since the initial pricing of the credit instrument may have factored in the availability of security, and the lender stands to lose if such security is not reckoned while assessing the share in resolution value.
In the absence of such an accommodation, creditors are likely to demand higher compensation for credit risks that they are taking, thereby increasing the overall credit costs in the economy. While any resolution framework should prioritise preserving the value of the firm, at the same time, “going concern over liquidation” cannot be an absolute preference.