Let me first briefly describe what happens once a bank enters into resolution and how the socalled “bail-in tool” works under the new framework. The bail-in tool follows a sequential approach. Before any resolution fund can be tapped, shareholders and creditors have to first absorb losses amounting to at least 8% of total liabilities including own funds.
Although uninsured deposits from individuals and small firms come last among liabilities possibly subject to bail-in, they would be included if needed to attain the 8% total. According to the new rules, only insured deposits are totally excluded from the bail-in tool.