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Prof. Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.

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Bail-in and bailin (also used in German, more rarely joint liability)

The lenders of a company in general and of an institution in particular share any losses. – In the event of sovereign default, the creditors assume the (foreign) debts of the insolvent country according to a certain distribution key (basis of apportionment). – Direct assumption of losses of a troubled institution set up in the course of the Single Resolution Mechanism. In this case, owners and unsecured creditors must pay for losses as well as for the expenses incurred in stabilizing a bank – in contrast to bail-out, i.e. the satisfaction of creditors through financial assistance from outside. In bail-in, claims against the bank are written off or converted. Existing ownership rights in the bank are thereby diluted or even cancelled. Creditors must therefore waive claims and receive ownership rights in the institution in return. By converting debt capital into equity, the bank can thus be recapitalized.
– An example of bail-in is the bank bailout in Cyprus, where deposits above 100,000 euros at the “Bank of Cyprus” were exchanged for shares in that bank by about half. – See investment liability, bail-out, debt repayment pact, European, loss-sharing scheme, forced convertible bond. – Cf. Financial Stability Report 2013, p. 30 (bail-in of banks reduces contagion effects), Deutsche Bundesbank Monthly Report of June 2014, p. 39 f (description of individual steps; overview).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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