Shared pain approach

Generally, a prior contractual agreement on the proportions in which losses arising from the default are to be shared among the various parties. – In particular, the agreement on how, in the event of the insolvency of a major debtor, the banks affected with non-performing loans are to cooperate and according to which formula the losses are to be shared. In the UK, this is mandatory for such events under the auspices of the central bank. – The creditors of a company in general and of a bank in particular (e.g. via forced convertible bonds) are liable for the losses (bail-in) before the state and thus the taxpayers are called upon to cover the losses. – See bad bank, intercreditor agreement, crisis burden-sharing pogram, London procedure, Prague pronouncement, priority rule, unconditional, debt rescheduling clauses.

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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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