The process of crisis management of a bank

In collaboration with Finansiel Stabilitet, The Danish FSA is publishing a paper that describes some of the main events regarding crisis management (resolution) of a financial institution including write-down of capital instruments and liability and conversion of debt into equity capital by using the so-called bail-in tool.

Following the financial crisis, a set of regulations was made in the EU for crisis management of banks declared failing.

The general principle of resolution for systemically important institutions is the capability to restructure and return to the market with sufficient capitalisation to secure market trust.

The paper describes the following elements in the process of crisis management:

  • Who are the resolution authorities in Denmark? (resolution being crisis management)
  • How could a timetable for crisis management be drafted?
  • What conditions and principles need to be present for a case of resolution to occur?
  • What is the process of write-down and conversion of capital instruments and bail-inable liabilities?
  • In the event of resolution, when does the execution of bail-in take effect?

The paper does not consist of an exhaustive description of the process of executing bail-in. Crisis management of a bank involves a range of measures which are not described in the paper. As the bail-in tool does not apply in mortgage credit institutions, these have been left out of this description. The emphasis is only on banks in the description.

Read the full paper