Recital (23)

The aim of precautionary recapitalisation is to support viable entities identified as likely to encounter temporary difficulties in the near future and to prevent their situation from deteriorating further. To avoid granting public subsidies to businesses that are already unprofitable, precautionary measures in the form of acquisition of own funds instruments or other capital instruments or through impaired asset measures should not be granted in an amount that exceeds the amount necessary to cover capital shortfalls as identified in the adverse scenario of a stress test or equivalent exercise. To ensure that public financing is ultimately discontinued, those precautionary measures should also be limited in time and contain a clear timeline for their termination (strategy to exit the support measure). Perpetual instruments, including Common Equity Tier 1 capital, should only be used in exceptional circumstances and be subject to certain quantitative limits because by their nature they are not well suited for compliance with the condition that they be temporary. The ECB or the relevant national competent authority should request a one-time remediation plan from entities that fail to comply with the terms of the strategy to exit the support measure. To ensure the exit from the market by entities that prove not to be viable, a relevant authority should determine whether the entity is failing or is likely to fail where the ECB or the relevant national competent authority is not satisfied with the remediation plan or where the entity fails to comply with the remediation plan.