Recital (30)

It is necessary to ensure that a liability that could arise in the future from an uncertain event or a liability of uncertain timing or amount which is based on a present obligation at the time of resolution does not impair the effectiveness of the resolution strategy and in particular of the bail-in tool. To achieve that objective, the valuer should, as part of the valuation for the purposes of resolution, assess such liabilities and quantify the potential value of those liabilities to the valuer’s best abilities. To ensure that, after the resolution process, the entity can sustain sufficient market confidence for an appropriate amount of time, the valuer should take into account that potential value when establishing the amount by which bail-inable liabilities need to be written down or converted to restore the capital ratios of the institution under resolution. In particular, the Board should apply its conversion powers to bail-inable liabilities to the extent necessary to ensure that the recapitalisation of the institution under resolution is sufficient to cover potential losses which might be caused by a liability that could arise in the future from an uncertain event or that is based on a present obligation but is uncertain in terms of timing or amount. When assessing the amount to be written down or converted, the Board should carefully consider the impact of the potential loss on the institution under resolution on the basis of a number of factors, including the likelihood of the event materialising, the timeframe for its materialisation and the amount of the liability.