From Bail-out to Bail-in: Mandatory Debt Restructuring of Systemic Financial Institutions

The proposed SDN, prepared by a team of MCM/LEG experts, analyses whether bail-in -- defined as a statutory power to recapitalize a distressed SIFI by converting and/or writing down its unsecured debt -- could be a useful complementary tool to other resolution powers. More specifically, the note studies the effectiveness of bail-in in achieving prompt bank recapitalization at the time of distress, discusses potential risks when a bail-in power is activated, and proposes design features to mitigate these risks.