Beyond Bail-in - German and Italian Proposals Affecting Bondholder Rights

Both Germany and Italy have recently brought forward legislative proposals in connection with the application of the bail-in tool under the Bank Recovery and Resolution Directive, or BRRD, and the proposals of the Financial Stability Board (“FSB”), as currently under discussion, to introduce the so-called “total loss absorbing capacity” (“TLAC”) for global systemically important banks (“G-SIBs”). In Germany, the legislature proposes to subordinate bank bonds in insolvency. In Italy, in contrast, the legislature has proposed to make deposits that are not covered by the statutory deposit protection “super senior.” In doing so, both proposals amend the waterfall in insolvency, going beyond BRRD requirements in a manner which affects all banks and not only G-SIBs.