BRRD: ECB publishes opinion on French proposals on hierarchy of creditors of credit institutions

The European Central Bank (ECB) has published an opinion on draft provisions on the hierarchy of creditors of credit institutions, following a request from the French Ministry of Finance and Public Accounts. The draft provisions are intended to introduce a new category in the ranking of creditors of credit institutions under French insolvency law, in order to facilitate the implementation of resolution procedures, as provided for in the Bank Recovery and Resolution Directive (BRRD). The draft provisions propose to create legal certainty about the loss absorbing capacity of a newly created class of senior unsecured debt securities or instruments through amendment to Article L. 613-30-3 of the French Monetary and Financial Code.

The ECB opinion welcomes the draft law's aim of increasing the resolvability of banks. The ECB notes that the creation of a new category of senior non-preferred debt instruments in the insolvency ranking of unsecured claims against French credit institutions, subordinated to senior preferred debt, is proposed to be achieved by establishing a statutory basis for the issuance of debt instruments, which include contractual subordination agreements. The ECB also makes specific observations about the effects of the proposed law on:

• loss-absorbing capacity in resolution and TLAC requirements; and
• eligibility of debt instruments as collateral for Eurosystem credit operations, in relation to which the ECB is of the opinion that senior non-preferred debt instruments would not be eligible.