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Italy implements the Bank Recovery and Resolution Directive

On January 1, 2016, two Italian legislative decrees that implement the Bank Recovery and Resolution Directive No. 2014/59/EU ("BRRD") in Italy came into force in full.

Executive Summary

The Bank Recovery and Resolution Directive No. 2014/59/EU ("BRRD") establishes a common framework for the recovery and resolution of banks and large investment firms in all EU Member States.

Pursuant to the BRRD, shareholders and creditors of failing institutions will pay their share of costs through a "bail-in" mechanism, whereby the value of shares, bonds, uninsured deposits or other liabilities of any such institution may be written down or liabilities may be converted into equity. The bail-in is subject to the order of priority specified in the implementing legislation, which may to some extent differ across Member States.

The main focus of discussion in Italy has been on the relative treatment of two classes of creditors: depositors and senior bondholders. Traditionally bonds issued by Italian banks have been made available to, and acquired in large numbers by, retail investors. In effect bonds have been perceived as savings products as much as investment products.

However, the new decrees give bank deposits – above or below the EUR 100,000 threshold for the coverage of the deposit guarantee scheme, and held by large enterprises and other banks as well as by private individuals or micro, small and medium-sized enterprises ("SMEs") – priority over bonds (including retail bonds) in the case of resolution or liquidation. Based on the discussions which took place during the consultation, the application of the "extended" depositor preference for large enterprises – which is not provided for under the BRRD and represents an Italian peculiarity – has been delayed and the relevant rules will apply from January 1, 2019 onwards.

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