The Bank Recovery and Resolution Order 2014

Valuation

11.  After section 6D (inserted by article 10) insert—

“Valuation before mandatory write-down of capital or stabilisation action

Pre-resolution valuation

6E.— (1) Before the Bank of England makes a mandatory reduction instrument or exercises any stabilisation power in respect of a bank, it must ensure that the assets and liabilities of the bank are valued.

(2) Unless subsection (3) applies, the Bank of England must arrange for the appointment of an independent valuer in accordance with section 62A(1) to carry out a valuation for the purposes of subsection (1).

(3) Where the Bank of England considers that the urgency of the case makes it appropriate to make a mandatory reduction instrument, or exercise a stabilisation power, before a valuation can be carried out by a person appointed in accordance with subsection (2), the Bank may carry out a provisional valuation of the assets and liabilities of the bank for the purposes of subsection (1).

(4) The purpose of a valuation carried out pursuant to subsection (1) is to—

(a) inform the decision as to—

(i) whether the conditions for the making of a mandatory reduction instrument or the exercise of a stabilisation power is satisfied,

(ii) which stabilisation option should be employed,

(iii) the extent to which any shares, capital instruments or eligible liabilities should be cancelled, diluted, transferred, written down or converted through the use of a mandatory reduction instrument or a resolution instrument,

(iv) what assets, liabilities or securities (if any) are to be transferred by a property transfer instrument or a share transfer instrument, and

(v) the value of any consideration to be paid to the bank or the owners of the securities for any assets, liabilities or securities so transferred, and

(b) ensure that the full extent of any losses on the assets of that bank is appreciated at the time the Bank of England makes a mandatory reduction instrument or exercises a stabilisation power.

(5) In carrying out a valuation required under subsection (1), the person carrying out the valuation must—

(a) make prudent assumptions as to possible rates of default and the severity of losses suffered by the bank,

(b) disregard potential financial assistance which may be provided by the Bank of England or the Treasury after the Bank has made any mandatory reduction instrument or exercised any stabilisation power (except for ordinary market assistance offered by the Bank on its usual terms),

(c) take account of the fact that—

(i) the Bank of England and the Treasury may recover expenses incurred in connection with the exercise of a stabilisation power under section 58(2)(b),

(ii) the Bank of England and the Treasury may charge interest or fees in respect of any loans or guarantees provided to the bank after the Bank has made any mandatory reduction instrument or exercised any stabilisation power in respect of it.

(6) The valuation carried out under this section must follow the methodology specified in regulatory technical standards adopted by the European Commission under article 36.16 of the recovery and resolution directive.

(7) A valuation under subsection (1) must be accompanied by—

(a) a balance sheet of the bank as at the date of the valuation,

(b) a report on the financial position of the bank,

(c) an analysis and an estimate of the accounting value of the assets of the bank,

(d) a list of the outstanding liabilities of the bank (including any off-balance sheet liabilities), with the creditors subdivided into classes according to the priority their claims would receive in insolvency proceedings, and

(e) an estimate of the amount that each class of creditors and shareholders might be expected to receive if the bank went into insolvent liquidation.

(8) Where appropriate, the information in subsection (7)(c) may be supplemented by an analysis and estimate of the value of the assets and liabilities of the bank on a market value basis in order to inform the decision referred to in paragraph (a)(iv) or (v) of subsection (4).

(9) Where a provisional valuation is carried out under subsection (3), the Bank need only comply with subsection (7) as far as it is reasonable to do so in the circumstances.

(10) A provisional valuation carried out under subsection (1) must make provision in respect of additional losses by the bank in accordance with regulatory technical standards adopted by the European Commission under Article 36.16 of the recovery and resolution directive.”

(1)

Inserted by article 69 of this Order.