S.L. 330.9 Art. 32Conditions for resolution and early intervention

(1) The Resolution Committee shall take a resolution action in relation to an institution referred to in paragraph (a) of the definition "entity" in regulation 2(1) only if the Resolution

Committee considers that all of the following conditions are met:

(a) the determination that the institution is failing or is likely to fail has been made by the Authority, after consulting the Resolution Committee; or, subject to the conditions laid down in sub-regulation (2), by the Resolution Committee after consulting the Authority;

(b) having regard to timing and other relevant circumstances, there is no reasonable prospect that any alternative private sector measures, including measures by an IPS, or supervisory action, including early intervention measures or the write-down or conversion of relevant capital instruments and eligible liabilities in accordance with regulation 59(2) taken in respect of the institution, would prevent the failure of the institution within a reasonable time-frame;

(c) a resolution action is necessary in the public interest pursuant to sub-regulation (5): Provided that, for the purposes of paragraph (c), a resolution action shall be treated as in the public interest if it is necessary for the achievement of and is proportionate to one or more of the resolution objectives referred to in regulation 31 and winding up of the institution under normal insolvency proceedings would not meet those resolution objectives to the same extent.

(2) In addition to the Authority, the determination that the institution is failing or likely to fail under sub-regulation (1)(a) can be made by the Resolution Committee, after consulting the Authority. The Authority shall provide the Resolution Committee with any relevant information that the latter requests in order to perform its assessment without delay.

(3) The previous adoption of an early intervention measure according to regulation 27 is not a condition for taking a resolution action.

(4) For the purposes of sub-regulation (1)(a), an institution shall be deemed to be failing or likely to fail in one or more of the following circumstances:

(a) the institution infringes or there are objective elements to support a determination that the institution will, in the near future, infringe the requirements for continuing authorisation in a way that would justify the withdrawal of the licence by the Authority including but not limited to because the institution has incurred or is likely to incur losses that will deplete all or a significant amount of its own funds;

(b) the assets of the institution are or there are objective elements to support a determination that the assets of the institution will, in the near future, be less than its liabilities;

(c) the institution is or there are objective elements to support a determination that the institution will, in the near future, be unable to pay its debts or other liabilities as they fall due;

(d) extraordinary public financial support is required except when, in order to remedy a serious disturbance in the economy of Malta or of another Member State and preserve financial stability, the extraordinary public financial support takes any of the following forms:

(i) a State guarantee to back liquidity facilities provided by central banks according to the central banks’ conditions;

(ii) a State guarantee of newly issued liabilities; or

(iii) an injection of own funds or purchase of capital instruments at prices and on terms that do not confer an advantage upon the institution, where neither the circumstances referred to in paragraphs (a), (b) or (c) of this sub-regulation nor the circumstances referred to in regulation 59(3) are present at the time the public support is granted: Provided that in each of the cases mentioned in paragraph (d)(i), (ii) and (iii), the guarantee or equivalent measures referred to therein shall be confined to solvent institutions and shall be conditional on final approval under the Union State aid framework. Those measures shall be of a precautionary and temporary nature and shall be proportionate to remedy the consequences of the serious disturbance and shall not be used to offset losses that the institution has incurred or is likely to incur in the near future: Provided further that support measures under paragraph (d)(iii) shall be limited to injections necessary to address capital shortfall established in the Maltese, European Union or SSM-wide stress tests, asset quality reviews or equivalent exercises conducted by the European Central Bank, the EBA or national authorities, where applicable, confirmed by the Authority.

(5) For the purposes of sub-regulation (4), State aid rules may apply in the case of impaired asset measures and recapitalisation, where it is precautionary. A credit institution, prior to resorting to State aid shall undertake all possible capital raising measures by private means. If these are not sufficient, shareholders, hybrid capital and subordinated debt holders shall contribute to reduce the capital shortfall to the maximum extent before State aid can be granted. Such a contribution can take the form of either a conversion into Common Equity Tier 1 or a write-down of the principal on the instrument, depending on the capital position of the credit institution. Prior to the granting of State aid, at least one of the following scenarios should occur:

(a) where the capital ratio of the credit institution remains above the European regulatory minimum but below the threshold set by the Authority or the Resolution Committee; or

(b) where the credit institution no longer meets the minimum regulatory capital requirements: Provided that no contribution from senior debt holders, in particular from insured deposits; uninsured deposits; bonds and all other senior debt, will be required: Provided further that this shall not affect the application of the "no creditor worse off" principle to be carried out under regulation 74.