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EU Bail-In Rule and Its Impact on U.S. Contracts

Anastasia Herasimovich

As part of European banking reforms adopted in response to the global financial crisis, Article 55 of the EU Bank Recovery and Resolution Directive (BRRD) authorizes European regulators to “bail-in” any failing European Economic Area (EEA) financial and credit institution by writing down, converting into equity, or otherwise modifying certain liabilities. In a bail-in, a financial institution is rescued by forcing its creditors to write off debts owed to them, as opposed to a bail-out, where third parties rescue failing financial institutions (e.g., sovereign states use taxpayer money). In practical terms, from January 1, 2016, Article 55 of BRRD requires certain EEA institutions, including European banks, to include a contractual bail-in provision in many non-EEA law governed contracts, including those governed by U.S. law.

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