Contractual recognition of bail-in in cross-border finance documents: EU BRRD Article 55 and UK regime—requirements, impracticability waivers and LMA drafting

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Practice notes

What is meant by a contractual recognition of bail-in clause?

The notion of a ‘contractual recognition of bail-in clause’ arose from provisions in the Bank Recovery and Resolution Directive (EU Directive 2014/59/EU) (the BRRD), introduced as part of the EU’s response to the financial crisis. Practice Note: EU Bank Recovery and Resolution Directive (EU BRRD)—essentials contains fuller detail on the BRRD. The BRRD has been incorporated into the EEA Agreement, so it applies throughout the EEA, and not only to EU member states. One purpose of the BRRD is to ensure that, if an institution becomes insolvent, losses are absorbed by creditors and shareholders rather than by taxpayers. To facilitate this outcome, Article 43 of the BRRD enables an EEA regulator to write down and/or convert into equity the liabilities of a failing EEA institution (the bail-in tool). A possible impediment to the effectiveness of that mechanism is that a write-down or conversion might not be recognised under the law of a non-EEA jurisdiction. To address this concern, Article 55 of the BRRD requires that a specified contractual term be included in any agreement governed by non-EEA law which creates a liability, as part of the contract wording agreed expressly…

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Web page updated on 21/05/2026

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