The Bank Recovery and Resolution (No. 2) Order 2014

PART 12 Treatment of derivative contracts where bail-in option is applied

Application and interpretation of Part

157.—(1) This Part applies where the Bank has decided to apply the stabilisation option referred to in paragraph (c) of section 1(3) (the bail-in option) in relation to liabilities arising from a derivative contract.

(2) In this Part each reference to a section is a reference to a section of the Banking Act 2009.

Liabilities arising from derivative contracts

158.—(1) This article applies for the purposes of valuing a derivative contract and the liabilities arising from it under section 6E(1)(1) (pre-resolution valuation), a provisional valuation by the Bank under section 6E(3) or a valuation under section 48X(2) (replacement of Bank’s provisional valuation).

(2) Where the parties to the contract have rights to set off or net under a title transfer collateral arrangement, set-off arrangement or netting arrangement (within the meaning given by section 48(1)(b), (c) and (d)), the Bank must ensure that the value of the contract and of the liabilities arising from it are determined—

(a) on a net basis in accordance with the terms of the contract; and

(b) in accordance with—

(i) appropriate methodologies for determining the value of classes of derivative contracts, including transactions that are subject to netting arrangements;

(ii) principles for establishing the time at which the value of a derivative position should be established; and

(iii) appropriate methodologies for comparing with each other the following amounts—

(aa) the loss in value that would result from closing out a derivative contract and making special bail-in provision (within the meaning given by section 48B) in respect of that contract; and

(bb) the reduction in the liabilities of the institution which is subject to the special bail-in provision as a result of making that provision in respect of the derivative contract.

(1)

Section 6E was inserted by S.I. 2014/3329.

(2)

Section 48X was inserted by S.I. 2014/3329.