EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 23 February 2016  
on the hierarchy of creditors of credit institutions  
(CON/2016/7)  
 
Introduction and legal basis  
On 21 January 2016 the European Central Bank (ECB) received a request from the French Ministry of 
Finance and Public Accounts  for an opinion on draft provisions on the hierarchy of creditors of credit 
institutions  (hereinafter the ‘draft provisions ’)1. 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth  indent  of Article  2(1) of Council Decision 98/415/EC2, as 
the draft provisions  relate to rules applicable to financial institutions insofar as they materially influence 
the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of 
the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.  
 
1.  Purpose of the draft provisions   
1.1 The purpose of the draft provisions is to introduce a new category in the ranking of creditors of 
credit institutions under French insolvency law, in order to facilitate the implementation of resolution 
procedures,  as provided for in Directive 2014/59/EU of the European Parliament and of the 
Council3, by creating legal certainty about the loss absorbing capacity of a newly created class of 
senior unsecured debt securities or instruments  (hereinafter referred to as ‘senior  non-preferred 
debt instruments’) .  
1.2 More precisely, the draft provisions amend Article L. 613- 30-3 of the French Monetary and 
Financial Code, which are applicable i f a liquidation  proceeding is brought against a credit 
institution.  In particular , the draft provisions introduce in the existing insolvency hierarchy of 
creditors of a credit institution the new category of senior  non-preferred debt instruments . These 
senior  non-preferred debt instruments consist of  debt securities  or instrument s with characteristics  
similar to debt securit ies other than structured debt securities. A decree by the State Council 
(Conseil d’Etat) will specify the conditions under which an instrument is considered not to be 
                                                 
1  The draft provisions will be inserted in the draft law on the prevention of corruption and the promotion of the 
transparency of the economy.  
2  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
3  Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, 
and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 
2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the 
Council ( OJ L 173,  12.6.2014, p.190) . 
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2 structured. The original maturity date of senior non-preferred debt instruments will be not less than 
one year but the decree to be iss ued may provide for a minimum maturity date of longer than a 
year. Finally, the contract of issuance for senior  non-preferred debt instruments is required to 
provide that the owner or holder is unsecured within the meaning of th is specific provision creati ng 
this new category  of senior  non-preferred debt instruments .  
1.3 In the hierarchy of creditors, owners of senior  non-preferred debt instruments will rank before 
creditors holding subordinated debt and after the following categories of creditors, respect ively: 
(1) certain specified preferential or secured creditors; (2)  creditors in respect of the portion of their 
deposits covered by the Deposit Guarantee Scheme (DGS); (3) certain other specified depositors, 
comprising natural persons and micro, small and medium -sized enterprises  either  (a) for the 
portion of their deposits that are eligible for coverage under the DGS  and which exceed the 
coverage level of EUR 100,000 or (b) for the deposits which would be eligible for coverage under 
the DGS if they had not been made with branches of a credit institution located in a country which 
is not a Member State of the European Union or the European Economic Area; and (4) creditors other than owners of senior  non-preferred debt instruments (hereinafter referred to as  ‘senior  
preferred debt’). The draft provisions also specify that the new provisions  do not have retroactive 
effect and will apply only to insolvency proceedings that commenced following the entry into force 
of the law that will contain the draft provisions .  
 
2. General observation s 
2.1 The ECB welcomes that the  draft law  aims to increase the resolvability of banks, by creating legal 
certainty about the loss-absorbing capacity of the newly created class of senior  non-preferred debt 
instruments . 
2.2 The ECB  notes that the creation of a new category of senior  non-preferred debt instruments in the 
insolvency ranking of unsecured claims against French credit institutions, subordinated to senior  
preferred debt, is proposed to be achieved by establishing a statut ory basis for the issuance of debt 
instruments , which include  contractual subordination arrangements.   
2.3 A common framework at Union level on the degree of subordination of senior unsecured bank debt 
instruments to other senior unsecured bank liabilities  in bank resolution and/or insolvency 
proceedings, would avoid the fragmentation of the market within the Union for these instruments 
and also avoid complicating the tasks of the ECB with regard to supervision within the Single 
Supervisory Mechanism (SSM).  
 
3. Specific observation s 
3.1 Effects on loss -absorbing capacity in resolution and TLAC requirement  
Changing the statutory creditor hierarchy in bank insolvency proceedings is expected to enhance 
the loss-absorbing capacity of banks in resolution, to the extent that they issue  debt instruments 
belonging to this new category of senior  non-preferred debt instruments . By means of the 
subordination of any new senior  non-preferred debt instruments  issued, which would be achieved 
contractually, the resolution authority may allocate losses in resolution to these senior  non-
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3 preferred debt instruments prior to senior  preferred debt, which would include operational liabilities 
such as corporate deposits and derivatives . The clear distinction in the insolvency ranking that 
results from the establish ment of  a statutory basis for the issuance of debt instruments , which 
include  contractual subordination arrangements , will increase legal certainty regarding the ability of 
senior  non-preferred debt instruments to absorb los ses and, hence,  help to minimis e the risk of 
compensation claims under the ‘no- creditor -worse -off-than- in-insolvency ’ principle. Imposing losses 
on such senior  non-preferred debt instruments is regarded as  carry ing a lower contagion risk than 
that of operational liabilities  included within senior  preferred debt, which is why  the loss absorbency  
of senior  non-preferred debt instruments is likely to be more effective and credible to market 
participants. To the extent that French credit institutions  will issue  senior  non-preferred debt 
instruments, i t will be possible to allocate losses in resolution to the holders of such instruments, 
who would bear losses  ahead of senior  preferred debt. Depending on how substantial the layer of 
new senior  non-preferred debt i nstruments will be in a given bank, this has the potential  to foster 
effective resolution action and reduc e the need to have recourse to the resolution fund, which is 
expected to promote adequate pricing of risk for investors. The facilitation of such cont ractual 
subordination is therefore expected to improve the resolvability of credit institutions under the 
Union resolution regime and enhance market discipline.  
3.2 In addition, the establishment of a statutory basis for the issuance of debt instruments , which 
include  contractual subordination arrangements , may, to some extent , facilitate the implementation 
of the FSB’s standard for a minimum Total Loss -Absorbing Capacity (TLAC) requirement for 
globally systemically important banks ( G-SIBs ) which, in partic ular, requires  TLAC -eligible debt 
instruments to be contractually, statutorily or structurally subordinated to operational liabilities4. The 
creation of a statutory basis for the issuance of senior  non-preferred debt instruments gives  French 
G-SIBs an addi tional option to meet their TLAC  requirement through the issuance of new debt 
instruments belonging to the category of senior non-preferred debt. However, the draft provisions  
will not change the ranking of debt instruments  that have already been issued and it still requires all 
newly issued debt instruments to contain an explicit contractual clause in order to be subordinated. 
Thus, French banks will still be required to issue new debt instrument s in order to meet the 
required amount of TLAC -eligible debt instruments within the remaining timeframe.   
3.3 Effects on eligibility of debt instruments  as collateral for Eurosystem credit operations  
Guideline (EU) 2015/510 of the European Central Bank (ECB/2014/60)5 sets out a single 
framework that applies in the E urosystem for assets that can be submitted as eligible collateral for 
the purpose of participating in Eurosystem monetary operations. In order to be eligible as collateral for such operations, marketable assets must be debt instruments fulfilling the eligi bility criteria laid 
down in Guideline (EU) 2015/510 (ECB/2014/60). In accordance with Article 64 of Guideline 
(EU) 2015/510 (ECB/2014/60), eligible debt instruments will not give rise to rights to the principal 
                                                 
4  Minimum TLAC must be at least 16 % of the resolution group’s Risk Weighted Assets (“TLAC RWA Minimum”) as 
from 1 January 2019 and at least 18 % as from 1 January 2022. Minimum TLAC must also be at least 6 % of the 
Basel III leverage ratio denominator (“TLAC linear rational expectation minimum”) as from 1 Januar y 2019 and at 
least 6.75 % as from 1 January 2022.  
5  Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60) (OJ L 91, 2.4.2015, p. 3).  
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4 and/or the interest that are subordinated to the rights of holders of other debt instruments of the 
same issuer. Due to the subordination of senior  non-preferred debt instruments to senior  preferred 
debt, senior  non-preferred debt instruments would not be eligible as collateral for Eurosystem credit  
operations.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 23 February 2016.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI