Mr. Greg Dempsey:

The first point to make is that the bail-in tool is only one of the resolution tools available. The preventative measures - such as the resolution and recovery plans, and early intervention - must be shown not to have worked before any of the resolution tools can be used by the resolution authorities. At that stage, where the capital or financial position of the bank is such that it has failed or is likely to fail, and there is a public interest, the resolution authority can use one or other of these tools.

Conceptually, the bail-in tool itself is as follows. A valuation would be undertaken to determine the value of the assets and the gap between the assets and liabilities, including equity. That gap would first be applied to shareholders and then to the subordinated capital. Where that is insufficient to cover the losses, other creditors would be subject to a haircut so that the assets and liabilities match. In certain circumstances, there is a further process whereby certain creditors would be further written down but compensated with new equity issued to recapitalise the bank, so that it can operate on the basis of going forward.

The process is stating the losses that the bank has experienced and passing those losses to the bank's owners and creditors according to the insolvency hierarchy rather than allowing the losses to be picked up by taxpayers.