An event that triggers a regulated institution’s seizure or resolution by a regulatory body. This follows a situation where an institution experiences serious financial stress due to insufficient liquidity and/ or capital (i.e., point of non-viability (PONV)). Resolution is triggered when a regulator establishes reasonable grounds for its judgment that an institution is over-indebted or passing through serious liquidity problems or in the event that it fails to meet its capital adequacy requirements within a predefined deadline.
The capital trigger is met for a financial group on a consolidated basis or at the individual parent bank entity at the latest when total capital reaches 8% of the risk-weighted assets (RWAs) or its common equity tier-1 capital (CET1) reaches or falls below 5% of the risk-weighted assets (RWAs).
An instrument, held by a regulated entity, that is equipped with a point of non-viability (PONV) trigger, effectively serves as a bail-in debt. (e.g., a failure of the equity component of CoCo debt via a going concern conversion.)
The point of non-viability (PONV) trigger event is the earlier of 1) a decision by a regulator that a conversion or temporary/ permanent write-off (of a capital instrument) is necessary, without which the regulated institution would become non-viable; and 2) a decision to make a injection of capital using public funds, or any similar type of support, without which the regulated institution would have become non-viable. Such a decision would always indicate that the write-off or issuance of any new shares as a result of conversion trigger by the event (trigger event) must take place prior to any injection of “public” capital. In case of any injection of capital using public funds, the AT1 instruments with write-off provision will be permanently written-off.
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