A specific type of bond that allows its holder to convert into shares, or write down the debt of, a failing bank (bail-in). Such an unsecured bond is issued by credit institutions and investment firms with specific features such as convertibility into shares or the ability to write down at a certain trigger event or at the discretion of a regulatory authority (as in the case where it deems the bank no longer viable, a certain time prior to its resolution. During the bail-in (towards recapitalization), the bonds are converted into equity or used to write down a bank’s debt (so that, the bondholders effectively assume the losses).
The holders of these unsecured bonds do not benefit from the preferred creditor status (just unlike depositors who have access to deposit guarantee scheme insurance).
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