medium · Corporate Credit Analysis distressed
A fictional bank, Andean Trust, has $10B in Risk-Weighted Assets (RWA) and reports Common Equity Tier 1 (CET1) capital of $1.2B. It also has $17B in TLAC-eligible senior unsecured debt issued at the holding company.
If the resolution authority implements a 'Single Point of Entry' (SPOE) resolution, what happens to the HoldCo debt?
- It is immediately written down to zero without any equity conversion
- It ranks pari passu with the depositors at the operating subsidiary
- It is converted to equity to recapitalize the bank
- It is paid out in full by the FDIC insurance fund
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