A type of debt that is maintained by a bank or financial institution, in a sufficient amount, to absorb any losses that may arise in the phase of a resolution by a regulatory authority. This occurs when a failing bank is put into resolution while having a sufficient amount of bail-in debt to absorb any remaining losses and complete the process of bank recapitalization.
However, if losses have reached the point where the bail-in debt is inadequate, creditors may have an incentive to withdraw their funds- to avoid any exposure to losses – and other stakeholders may be prompted to leave and do business somewhere else.
This situation may put a failing bank under liquidity pressure prior to its resolution, as it may lose its stakeholders (whose presence would be essential for any post-resolution survival.
See also: bail-in debt (finance).
