Automated bail-in: eliminating regulatory restraints

The Credit Suisse default in 2023 sparked considerable discourse about the absence of bank resolution procedures. Instead of resolution, public guarantees and unconventional emergency liquidity assistance (ELA) were provided. Of course, this occurred nearly two decades after the global financial crisis of 2007–2009, and evidently, there are still lessons to be learned. This study explores the bail-in tool and the total loss-absorbing capacity (TLAC) introduced by the G20 Financial Stability Board to eliminate the need for public bailouts of global systemically important banks in case of failure. Acknowledging the pragmatic standpoint, it is essential to recognise that banks hold divergent perspectives concerning their resolution planning while policymakers continue to grapple with the 'too-big-to-fail' dilemma without a discernible pathway for resolution. Thus, this study proposes contractual approaches to enhance the TLAC framework, incorporating a market-based trigger design. These improvements aim to create conditions that enable central banks to provide ELA, thereby averting systemic disruptions during a financial crisis.