In some cases, due to scale, profile or internal interconnectedness of an entity, it may be impossible to find an acquirer willing to acquire the business in its entirety. In such a case, the Bank Guarantee Fund may write down a part of liabilities of an entity under the bankruptcy threat or convert them into shares in order to cover losses and rebuild own funds. While performing write down or conversion of liabilities, the Fund is obliged to observe the hierarchy of claims stipulated in the Bankruptcy Law.

This tool should be used by the Fund only if there is a real chance that long-term financial stability of an entity under resolution will be restored.

After completion of write down or conversion of liabilities an entity remains for some time under control of the Bank Guarantee Fund, which supervises its reorganisation aimed at permanent removal of problems underlying occurence of losses.

The Act of 10 June 2016 on the Bank Guarantee Fund, Deposit Guarantee Scheme and Resolution, in line with the EU Bank Recovery and Resolution Directive, excludes write down or conversion of guaranteed funds. Instead, loss coverage is charged to a respective guarantee fund created within the BGF.

Diagram: Bail-in