First resolution condition.
Plain-language explanationINTERPRETATION
FOLTF is a legal assessment that the bank has reached, or is expected soon to reach, a condition incompatible with continued viability. It is not the same thing as a cash default. A bank can still be processing payments and nevertheless be FOLTF on the capital/authorisation route.
Legal test / triggerLAW
Under SRMR Article 18(4), one or more FOLTF circumstances may apply: (a) infringement, or likely near-term infringement, of requirements for continuing authorisation in a way that would justify withdrawal of authorisation, including losses that deplete all or a significant amount of own funds; (b) assets are, or are likely soon to be, less than liabilities; (c) the entity is, or is likely soon to be, unable to pay debts or other liabilities as they fall due; or (d) extraordinary public financial support is required, subject to the statutory exceptions.
Who assesses?LAW
For a Banking Union SI, the ECB is the primary FOLTF assessor, after consulting the SRB. The SRB can make the FOLTF determination if it has informed the ECB of its intention and the ECB does not make the assessment within three calendar days.
Who decides?INTERPRETATION
The FOLTF determination is not itself the decision to resolve the bank. It satisfies only the first of the three cumulative Article 18(1) conditions. The SRB then assesses the remaining conditions.
Evidence / information neededINTERPRETATION
- Own-funds and capital-requirement position and forward trajectory.
- Losses already incurred and credible near-term loss estimates.
- Asset and liability information relevant to balance-sheet insolvency.
- Liquidity position, cash-flow projections, outflows, collateral and ability to meet obligations as they fall due.
- Breaches or expected breaches of conditions for continuing authorisation.
- Recovery actions already taken and their effects.
- Any proposed extraordinary public financial support and whether an exception applies.
Operational evidence view; not an exhaustive statutory checklist.
Powers or tools availableINTERPRETATION
FOLTF alone does not activate a resolution tool. It moves the case into the Article 18 decision path. Separate supervisory, preparatory, write-down/conversion or temporary suspension powers may be relevant depending on the facts and legal conditions.
Relevant valuationLAW
SRMR Article 20 requires a fair, prudent and realistic valuation before resolution action or the write-down/conversion power. One statutory purpose is to inform whether the resolution or write-down/conversion conditions are met. A provisional valuation is permitted where an independent definitive valuation is not possible in time.
INTERPRETATIONCommon terminology note
Practitioners often call the valuation used to inform the resolution-condition determination 'Valuation 1'. That label is useful shorthand, not a separate statutory gate.
Possible next stepsLAW
- If FOLTF is not established: no resolution under Article 18 on this basis; supervisory/recovery measures may continue.
- If FOLTF is established: assess whether any reasonable alternative measures can prevent failure within a reasonable timeframe.