Tier 2

Notes issued under the Programme may be subject to the statutory write-down or bail-in powers granted to EU regulators pursuant to the European Commission’s proposals for a Directive on the recovery and resolution of banks and investment firms

Under the Regulatory Capital Write-Down Powers in the Crisis Management Directive, Resolution Authorities will be required to write-down an Institution’s Tier 1 and Tier 2 Capital instruments before taking any other form of resolution action or applying any other resolution power contained in the Crisis Management Directive in order to restore the Institution to viability. Resolution Authorities may require that an Institution issue Common Equity Tier 1 Capital instruments (e.g., ordinary shares) to holders of Tier 1 and Tier 2 Capital instruments that have been written down. It is currently unclear whether the measures that are ultimately adopted in this area will apply to any Tier 1 or Tier 2 Capital instruments that are in issue on the date the Crisis Management Directive comes into force, or whether certain transitional rules will apply. The European Commission’s proposal for the Crisis Management Directive does not contain any explicit provisions regarding grandfathering of outstanding regulatory capital instruments.

Resolution Authorities will also be able to exercise Bail-In Powers to write-down certain unsecured liabilities of Institutions (and, in some circumstances, shares or unsecured liabilities of certain holding companies of those Institutions) or to convert unsecured liabilities into equity, either to recapitalise the Institution (subject to appropriate restructuring of the Institution’s business) or to provide capital for any bridge institution that the Resolution Authorities establish in connection with the resolution of the Institution. Subject to certain exemptions set out in the proposed Crisis Management Directive (including secured liabilities, bank deposits guaranteed under an EU member state’s deposit guarantee scheme and liabilities with an original maturity of less than one month), it is intended that all liabilities of Institutions will be potentially ‘bail-in-able’ (“Eligible Liabilities”).

Dated Subordinated Notes issued under the Programme may fall within the pool of regulatory capital instruments that would be subject to the proposed Regulatory Capital Write-Down Powers. Senior Notes issued under the Programme that become repayable following the transposition of the provisions relating to Bail-In Powers into UK law and regulation may fall within the scope of the Bail-In Powers proposed in the draft Crisis Management Directive. The determination that all or part of the principal amount of the Notes will be subject to the Regulatory Capital Write-Down Powers or Bail-In Powers may be unpredictable and may be outside of the Issuer’s control. Accordingly, trading behaviour in respect of the Notes which are subject to such write-down or conversion powers is not necessarily expected to follow trading behaviour associated with other types of securities. Any indication that the Notes will become subject to the Regulatory Capital Write-Down Powers set out in the proposed Crisis Management Directive could have an adverse effect on the market price of the relevant Notes.