The SRB Chair Elke König addressed the ECON Committee of the European Parliament on the status of the current priority areas for SRB and elaborated on the SRB priorities for 2020, highlighting that implementation of the Banking package will be a major priority for the months ahead. She highlighted that the Banking Package strengthens the resolution framework, but also poses implementation challenges for SRB. The key tasks on the agenda include finalization of the new Minimum Requirement for own funds and Eligible Liabilities (MREL) policy by the second quarter of 2020, finalization of the European Deposit Insurance Scheme during this parliamentary term, continued progress toward resolvability assessment, and finding a solution for liquidity in resolution.
The building up of MREL is very important for resolution planning; therefore, SRB has taken a gradual, multi-year approach to MREL, with the goal of maintaining proportionality in the system while preserving a level playing field and upholding high resolution standards across the Banking Union. In the last two resolution planning cycles, SRB has taken binding MREL decisions at consolidated and individual levels. By the end of 2019, SRB will have adopted decisions with MREL targets at the consolidated level for approximately 83% of the banks with resolution plans. Even though the revised Bank Recovery and Resolution Directive (BRRD2) and the Single Resolution Mechanism Regulation (SRMR2) only kick in from December 28, 2020, SRB has already advanced in revising its MREL policy with a view to discuss new policy elements with the participants of the Single Resolution Mechanism and with a view to consulting the industry in early 2020. The goal is to have the new MREL policy ready by the second quarter of 2020. This would allow SRB to start applying it in the course of the 2020 resolution planning cycle and to take MREL decisions based on the new legal framework in the first or second quarter of 2021, when SRMR2 will be applicable and when member states should have transposed the BRRD2.
The SRB Chair pointed out that the new legislation is complex and the resulting framework not only requires banks to continue on their path toward resolvability, but also to follow stricter rules for MREL. The new framework requires firmer conditions for instruments to be considered MREL-eligible; requires a number of banks to meet higher subordination requirements; and calls for banking groups to comply with the internal MREL requirements. SRB is working with the national resolution authorities and is in touch with EC, ECB, and EBA. However, recent experience shows that it will inevitably take some time for authorities to overcome the interpretation and implementation issues. This is another argument for the step-by-step introduction of the new framework, since it is already clear that the level two texts of EBA will be delayed.
Another challenging task that is very high on the SRB agenda is the resolvability assessment. Based on these ongoing efforts, SRB is revising its internal policy on resolvability assessment, to integrate an overall consistent resolvability assessment into the upcoming resolution planning cycle for 2020. Concretely, SRB envisages the creation of a "heat-map" classifying banks in accordance with progress made on each resolvability condition and the relative impact this progress has on the feasibility of the preferred resolution strategy. An area where improvements need to be made is the need for a better alignment between resolution and insolvency, including a bank liquidation regime or harmonized license withdrawal process. She added that a solution for liquidity in resolution is still not in sight. In 2020, SRB continue to increase the Single Resolution Fund while it is hoped that the details around the backstop to the Fund can be worked out and hopefully progress can be made soon—perhaps even in tomorrow’s meeting of the EuroGroup. Finally, SRB would like to see more work to complete and strengthen the Capital Markets Union and hopes that an agreement can be reached on the European Deposit Insurance Scheme, which is the third and final pillar of the Banking Union, during this parliamentary term.
Related Link: Speech
Keywords: Europe, EU, Banking, BRRD, Resolvability Assessment, Banking Package, MREL, Resolution Framework, BRRD2, SRMR2, Single Resolution Fund, SRB
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting