Featured Product

    EBA on Estimation of Pillar2 and Combined Buffer Requirements for MREL

    December 23, 2020

    EBA published the final draft regulatory technical standards that specify the methodology to be used by resolution authorities to estimate the Pillar 2 and combined buffer requirements at the resolution group level for setting the minimum requirement for own funds and eligible liabilities requirement (MREL) under the Bank Recovery and Resolution Directive (BRRD). The estimation of Pillar 2 and combined buffer requirements is necessary for setting MREL when the resolution group perimeter differs significantly from the prudential perimeter, at which own fund requirements have been set by the competent authority. The final draft technical standards specify a straightforward and proportionate methodology for estimating own funds and combined buffer requirements.

    Article 45c(4) of BRRD had tasked EBA with developing a methodology for authorities to use in estimating the capital requirements to be used as inputs when calibrating MREL. These regulatory standards set out this methodology, which introduces a threshold to capture only resolution groups that differ sufficiently from the prudential group. The methodology aims to be pragmatic by combining top-down and bottom-up approaches to estimating the additional own funds requirement and the combined buffer requirement. To ensure that this methodology captures only resolution groups for which estimates of Pillar 2 and combined buffer requirements are needed, it was decided to introduce a materiality threshold of 5%. The threshold is meant to express the difference between the total risk exposure amount of the resolution group and that of the banking group or entity closest in size for which own funds requirements have been effectively set by the competent authority.

    If a resolution group is more than 5% different in terms of total risk exposure amount from either the overall banking group or the main entity for which Pillar 2 requirement has been set, two main ways of estimating the resolution group’s capital requirements for setting MREL are proposed—a top-down approach and bottom-up approach. With regard to the estimation of combined buffer requirements, the proposed approach is equally straightforward and proportionate. The proposed methodology is as follows:

    • For the global systemically important institution buffer, the proposal is to use the global systemically important institution buffer when the group’s top entity is also the resolution entity for the resolution group. Still, pursuant to Article 45c(3) of the BRRD, the resolution authority may, when calibrating requirements, adjust the combined buffer requirement on the basis of the resolution plan and thus not apply the global systemically important institution buffer.
    • For the other systemically important institution (O-SII) buffer and Systemic Risk buffer, the proposal is to use as an input to calibrate MREL, the buffer of either the banking group or the largest entity constituting the resolution group, whichever is the closest in size to the resolution group. Again, the level of the O-SII buffer and systemic risk buffer can be adjusted up or down by the resolution authority pursuant to Article 45c(7) of the BRRD.

    No estimation methodology is proposed for the capital conservation buffer or the countercyclical buffer. This is because the former is not bank-specific and is simply set at the consolidated resolution group level and the latter applies to specific exposures. The draft technical standards will be submitted to EC for endorsement before being published in the Official Journal of the European Union. The technical standards will apply from the twentieth day following that of their publication in the Official Journal of the European Union.

     

    Related Links

    Keywords: Europe, EU, Banking, MREL, Pillar 2, BRRD, Resolution Framework, Basel, Regulatory Technical Standards, Proportionality, Systemic Risk, Capital Buffers, EBA

    Featured Experts
    Related Articles
    News

    APRA Issues Interim Update to Policy Priorities for 2021 and Beyond

    In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.

    September 24, 2021 WebPage Regulatory News
    News

    EC Adopts Solvency II and Resolution Rules Package for Insurers

    The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.

    September 22, 2021 WebPage Regulatory News
    News

    OCC Issues Booklets on Regulatory Reporting and Earnings

    The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.

    September 22, 2021 WebPage Regulatory News
    News

    ECB Sets Out Results of Economy-Wide Climate Stress Tests

    The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.

    September 22, 2021 WebPage Regulatory News
    News

    EBA Examines Implications of Increasing Use of Digital Platforms in EU

    The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.

    September 21, 2021 WebPage Regulatory News
    News

    HKMA Issues Updates on Policy Measures Intended to Ease COVID Impact

    The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.

    September 21, 2021 WebPage Regulatory News
    News

    ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures

    The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.

    September 21, 2021 WebPage Regulatory News
    News

    BIS Quarterly Review Discusses Developments in Fintech and ESG Space

    BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.

    September 20, 2021 WebPage Regulatory News
    News

    BCBS to Consult on Supervisory Practices for Climate Risks by Year-End

    The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards

    September 20, 2021 WebPage Regulatory News
    News

    OCC Identifies Operational Risk Deficiencies in MUFG Union Bank

    The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.

    September 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7494