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

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514