Featured Product

    Danish Central Bank Examines Revisions to Crisis Management Rules

    March 04, 2021

    The Central Bank of Denmark analyzed the recent revisions to the crisis management rules, including the Bank Recovery and Resolution Directive or BRRD 2. In the analysis, the Central Bank highlighted that the new rules make it more likely that senior unsecured creditors will have to contribute to the crisis management of a failing credit institution. The Bank notes that, along with the resolution authorities, the senior unsecured creditors must also be aware of this risk and should take it into account in the risk management process.

    The analysis published by the Central Bank noted that crisis management framework is still being developed, with a revised crisis management directive (Bank Recovery and Resolution Directive or BRRD2) having recently entered into force in Denmark. Danish FSA has, so far, required that Danish banks must meet their whole MREL requirement with subordinated liabilities—that is liabilities that bear losses before senior unsecured claims. With the revised crisis management framework (BRRD2), a maximum limit has been introduced for the subordination requirement. This means that there are limits to how large a share of the minimum requirement for owns funds and eligible liabilities (the MREL requirement) the authorities can demand must be met with subordinated liabilities. Subordinated liabilities include capital instruments and senior non-preferred debt. The new maximum limit for the subordination requirement makes it more likely that senior unsecured creditors will have to contribute to the crisis management of a failing credit institution. Contributions may take the form of the liabilities covered by the creditors’ claims being written down or being converted. Senior unsecured creditors now also risk having to make contributions in situations that are regarded as normal loss scenarios from a crisis management perspective. Senior unsecured creditors include large corporations with deposits of more than EUR 100,000. 

    Where the resolution authorities perform a bail-in in a crisis situation, they may, in exceptional cases, exempt liabilities from the bail-in. It is important that the resolution authorities use such special bail-in exemptions sparingly as a tool for exempting some senior unsecured creditors from having to contribute to the crisis management. A liability should only be exempt from bail-in if there is a very weighty reason for this, such as a consideration for financial stability. The cornerstone of the crisis management framework is that investors and creditors of an institution must bear the losses. Thus, a deviation from this principle should only happen when absolutely necessary.

     

    Keywords: Europe, Denmark, Banking, BRRD2, Crisis Management Framework, Resolution Framework, MREL, Bail-In, Danish FSA, Central Bank of Denmark

    Featured Experts
    Related Articles
    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

    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

    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

    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

    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
    News

    PBC Issues List of Systemic Banks, Adds 2 Foreign Banks to CERB List

    The China Banking and Insurance Regulatory Commission (CBIRC) published the administrative measures for internal control of wealth management companies, which come into force on the day of promulgation.

    September 09, 2022 WebPage Regulatory News
    News

    PRA Publishes Discussion Paper on Its Future Approach to Policy

    The Prudential Regulation Authority (PRA) proposed its approach to policy-making as it takes on wider rulemaking responsibilities under the Financial Services and Markets Bill.

    September 08, 2022 WebPage Regulatory News
    News

    ECB Publishes Opinion on Proposed Regulation on Data Act

    The European Central Bank (ECB) published its opinion on the proposal for a regulation on harmonized rules on fair access to and use of data (Data Act).

    September 08, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8511