General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
March 20, 2018

The SRB Chair Elke König, at the European Parliament Hearing, shared her views on the application of proportionality principle and the amendments to Capital Requirements Regulation (CRR), Capital Requirements Directive (CRD IV), Bank Recovery and Resolution Directive (BRRD), and Single Resolution Mechanism Regulation (SRMR). She also discussed the progress of SRB on the recommendations in the European Court of Auditors (ECA) report.

An ECA recommendation that is "...already partially fulfilled is the development of a policy on MREL [minimum requirement for own funds and eligible liabilities]: our 2017 MREL approach is public and has been applied in the 2017 resolution planning cycle." In 2018, there will be a clear focus on determining MREL for all banking groups and significant entities within banking groups. Several other recommendations are actually deliverables planned for 2018-2020 in the multi-annual program. This includes the work on substantive impediments to resolvability, the ongoing revision of the cooperation agreement with national resolution authorities and of the Memorandum of Understanding with ECB, an update to the resolution planning manual and the completion of fully compliant resolution plans for all SRB banks by 2020. She also highlighted the importance of harmonizing insolvency laws of banks. The common SRM framework for resolution is faced with 19 or more different insolvency procedures. The failing or likely to fail, or FOLTF, assessment does not automatically link to the criteria for insolvency/liquidation. National bank insolvency procedures must be raised to a common standard to clarify the line between resolution and insolvency and eliminate wrong incentives, said Ms. König.

She also highlighted that "we undersign" the principle of proportionality and follow it in "our application of the resolution framework." However, "... if you want us to be proportionate, we need to have the necessary discretion. This applies in a number of areas: the quantity and quality of MREL, the deadline to comply with it, even the way to remedy the breaches of MREL." She added that "it is natural to expect us to be proportionate and explain our choices" but "it would be dangerous to constrain the ability to tailor to the specific situation of each bank how much subordinated and/or non-subordinated MREL the bank needs, and by when. It would run contrary to the objective of proportionality and achieving resolvability. As long as the necessary flexibility (for example, to address risks to resolvability) is retained in the calibration of MREL requirement, without caps or constraints, and resolution authorities are "empowered to tailor the remedies to breaches of MREL case-by-case, without automaticity, then we could agree on removing MREL guidance; this would also avoid further complicating the framework."

To streamline the framework for setting MREL, the SRB Chair recommends the move from the current two-tier process to a one-tier approach, to enable SRB to address decisions directly to banks. In the two-tier process, SRB determines MREL targets, but then national resolution authorities need to implement the SRB decision. The two-tier approach does not add any room for discretion for national resolution authorities, while it leads to delays in the implementation of the decisions, different rights and obligations in different member states, and the possibility to challenge the SRB decisions. Moving to a one-tier approach would increase operational efficiency of the SRB and protect it from additional challenges. This, by the way, holds true for any decision on impediments to resolvability too. She concludes that the "recent audit and cases show that we stand on much more solid grounds today, but challenges remain for the resolution framework and its application."

 

Related Link: Speech

Keywords: Europe, EU, Banking, MREL, Proportionality, Resolution Framework, SRMR 2, SRB

Related Articles
News

HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%

HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.

April 16, 2019 WebPage Regulatory News
News

EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2

The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.

April 16, 2019 WebPage Regulatory News
News

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 16, 2019 WebPage Regulatory News
News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News
News

PRA Seeks Input and Issues Specifications for Insurance Stress Tests

PRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019.

April 15, 2019 WebPage Regulatory News
News

PRA Finalizes Policy on Approach to Managing Climate Change Risks

PRA published the policy statement PS11/19, which contains final supervisory statement (SS3/19) on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (Appendix).

April 15, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: First Update for April 2019

EBA published answers to nine questions under the Single Rulebook question and answer (Q&A) updates for this week.

April 12, 2019 WebPage Regulatory News
News

EIOPA Statement on Application of Proportionality in SCR Supervision

EIOPA published a supervisory statement on the application of proportionality principle in the supervision of the Solvency Capital Requirement (SCR) calculated in accordance with the standard formula.

April 11, 2019 WebPage Regulatory News
News

FED Updates Form and Supplemental Instructions for FR Y-9C Reporting

FED updated the form and supplemental instructions for FR Y-9C reporting. FR Y-9C is used to collect data from domestic bank holding companies, savings and loan holding companies, U.S intermediate holding companies, and securities holding companies with total consolidated assets of USD 3 billion or more.

April 11, 2019 WebPage Regulatory News
News

OSFI Finalizes Guidelines on Liquidity Adequacy and NSFR Disclosures

OSFI published the final Liquidity Adequacy Requirements (LAR) guideline and the net stable funding ratio (NSFR) disclosure requirements guideline.

April 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2920