Featured Product

    SRB Publishes Final MREL Policy Under the Banking Package

    May 20, 2020

    SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package. MREL decisions implementing the new framework will be taken based on this policy in the 2020 resolution planning cycle. The decisions will be communicated to banks in early 2021. Each new decision will set out two binding MREL targets, including those for subordination: the binding intermediate target is to be met by January 01, 2022 while the fully calibrated MREL (final target) is to be met by January 01, 2024. SRB also published a feedback statement on the responses received to the consultation on MREL policy.

    The regulatory framework for MREL has been recently revised via amendments to the Bank Recovery and Resolution Directive (BRRD2), the Single Resolution Mechanism Regulation (SRMR2), and the Capital Requirements Directive and Regulation (CRD5 and CRR2). The final policy is in line with the EU Banking Package. The following are the key areas covered in the policy:

    • Calibration and quality of MREL. The policy document highlights that SRB is modifying and extending the approach to MREL calibration in accordance with the new framework. From 2021, CRR requires institutions to comply with a prudential leverage ratio requirement at all times, acting as a backstop to the risk-based own funds requirements. Thus, the revised BRRD introduces an MREL requirement based on the Leverage Ratio Exposure Measure to complement the risk-based MREL expressed as a percentage of the total risk exposure amount. The Banking Package introduced the total loss-absorbing capacity (TLAC) minimum requirement for global systemically important institutions (G-SIIs) and adapted the current MREL framework accordingly. Additionally, MREL for banking groups with a Multiple Point of Entry (MPE) approach to resolution has been further refined.
    • Subordination for resolution entities. The policy document notes that SRB is setting subordination requirements in accordance with the new framework as well as defining a methodology to determine and quantify the "No Creditor Worse Off" risk.
    • Internal MREL for non-resolution entities. The MREL policy recognizes that a feasible and credible resolution strategy may involve the placement of loss-absorbing capacity in all parts of the resolution group. The policy has been revised and strengthened in line with the provisions of the Banking Package. Banks are expected to fully implement an internal MREL mechanism aligned with the new framework
    • MREL for cooperative groups. The Banking Package introduces new provisions concerning MREL requirements for cooperative networks. In the final policy, SRB has set out minimum conditions to authorize certain types of cooperative networks to use eligible liabilities of associated entities other than the resolution entity to comply with the external MREL. SRB has also set out minimum conditions to waive the internal MREL of the legal entities that are part of the cooperative network. The determination of external and internal MRELs must be fully aligned with the specific resolution strategy in a way that supports the implementation of resolution action.
    • Eligibility of liabilities issues under the law of a third country. Effective resolution within the SRM framework, involving liabilities issued under the law of third countries, requires that an EU resolution authority can modify those liabilities. The needed recognition might be achieved by statute or by contract. The final policy expands on how liabilities can be considered eligible through contractual recognition.
    • Transition arrangements. The policy document explains the implementation of transitional periods up to the 2024 deadline, including binding intermediate targets in 2022 and informative targets in 2023. Transition arrangements must be bank-specific because they depend on the MREL tailored to that bank and its resolution plan and the bank’s progress to date in raising MREL-eligible liabilities.

    In the 2020 resolution planning cycle, MREL targets will be set according to the transition period in SRMR2—that is, setting the first binding intermediate target for compliance by 2022 and the final target by 2024. The decisions will be based on recent MREL data and will reflect changing capital requirements. SRB acknowledges the challenges that banks face in the current and unprecedented situation related to the COVID-19 pandemic and that the focus of banks is on business continuity and supporting the economy. For the existing binding MREL targets (set in the 2018 and 2019 cycles), SRB will take a forward-looking approach for banks that may face difficulties meeting those targets, before new decisions take effect. 

     

    Related Links

    Keywords: Europe, EU, Banking, MREL, Banking Package, Leverage Ratio, G-SII, CRR, BRRD, SRMR, Resolution Framework, Basel, TLAC, SRB

    Featured Experts
    Related Articles
    News

    APRA Updates Validation and Derivation Rules in September 2020

    APRA updated the lists of the Direct to APRA (D2A) validation and derivation rules for authorized deposit-taking institutions, insurers, and superannuation entities.

    September 24, 2020 WebPage Regulatory News
    News

    EC Proposes Frameworks for Crypto-Assets and Operational Resilience

    EC adopted a package that includes the digital finance and retail payments strategies and the legislative proposals for regulatory frameworks on crypto-assets and digital operational resilience.

    September 24, 2020 WebPage Regulatory News
    News

    ECB Publishes Opinion on Proposals to Amend Securitization Framework

    ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic.

    September 24, 2020 WebPage Regulatory News
    News

    FCA Consults on Regulation of International Firms in UK

    FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.

    September 23, 2020 WebPage Regulatory News
    News

    MAS Amends Notice on Capital Adequacy Requirements of Banks

    MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.

    September 23, 2020 WebPage Regulatory News
    News

    FCA to Begin to Move Firms to New Data Collection Platform RegData

    FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.

    September 23, 2020 WebPage Regulatory News
    News

    ISDA Expects IBOR Fallbacks to be Effective by End of January 2021

    ISDA issued a letter to regulators to flag that it now expects the supplement to the 2006 ISDA Definitions and the Interbank Offered Rate (IBOR) Fallbacks Protocol to be effective around mid- to late-January 2021.

    September 23, 2020 WebPage Regulatory News
    News

    APRA Reviews Repayment Deferral Plans, Identifies Best Practices

    APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Assess Risks to Financial Sector After COVID-19 Outbreak

    ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.

    September 22, 2020 WebPage Regulatory News
    News

    BoE Confirms Withdrawal of COVID Corporate Financing Facility

    BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.

    September 22, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5836