SRB to Finalize MREL Policy Under BRRD 2 by First Quarter of 2020
At a joint academic FSC Colloquium on resolution in Brussels, Sebastiano Laviola of SRB spoke about the actions needed to make the bank resolution regime work. While speaking at the event, he focused on the need to address legal loopholes, institutional implementation challenges, and impediments to practice. He discussed what banks need to do to become resolvable and the challenges they might face in building up the minimum requirement for own funds and eligible liabilities (MREL). He also informed the audience that SRB intends to publish, by the first quarter of 2020, its final SRMR2/BRRD2 MREL policy, which will form the basis for MREL-setting under the new framework.
With respect to addressing the legal loopholes, he highlighted the need for further harmonization of insolvency law in EU and for an EU administrative bank liquidation framework. The lack of a harmonized EU liquidation regime is an obstacle toward a full-fledged Banking Union. With the existence of nineteen different insolvency frameworks in the Banking Union, the analysis of the insolvency counterfactual for a cross-border bank in resolution is a challenge and it results in diverging outcomes, depending on the home country of the institution.
To address the institutional implementation challenges, Mr. Laviola emphasized the need for creating a new resolution liquidity framework for the Banking Union. The lack of a liquidity facility to finance banks in resolution is a key gap in the current resolution architecture. While the Common Backstop will cover all uses of the Single Resolution Fund, including liquidity in resolution, this would not address the liquidity needs of a large bank, he added. Improving resolvability from a financial continuity perspective is only one of the several dimensions of resolvability covered in the document on SRB Expectations for Banks. This draft document was launched for public consultation last week, with the comment period ending on December 04, 2019.
Finally, he explained that the loss-absorbing and recapitalization capacity represents the key to a successful implementation of a resolution strategy. The implementation of the recently adopted Banking Package will have a direct impact on day-to-day resolution planning, as it fundamentally revises the MREL framework. The Banking Package’s overhaul of the MREL framework brings significant changes to the quality and quantity of loss-absorbing resources. SRB intends to publish, by the first quarter of 2020, its final SRMR2/BRRD2 MREL policy, which will form the basis for MREL-setting under the new framework. He mentioned that the MREL framework is not cost-neutral for banks, as they may need to restructure themselves or their funding structure to comply with the requirements.
Building-up MREL could be challenging for banks that have no history in issuing unsecured debt in the wholesale markets. Because of these challenges, SRB has consistently pursued a gradual approach to MREL. The approach of SRB involves setting appropriate transition periods tailored on the funding ability of each bank. Overall, banks are taking opportunity of the favorable market conditions to issue MREL-eligible liabilities. The message to banks is "Do it now, while rates are favorable, because you are going to have to get in line soon anyway."
Related Links
Keywords: Europe, EU, Banking, Resolution Framework, MREL Policy, BRRD2, SRMR2, SRB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
IAIS Cautions Against Requiring Insurers to Cover COVID-19 LossesRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.