EBA published the first monitoring report that examines the issuance and quality of the minimum requirement for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) instruments in EU. The report is intended to inform stakeholders about the implementation review performed by EBA on TLAC and MREL instruments so far and presents views and recommendations of EBA on specific features commonly seen in these instruments. The findings of EBA contain policy views on existing or new provisions, along with the identified best practices. The report also provides an insight into areas for monitoring or potential EBA guidance going forward.
The report covers five main areas of assessment relevant to determine the quality of the TLAC and MREL instruments—availability, subordination, capacity for loss absorption, maturity, and other aspects including governing law, tax and regulatory calls, and tax gross-up clauses. The report contains 15 recommendations in total, four in the area of subordination, seven in the area of capacity for loss absorption, three in the area of maturity, and one on tax gross-up. It also stresses the areas where further work from EBA is ongoing. EBA plans further work on general consistency with own funds clauses and existing recommendations from the EBA in this field (including those provided via the additional tier 1 standard templates, for example) if deemed relevant to eligible liabilities instruments. In particular, the report highlights the importance of providing further guidance on the interaction between the clauses used for environmental, social, and governance (ESG) capital issuances and the eligibility criteria for eligible liabilities instruments, with the objective of ensuring that these eligibility criteria for the instruments are not affected..
EBA has developed this report in accordance with Article 80(1) of the Capital Requirements Regulation (CRR). To perform its monitoring function, EBA has focused its work on the assessment of selected TLAC- and MREL-eligible liabilities instruments. EBA has designed specific assessment templates to drive the analysis of instruments. For this report, EBA has analyzed 27 transactions issued in 14 jurisdictions for a total amount of approximately EUR 22.75 billion, which is composed of EUR 21 billion senior non-preferred issuances and EUR 1.75 billion senior holding company issuances. The scope of the monitoring has been limited for now to these two types of issuances. In general, EBA observes that European banks have not waited for the adoption of the new banking package to start issuing MREL and TLAC instruments. However, EBA observes that, so far, in terms of legal drafting of the notes and programs, market participants have used quite simple and standardized provisions. This is conducive to legal certainty and reliability at the point of resolution.
Keywords: Europe, EU, Banking, TLAC, MREL, CRR, BRRD, Basel, ESG, Green Bonds, Regulatory Capital, EBA
Previous ArticleEBA Proposes to Revise Guidelines on Sound Remuneration Policies
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).