Featured Product

    SRB Chair Discusses Improving Resolution Framework for Mid-Size Banks

    September 08, 2021

    The Single Resolution Board (SRB) Chair, Elke König, published an article on improving the resolution framework for medium-size banks. SRB is working to better adapt its resolution framework to these banks, using the proportionality principle, but without undermining the end-goal of resolvability. This work relies on three main pillars: transfer strategies, tailored minimum requirements for own funds and eligible liabilities (MREL) calibration, and access to funding. On the first two, SRB is in the driving seat, but legislative changes are required for the third.

    In the article, Elke König notes the following about these three pillars:

    • Transfer strategies seem to be the best tools for medium-size banks. SRB is working to enhance its preparation for using these strategies. For instance, in the first half of 2021, SRB has made substantial progress in making transfer tools fully operational. SRB will also prepare additional policies and guidance on separability.
    • MREL needs proper calibration for transfer strategies. In 2022, SRB will work on MREL policy for the banks that have transfer tools as the preferred resolution strategy. This could, under certain conditions, lower the MREL requirement for banks compared to the status quo. For banks with a credible transfer strategy, there might not be a real need to set MREL at a level that allows the full recapitalization of the bank. As a result, MREL requirements could be lower, based on the likelihood of transfer strategies being reliably implementable.
    • Banks facing resolution may have access to the Single Resolution Fund (SRF) and/or the deposit guarantee schemes (DGSs) under certain conditions. However, these conditions severely restrict the use of DGS funds in resolution, potentially jeopardizing the success of resolution. This may create incentives for decision-makers to look for ways to circumvent the resolution framework. Access to the SRF and its combined use with DGS could be further explored, to act as funding to support those resolution tools other than bail-in that ensure the exit of resolved entities from the market through transfer strategies.

    To overcome the legal framework’s restrictions on the use of DGS in resolution, SRB recommends replacing DGS-super priority by adopting a general depositor preference. The DGS could then contribute to resolutions in a way comparable to other creditors, in accordance with the creditor hierarchy. While this would likely be a limited contribution, given that the DGS would continue to rank above most creditors, it aligns to the broader responsibilities of the DGS in subrogating to the rights of the covered depositors. This would help to achieve all the resolution objectives, including minimizing the use of public funds and avoiding further value destruction. Notwithstanding the above, given the limited size of national DGSs and the existing uneven playing field, another important missing piece to solve the problem of medium-sized banks is to put in place a European Deposit Insurance Scheme (EDIS). A centralization of tools and funding at EU level would reduce fragmentation and increase the credibility of the overall Banking Union, thereby further enhancing financial stability.


    Related Link: Article


    Keywords: Europe, EU, Banking, Resolution Framework, MREL, DGS, SRF, Medium-Sized Banks, Proportionality, MREL Calibrations, EDIS, Banking Union, SRB

    Related Articles

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News

    BaFin Consults on Resolvability Requirements for Resolution Planning

    The Federal Financial Supervisory Authority of Germany (BaFin) proposed to amend the “Capital Investment Conduct And Organization Ordinance” and issued a draft circular on the minimum resolvability requirements for resolution planning.

    June 10, 2022 WebPage Regulatory News

    EBA Consults on Certain Standards and Guidelines Under CRR and BRRD

    The European Banking Authority (EBA) proposed guidelines, for the resolution authorities, on the publication of the write-down and conversion and bail-in exchange mechanic, with the comment period ending on September 07, 2022.

    June 08, 2022 WebPage Regulatory News

    OJK Publishes Regulatory Updates for Financial Sector Entities

    The Financial Services Authority of Indonesia (OJK) is strengthening cooperation with the Australian Prudential Regulation Authority (APRA) and the Japanese Financial Services Agency (JFSA)

    June 03, 2022 WebPage Regulatory News

    EU Publishes Rules on DLT and Data Governance

    The European Parliament and the Council published Regulation 2022/868 on European data governance (Data Governance Act).

    June 03, 2022 WebPage Regulatory News

    EBA Publishes Phase 2 of Reporting Framework 3.2

    The European Banking Authority (EBA) published phase 2 of its reporting framework 3.2. The technical package supports the implementation of the updated reporting framework by providing standard specifications

    June 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8267