Sebastiano Laviola of SRB Outlines Next Steps for MREL Policy
In a recent article, the SRB Board Member Sebastiano Laviola outlined the next steps with respect to minimum requirements for own funds and eligible liabilities (MREL) policy. SRB updated its MREL policy last month resulting in changes to the deadlines for binding MREL targets. SRB will decide on the level of MREL that institutions should hold in its 2020 resolution planning cycle. These decisions, which will be communicated to banks in early 2021, will include two binding MREL targets—the binding intermediate target to be met by January 01, 2022 and the MREL (final target) to be met by January 01, 2024. The decisions will reflect changing capital requirements and will be calibrated taking the most recent information into account, where relevant.
The article highlights that the new MREL targets allow SRB to take a forward-looking approach to banks that may face short-term difficulties in meeting the existing targets set in earlier cycles, due to the COVID-19 crisis. SRB is committed to the continued build-up of MREL, while ensuring that short-term MREL constraints do not prevent banks from lending to businesses and households. The article also states that MREL is being steadily built up in quantity and quality over time. While the COVID-19 crisis has caused severely reduced new issuances in March and April, there have been signs of recovery in recent weeks. Progress on MREL requirements means banks are more resolvable. SRB aims to set ambitious but realistic objectives for the build-up of MREL quantity and quality, taking the situation of financial markets and market capacity into consideration where needed. This loss-absorbing capacity is vital for strengthening resolvability, and, in turn, financial stability.
The updated MREL policy, published last month, implements the new requirements in the 2019 Banking Package, which introduced a number of risk-reducing measures for the financial sector. The updated policy introduces changes to MREL requirements for large global systemically important banks, integrating the global standard for total loss-absorbing capacity (TLAC). There are changes to the way it is calculated and in its quality (subordination). It also sets out dedicated rules for different business models, such as cooperatives, and resolution strategies, such as multiple-point-of-entry (MPE).
Related Link: Article by SRB Board Member
Keywords: Europe, EU, Banking, MREL, Banking Package, COVID-9, TLAC, Resolution Planning, Resolution Framework, Regulatory Capital, SRB
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