MNB Revises Principles for Setting MREL for Banks
MNB revised principles for setting the Minimum Requirement for own funds and Eligible Liabilities (MREL) for domestic credit institutions and investment firms. MNB first published these principles in November 2018 and this update was necessitated by the banking system reform package that entered into force EU on June 27, 2019 as well as the domestic legislation implementing it. The revised principles aim to provide the institutions affected by the requirement and the professional public with transparent information on how the MNB approaches the interpretation of certain legal provisions governing the determination of the MREL. As of January 01, 2021, MNB, acting in its resolution role, will apply the principles presented in this document.
The detailed criteria for establishing the MREL requirements in Hungary are governed by the Resolution Act. According to the Resolution Act, in accordance with the EU Bank Recovery and Resolution Directive (BRRD), domestic credit institutions and investment firms are required to comply with MREL on an ongoing basis. Under MREL, institutions must maintain an adequate quantity and quality of resources that can be partially or fully depreciated or converted into capital in the event of a crisis, thus ensuring the loss-making nature of owners and creditors and the continuous performance of critical functions during and after a crisis. The required institutions must comply with the MREL requirements on an ongoing basis from January 01, 2024. Considering that the MREL requirements in accordance with the new legislation will be laid down for the first time in 2021, MNB does not set out the planned MREL level prior to the mandatory intermediate MREL target level on January 01, 2022. The MREL framework presented in this document addresses the following topics:
- Institutional scope and the level of MREL requirements to be met
- Assumptions under which MNB determines the extent of the requirement
- Requirements to be met by institutions in terms of quality of resources, along with the subordination requirements that institutions must meet
- Rules for compliance with specific (internal) MREL requirements
- The deadline and milestones for meeting the requirements
- Restrictions on investment in MREL-capable instruments
Keywords: Europe, Hungary, Banking, MREL, Regulatory Capital, Basel, BRRD, Pillar 1, Systemic Risk, Resolution Framework, MNB
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