The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix." This quick-fix clarifies the treatment of total loss-absorbing capacity (TLAC) surpluses located in third countries, for banks with a multiple point of entry (MPE) resolution strategy.
The CRR quick-fix rules also address whether and when the resolution authority can take TLAC surpluses into consideration while calculating deductions from TLAC related to exposures to third country resolution groups. The presence of a resolution regime in the third country acts as a safeguard for the European Union resolution authorities, as surpluses could be transferred from the third country to the European Union in case of failure of the European Union parent entity. As part of this, the subsidiary can deduct the corresponding amount in accordance with article 72e(4) on deductions from eligible liabilities items of the CRR. The new rules confirm that, in the steady state, a resolution authority can only take such surpluses into consideration for loss absorbing or recapitalization purpose when they are located in third countries; this is needed along with a legally enforceable resolution framework that meets the Financial Stability Board standards as set out in the “Key Attributes of Effective Resolution Regimes for Financial Institutions” as well as the TLAC term sheet.
SRB will apply the same principles when determining the minimum requirements for own funds and eligible instruments (MREL) for all MPE banks, including non-global systemically important institutions. Under the new rules, a transition period will operate until December 31, 2024 during which SRB can recognize a surplus in a third country that does not yet have in place a resolution regime if at least one of the following conditions is met:
- There is no generally applicable current or foreseen material practical or legal impediment to the prompt transfer of assets from the subsidiary to the parent institution.
- The relevant third-country authority of the subsidiary has provided an opinion to the resolution authority of the parent institution that assets equal to the amount to be deducted by the subsidiary in accordance with article 72e(4) of the CRR, could be transferred from the subsidiary to the parent institution.
For countries that do not have a legally enforceable resolution framework for implementing the international standards in place, SRB will require affected banks to provide a legal opinion on the absence of generally applicable current or foreseen material practical or legal impediment to the prompt transfer of assets from the resolution group of the third-country subsidiary to the Banking Union resolution group of the parent institution. The legal opinion shall include a detailed explanation on the functioning of the arrangements for the flow of funds to be used and on how those arrangements ensure funds are available at will and freely transferrable. If, by January 01, 2025, the relevant third country has still not implemented a legally enforceable resolution framework that implements international standards, then SRB will no longer count surpluses in that jurisdiction when monitoring the TLAC capacity and computing the MREL requirement of a bank.
Keywords: Europe, EU, Banking, Basel, Regulatory Capital, CRR, MREL, TLAC, Resolution Framework, CRR Quick Fix, Reporting, SRB
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