Today, the Single Resolution Board (SRB) publishes its final ‘Minimum Requirements for Own Funds and Eligible Liabilities (MREL) Policy under the Banking Package’, along with an overview of the SRB responses to the industry consultation. The consultation took place between 17 February and 6 March 2020.
MREL is one of the key tools in resolvability, ensuring that banks maintain a minimum amount of equity and debt to support an effective resolution. In line with the new Banking Package (BRRD2/SRMR2), the policy covers:
- MREL requirements for Global Systemically Important institutions (G‑SIIs);
- Changes to the calibration of MREL, including introducing MREL based on the leverage ratio;
- Changes to the quality of MREL (subordination);
- Dedicated rules for certain business models, such as cooperatives, and for resolution strategies, such as multiple point of entry (MPE);
- Provisions on internal MREL
- Clarifications on third-country issuances;
- How these changes will be phased in.
MREL decisions implementing the new framework will be taken based on this policy in the 2020 resolution planning cycle. The decisions will be communicated to banks in early 2021. These decisions will replace those issued under the previous legal framework. Each new decision will set out two binding MREL targets, including those for subordination: the binding intermediate target to be met by 1 January 2022 and the fully calibrated MREL (final target) to be met by 1 January 2024.
Most comments to the consultation focused on MREL calibration. Respondents also asked for clarification on certain aspects, including the scope of entities for internal MREL, the scope of cooperatives and the eligibility of liabilities issued under third-country law. The feedback statement, also published today, provides clarification on these and other areas, as well as the SRB’s responses to comments raised in the consultation.
The SRB acknowledges the challenges that banks face in the current and unprecedented situation related to the Covid-19 pandemic, and that their focus is on business continuity and supporting the economy. For the existing binding MREL targets (set in the 2018 and 2019 cycles), the SRB will take a forward-looking approach for banks that may face difficulties meeting those targets, before new decisions take effect. In the 2020 resolution planning cycle, MREL targets will be set according to the transition period in SRMR2, i.e. setting the first binding intermediate target for compliance by 2022 and the final target by 2024. The decisions will be based on recent MREL data, and reflect changing capital requirements.
The SRB, in close cooperation with other authorities and the banks under its remit, continues to monitor the situation carefully.
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