Today, the Single Resolution Board (SRB) publishes its updated ‘Minimum Requirements for Own Funds and Eligible Liabilities (MREL) Policy under the Banking Package’. The updated policy introduces a number of new elements and refinements, based on the changes required by the Banking Package.
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 particular, the updated policy introduces:
- The MREL maximum distributable amount (MDA). This allows the SRB to restrict banks’ earnings distribution if there are MREL breaches.
- Policy criteria to identify systemic subsidiaries for which granting of an internal MREL waiver would raise financial stability concerns (based on the absolute asset size and relative contribution to resolution group).
- The approach to MREL-eligibility of UK instruments without bail-in clauses.
It also refines:
- The methodology to estimate the Pillar 2 requirements (P2R) post-resolution, i.e. one of the components used for MREL calibration.
- The MREL calibration on preferred vs variant resolution strategy, confirming that the SRB computes MREL in line with the preferred strategy.
- The MREL calibration methodology for liquidation entities, where the SRB clarifies that the loss absorption amount (LAA) may increase beyond the default adjustment in proportion to financial stability concerns.
The Single Resolution Board (SRB) has also published its minimum requirement for own funds and eligible liabilities (MREL) dashboard covering the reporting period Q4.2020.
- In Q4.2020, MREL issuances amounted to EUR 44.5 bn, with banks showing some differences in the volume of issuances. Overall, in 2020, banks have issued EUR 275.2 bn of MREL eligible instruments. The issuance activity was more pronounced in the first half-year (EUR 179.9 bn) compared to the second half (EUR 95.3 bn).
- By the end of 2020, the average final MREL target represented 22.82% of the total risk exposure amount (TREA) (EUR 1,557 bn), and 26.00% TREA (EUR 1,774 bn) when including the combined buffer requirement (CBR), remaining broadly stable compared to June 2020 (-0.07% TREA).
- Average MREL shortfalls against the final target amounted to 0.29% (EUR 19.5 bn) TREA in December 2020, and 0.58% TREA (EUR 39.6 bn) when including CBR. The steady decrease is mostly due to the increase of eligible liabilities amount between the reporting periods.
- Funding costs were slightly above pre-pandemic levels between January and April 2021.
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