In accordance with Article 102(4) of the Bank Recovery and Resolution Directive (BRRD) the European Banking Authority (EBA) has prepared a report for the European Commission (Commission) with recommendations on the appropriate reference point for setting the target level for resolution financing arrangements and, in particular, the question of whether total liabilities constitute a more appropriate basis than covered deposits.
The report recommends that the base for the target level of the resolution financing arrangement be changed to ‘total liabilities (excluding own funds) less covered deposits’ or ‘total liabilities (including own funds)’ or ‘total liabilities (excluding own funds)’. The EBA states that the key arguments in favour of these options are their consistency with the regulatory framework and contributions methodology, as well as their simplicity and transparency.
The report also recommends that if the Commission issues a legislative proposal on amending the target level basis for national resolution financing arrangements, it should also consider proposing to adjust:
- the target level percentage accompanying the target level basis; and
- the target level basis for the Single Resolution Fund.
The EBA adds that it is up to the Commission to decide when such a proposal would come into force.