In our April 2020 Banking Reform updater we considered the amendments that the Bank Recovery and Resolution Directive II make focussing in particular on total loss-absorbing capacity, the minimum requirements for own funds and eligible liabilities (MREL) and the changes to contractual recognition of bail-in. We also covered the changes to the single resolution mechanism including the February 2020 consultation by the Single Resolution Board (SRB) proposing changes to its MREL policy.
On 20 May 2020, the SRB published its final MREL policy paper following its consultation together with a feedback statement. The policy paper is structured around the following topics: calibration, subordination for resolution entities, internal MREL for non-resolution entities, MREL for cooperative groups, eligibility of liabilities issued under the law of a third country and transition arrangements.
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 the Single Resolution Mechanism Regulation II, 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.