The European Banking Authority (EBA) has published Consultation Paper: Report on the appropriate target level basis for resolution financing arrangements under Bank Recovery and Resolution Directive (BRRD).The BRRD requires the EBA to submit to the European Commission a report within recommendations on the appropriate reference point for setting the target level for resolution financing arrangements, and in particular, whether total liabilities constitute a more appropriate basis than covered deposits.
Based on the preliminary analysis and results, the EBA recommends in its following report to change the base for the target level of resolution financing arrangements to one of the options: (i) total liabilities (excluding own funds) less covered deposits; or (ii) total liabilities (including own funds); or (iii) total liabilities (excluding own funds). The key argument in favour of these options are their consistency with the regulatory framework and contributions methodology, simplicity and transparency. The EBA also believes it is crucial for the target level basis (based on total liabilities – with or without further exclusions) to capture all the institutions in the scope of the BRRD. In the case of total liabilities (excluding own funds) less covered deposits, the target level basis should accurately reflect the potential call on the resolution financing arrangements in case of a given failure.
The EBA will hold a public hearing on the consultation on 16 August 2016. The consultation deadline is 2 September 2016. The EBA must submit the report, including public feedback to the Commission by 31 October 2016.