On 22 October 2021, The European Banking Authority (EBA) published its advice to the EU Commission on funding in resolution and insolvency as part of the review of the crisis management and deposit insurance (CMDI) framework. In 2020, the European Commission (EC) initiated a review of the EU CMDI framework, which lays out rules for handling bank failures. In April 2021, the EC requested technical advice from the EBA regarding funding in resolution and insolvency. The EC is seeking advice on:
- Firstly, the capacity of banks to access resolution financing arrangements (RFA).
- Secondly, the possibility of depositor guarantee scheme (DGS) intervention (under the current framework as well as under possible policy options)
- Lastly, the capacity of (small- and medium-sized) banks to issue sufficient loss-absorbing financial instruments.
The EBA response provides a descriptive analysis on banks’ capacity to access resolution financing arrangements (RFA) based on banks’ balance sheets and their business models, as well as an analysis based on a modelling approach to simulate crisis scenario. The report also provides an assessment of the reported difficulty of small and mid-sized banks to issue MREL eligible instruments. A limited number of these institutions had not yet issued senior MREL eligible instrument or AT1/T2 instruments as of end-2019.
The results are based on a sample of 368 banks from 27 EU countries reporting data as of 31 December 2019, and therefore do not take into account MREL instruments issued after that date. While it does not provide policy advice, the response does provide strong quantitative basis and evidence to inform the Commission’s work.
