On 16 January 2019, the Single Resolution Board (SRB) published the second part of its 2018 policy on the minimum requirement for own funds and eligible liabilities (MREL) pertaining to the second wave of resolution plans – i.e. plans for the most complex banking groups.
The second part introduces a series of new elements strengthening the function of MREL as a key tool to achieve resolvability. This includes:
- a point-of-entry approach will now apply to liabilities other than own funds instruments to meet consolidated MREL targets. Only liabilities issued directly by the resolution entity will be considered eligible to meet consolidated targets on the ground that resolution tools will be applied only to this entity in resolution;
- subordination levels will now be set based on a combination of a general level and take into account of the bank-specific nature of the assessment of no-creditor-worse-off risk in the senior layer. A general level of 16% risk weighted assets (RWAs) plus the combined buffer requirement (CBR) will apply for global systemically important institutions, and of 14% RWAs plus CBR for other systemically important institutions and other resolution entities; and
- the SRB will determine binding targets at the individual level for subsidiaries of banking groups, prioritising the most relevant entities for this wave of decisions, with a view to ensuring a sufficient quantum of loss absorbing capacity in all parts of the resolution group.The monitoring of compliance with binding MREL decisions will require ongoing engagement with banks. The SRB will request banks to provide implementation and monitoring plans, as well as enhance their reporting capacity to address both a future increased frequency of liability data report submissions, as well as ad hoc obligations to report on the issuances of MREL-eligible instruments.
The SRB will review its MREL policy in 2019 on the basis of the final legislative outcomes of the ‘Banking Package’, and reserves the right to update its policy upon the publication in the Official Journal of the EU of the Capital Requirements Regulation 2, the Bank Recovery and Resolution Directive 2 and the Single Resolution Mechanism Regulation 2.
The monitoring of compliance with binding MREL decisions will require ongoing engagement with banks. The SRB will request banks to provide implementation and monitoring plans, as well as enhance their reporting capacity to address both a future increased frequency of liability data report submissions, as well as ad hoc obligations to report on the issuances of MREL-eligible instruments.
