On 22 September 2022, the Single Resolution Board (SRB) announced that they welcomed the adoption of the review of the Capital Requirements Regulation (CRR), known as ‘CRR quick-fix’.
The CRR quick-fix clarifies the treatment of total loss-absorbing capacity (TLAC) surpluses located in third countries for banks with a multiple entry point of entry (MPE) resolution strategy. It also explains whether and when the resolution authority can take those surpluses into consideration when calculating deductions from TLAC related to exposures to third country resolution groups.
The presence of a resolution regime in the third country that reflects international best practices acts as a safeguard for the EU resolution authorities, as surpluses could in fact be transferred from the third country to the EU in case of failure of the EU parent entity, the subsidiary shall deduct the corresponding amount in accordance with Article 72e (4) of the CRR.
The SRB will apply the same principles when determining the minimum requirements for own funds and eligible instruments (MREL) for all MPE banks, including non-global systemically important institutions. Under the new rules, a transition period will operate until 31 December 2024 during which the SRB can recognise a surplus in a third country that does not yet have in place a resolution regime if at least one of the following conditions is met;
- There is no generally applicable current or foreseen material practical or legal impediments to the prompt transfer of assets from the subsidiary to the parent institution.
- The relevant third-country authority of the subsidiary has provided an opinion to the resolution authority of the parent institution that assets equal to the amount to be deducted by the subsidiary in accordance with Article 72e(4) of the CRR, second paragraph, could be transferred from the subsidiary to the parent institution.
On the first condition, and for each country that has not in place a legally enforceable resolution framework implementing international standards, the SRB will require affected banks to provide a legal opinion on the absence of generally applicable current or foreseen material practical or legal impediment to the prompt transfer of assets from the resolution group of the third-country subsidiary to the Banking Union resolution group of the parent institution.
If by 1 January 2025, the relevant third country has still not implemented a legally enforceable resolution framework that implements international standards, then the SRB will no longer count surpluses in that jurisdiction when monitoring a bank’s TLAC capacity and when computing MREL requirement.