The European Banking Authority (EBA) launched a public consultation on draft RTS further specifying the criteria to set the minimum requirement for own funds and eligible liabilities (MREL) laid down in the Bank Recovery and Resolution Directive (BRRD). 

 

The BRRD is not a fixed figure imposed by legislation, but is to be set on a case-by-case basis by resolution authorities. To ensure consistency, the BRRD lays down common criteria for resolution authorities to apply and these technical standards further specify these minimum criteria. 

 

The BRRD criteria require resolution authorities to consider matters which are also assessed for prudential regulatory purposes. These technical standards therefore clarify how the institution's capital requirements should be linked to the amount of MREL needed to absorb losses and, where necessary, recapitalise a firm after resolution. Resolution authorities should, as a default, rely on supervisory assessments for the degree of loss that a bank needs to be able to absorb and the capital it needs to operate. 

 

Resolution authorities must set an MREL which is sufficient to implement the resolution plan. In particular, resolution plans may identify that it would be less feasible or credible to bail in certain liabilities, even if it is legally possible. In these cases, resolution authorities would need to either increase the MREL or take alternative measures (e.g. affecting the ranking of liabilities in insolvency). The draft RTS also consider the effect of Deposit Guarantee Scheme (DGS) contributions to the cost of resolution. 

 

Lastly, the draft RTS propose that for systemic institutions, resolution authorities should consider the potential need to be able to access the resolution financing arrangement if a resolution relying solely on the institution's own resources is not possible. The BRRD sets minimum burden-sharing requirements before the resolution fund can be accessed.

 

These RTS are compatible with the proposed FSB term sheet for Total Loss Absorbing Capacity (TLAC) for Globally Systemically Important Banks (G-SIBs). Where there are differences resulting from the nature of the EBA's mandate under the BRRD, as well as the fact that the BRRD MREL requirement applies to banks which are not G-SIBs, these differences do not prevent resolution authorities from implementing the MREL for G-SIBs consistently with the international framework.

Comments to this consultation can be sent to the EBA by 27 February 2015. A public hearing will then take place at the EBA premises on 19 January from 10:00 to 13:00 UK time. 

 

Press release

 

Consultation paper

 

Europe's banking watchdog is hoping to achieve consistency with global regulators on the amount of loss absorbing debt the region's banks have to hold in order to avoid the need for taxpayer rescues.

The European Banking Authority released a 41-page consultation document on Friday that sets out the supervisor's thoughts on the criteria a bank's liabilities need to fulfil in order to be deemed eligible by resolution authorities.

While market participants will need time to digest the document, the EBA is aiming to be consistent with the Financial Stability Board, a regulatory task force for the G20 economies, which set out new requirements of total loss absorbing capital (TLAC) for globally systemically important banks earlier this month.

Full article on Reuters