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The SRB welcomes the adoption of the review of the Capital Requirements Regulation (CRR)[1], 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 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 new rules confirm that in the steady state the resolution authority can only take such surpluses into consideration for loss absorbing or recapitalisation purpose when they are located in third countries with a legally enforceable resolution framework that meets the standards of the Financial Stability Board’s “Key Attributes of Effective Resolution Regimes for Financial Institutions” as well as the TLAC term sheet.
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. Where the SRB recognises such surpluses for the purpose of TLAC resources of the parent entity, the subsidiary shall deduct the corresponding amount in accordance with CRR Article 72e(4).
The SRB will apply the same principles when determining the minimum requirements for own funds and eligible liabilities (MREL) for all MPE banks, including for non-GSIIs.
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:
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. This opinion will inform the decision of the SRB on whether to recognise those surpluses for TLAC/MREL in the 2022 RPC.
The legal opinion shall include a detailed explanation on the functioning of the arrangements for the flow of funds to be used and on how those arrangements ensure funds are available at will and freely transferrable.
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 the MREL requirement.