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EBA makes public statement expressing “dissent” from Commission’s proposed amendments to draft RTS on MREL

Banking alert

Banking alert | 14 February 2016 | EBA makes public statement expressing “dissent” from Commission’s proposed amendments to draft RTS on MREL

What are the implications of this unexpected development in relation to MREL? Resolution authorities will likely press ahead setting MREL even in absence of the final standards.

Background to MREL

In order to ensure the effectiveness of the bail-in tool, Article 45 of Directive 2014/58/EU (BRRD) provides that Member States have to ensure that institutions meet at all times a minimum requirement for own funds and eligible liabilities (MREL), calculated as the amount of own funds and eligible liabilities as a percentage of total liabilities and own funds of the institution.

The same provision states that MREL shall be set on a case-by-case basis by the resolution authority after consulting the competent authority.

As reported by the EBA - 9 February 2016

Access the public statement and the opinion.

Disagreement over draft RTS

Article 45 of BRRD empowers the EBA to develop RTS ‘which specify further the assessment criteria’ on the basis of which a minimum MREL is to be determined by the resolution authority for each institution.

The European Commission is the ultimate arbiter of the technical standards. One of the main disagreements between the EBA and the Commission is about the amount of MREL banks should have.

Article 5 of the draft RTS sets a minimum MREL of 8% of total liabilities for G-SIIs and O-SIIs. The Commission, however, is arguing that the BRRD was not intended to harmonise MREL at a specific level, and that using the 8% of total liabilities as a target would be tantamount to having a harmonised MREL requirement. 

Implications

Despite the fact that the technical standards are not finalised, discussions are already going on in the EU about how to amend the BRRD specifically to address issues around MREL and TLAC (total loss-absorbing capacity). A legislative proposal to amend the BRRD to make changes to the MREL framework could appear around the end of 2016 or early 2017.

It is expected that banks will still be given (at least interim) MREL targets by their resolution authority even in the absence of the final technical standards. The Single Resolution Board (SRB) in particular has stated that it will be requesting data from some banks and communicating MREL levels over the first few quarters of 2016.

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