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Bank Recovery and Resolution Directive

Banking resolution: fine-tune the MREL and cut burdensome reporting



Updated: October 2019


PROPOSED SOLUTIONS AND ACTIONS​

The principle of proportionality plays a crucial role in the RRM package for all banks, regardless of their size and complexity. 

​For banks falling within the resolution regime, MREL requirements should be proportionate to the goal of the BRRD which is to ensure that taxpayers should no longer be liable to bail out troubled institutions. When calibrating MREL, resolution authorities should therefore appropriately take into account a bank’s size, business model, funding model, risk profile, SREP and stress tests results, degree of systemic relevance, the relevant resolution scenario and the preferred resolution strategy. 

​Correspondingly, small, less-complex institutions should be excluded from the scope of application entirely when liquidation is planned through normal insolvency proceedings (“insolvency institutions”). If the proposed resolution strategy is liquidation, there is no plan to use a bail-in tool, and hence no MREL requirement is needed. This fact should be reflected more clearly in the BRRD. The current approach of restricting the MREL requirements to the loss absorption amount and the exemption from reporting and disclosure obligations causes high administrative burden, especially for the resolution authorities, and leads to high complexity. Excluding insolvency institutions from the scope of MREL from the outset would be much more proportionate and adequate while at the same time enabling the resolution authority to dedicate more of its time to the resolution plans of institutions failing within the resolution regime. 

We also call for meaningful solutions in the area of liquidity so as to avoid any unforeseen disruptions to financial stability​

IDENTIFIED CONCERNS​

​​ESBG welcomes the efforts undertaken to make financial institutions resolvable in order to create a more resilient financial system and avoid taxpayer bail-outs. While this obviously demands for strong efforts by both small and larger financial institutions, a certain fine-tuning of requirements would allow to eliminate unnecessary burdens: currently the calibration of the minimum requirement for own funds and eligible liabilities (MREL) does not sufficiently take into account the specificities of ESBG members and certain reporting and disclosure requirements have proven challenging and burdensome.

WHY POLICYMAKERS SHOULD ACT

The European Parliament should call on the Commission to assess whether the BRRD sufficiently takes into account proportionality in the resolution framework. In this regard, the MREL calibration as well as reporting and disclosure requirements are of fundamental importance. This assessment would offer the opportunity to review and, possibly, to further improve the new rules adopted with the RRM package and their concrete application.

BACKGROUND​

In June 2019, the Risk Reduction Measures (RRM) package was published in the EU Official Journal. The package comprises the following pieces of legislation: (i) the Capital Requirements Regulation (CRR), (ii) the Capital Requirements Directive IV (CRD IV), (iii) the Bank Recovery and Resolution Directive (BRRD), and (iv) the Single Resolution Mechanism Regulation (SRMR). In particular, the BRRD spells out rules on the recovery and resolution of failing institutions.​