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.