The principle of proportionality plays a crucial role in prudential regulation 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 a 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. The SRB should also be flexible with the timing of the MREL decisions, letting banks use the period envisaged in the BRRD2 until 2024, thus avoiding the pressure to issue or renew issuances during the current market instability​.

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 as well as current market conditions and certain reporting and disclosure requirements have proven to be challenging and burdensome. Increased expectations on resolvability have also led to additional compliance efforts which must be carefully evaluated and considered.

Why policymakers should act

In the current Covid-19 pandemic context, banks should be considered as an integral part of the solution on the road to improving EU economic conditions. To this end, flexibility in the current recovery and resolution framework should be granted to allow banks to focus their efforts on delivering financial services to the real economy. Recovery rules established in the aftermath of the financial crisis of 2008 need to be fine-tuned to adequately face the specifics of the Covid-19 crisis.


The minimum requirement for own funds and eligible liabilities (MREL) is a key regulatory requirement intended to build a solvency buffer capable of absorbing the losses of a financial institution in case of resolution. It falls within the broader framework of the Single Resolution Mechanism (SRM) which defines the unified resolution procedure for financial institutions within the euro area and the Bank Recovery and Resolution Directive (BRRD) which sets the framework for all banks in the EU. First adopted in spring 2014, the BRRD/SRM has been updated in June 2019 as part of the Risk Reduction Measure (RRM) package. Since it started operating in January 2015 as the resolution authority for participating Member States within the Banking Union (BU), the Single Resolution Board (SRB) has been issuing MREL decisions for all banks falling under its remit based on annual policies on yearly resolution planning cycles.​