EBA consults public on the minimum requirement for own funds and eligible liabilities

The European Banking Authority (EBA) has launched today a public consultation on its interim report on the implementation and design of the minimum requirement for own funds and eligible liabilities (MREL). The interim report is addressed to the European Commission, and it will inform a future legislative proposal on the implementation of the Financial Stability Board’s “total loss-absorbing capacity” (TLAC) standard in the EU and the review of MREL. Further elements will be covered in the EBA’s final report which will be provided to the European Commission by 31 October 2016.

The interim report contains a number of provisional recommendations, in particular:

  • changing the reference base of the MREL requirement from total liabilities and own funds to risk-weighted assets with, in time, a leverage exposure backstop;
  • preventing CET1 instruments from counting both towards capital buffers and MREL, while considering the implications on “maximum distributable amounts” (MDA) triggers;
  • extending and enhancing the existing powers available to address breaches of MREL;
  • in calibrating MREL, specific business models may be worth considering to the extent that they lead to differences in resolution strategies. Calibration should in all cases be closely linked to and justified by the institution-specific resolution strategy;
  • introducing mandatory subordination for at least some banks, while more generally enhancing transparency and disclosure for all creditors on the creditor hierarchy; and
  • streamlining the requirement to include international recognition clauses in contracts giving rise to “bail-inable” liabilities.

Preliminary quantitative findings on the financing capacity and needs of EU banking groups are also available in the interim report. These findings are however subject to several methodological caveats and should be read in their context. In the absence of MREL decisions for institutions to date, and given the limited information related to the resolution authorities’ MREL policy approach, the EBA was required to make assumptions on the likely scope and calibration of MREL. These assumptions are by definition different from the actual levels of MREL which will ultimately be determined by resolution authorities in relation to each institution and group.

The EBA statement and related information is available here.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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