EBA recommends a measure based on total liabilities as the target level of resolution financing arrangements

The European Banking Authority (EBA) published today its final report on the reference point for the target level of national resolution financing arrangements. In the report, the EBA recommends changing the basis from covered deposits to a total liabilities-based measure and, in particular, total liabilities (excluding own funds) less covered deposits. The proposed methodology would align the target level basis with the reference base used for the calculation of individual contributions to national resolution financing arrangements.

Based on the qualitative and quantitative assessment of various criteria, including historical data, the EBA report recommends that measures based on total liabilities, and ‘total liabilities excluding own funds less covered deposits’ in particular, are the most appropriate target level basis for resolution financing arrangements. The main reasons for such a recommendation are that this basis is consistent with the regulatory framework and calculation methodology for the individual contributions, and is simple and transparent.

The report further recommends that if the European Commission issues a legislative proposal on amending the target level basis for national resolution financing arrangements it should consider adjusting the percentage of the target level, and whether a corresponding change to the target level basis would also be appropriate for the Single Resolution Fund.

Legal basis and next steps

Article 102(4) of the Bank Recovery and Resolution Directive (BRRD) requires the EBA to submit to the European Commission a report with recommendations on the appropriate reference point for setting the target level for resolution financing arrangements, and in particular, whether ‘total liabilities’ constitute a more appropriate basis than ‘covered deposits’. The deadline for the submission of the report was 31 October 2016.

The mandate of the report does not include recommendations on changing the absolute minimum amount of contributions to resolution financing arrangements at the EU level. As a result, for the purpose of the report, the overall level is assumed to be constant irrespective of a change to the basis for calculating the target level.

The European Commission will consider the recommendations of this report and decide whether to submit a legislative proposal to amend the target level basis for resolution financing arrangements by 31 December 2016.

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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