liabilities

EBA Publishes Interim Report on MREL

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The European Banking Authority (EBA) has published an interim report on the minimum requirement for own funds and eligible liabilities (MREL). Under the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) the EBA is required to submit a report to the European Commission on the implementation of MREL by October 31, 2016.  This report will assist the Commission in its work on a legislative proposal on the harmonized application of MREL as well as a legislative proposal to review MREL and implement the total loss absorbing capacity standard in the EU.

The EBA’s interim report is intended to provide input into the Commission’s deliberations ahead of the preparations of the EBA’s final report and contains a number of provisional recommendations. Preliminary quantitative findings on the financing capacity and needs of EU banking groups are also available in the interim report, although these are subject to several methodological caveats.  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 interim report is available here.

European Commission Adopts Delegated Regulation on RTS on Detailed Records of Financial Contracts under BRRD

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On June 7, 2016, the European Commission adopted a Delegated Regulation supplementing the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). The Delegated Regulation deals with the regulatory technical standards (RTS) on a minimum set of the information on financial contracts that should be contained in the detailed records, together with the circumstances in which the requirement should be imposed (C(2016) 3356 final).

Following submission of draft RTS by the EBA in December 2015, the Commission is entitled, under Article 71 of the BRRD, to adopt delegated regulations which highlight the methodology for assessing the value of assets and liabilities of institutions or entities. The draft RTS state that, should the relevant conditions for resolution be satisfied, an institution must maintain detailed records of financial contracts where it is foreseen that resolution actions would be applied to the institution concerned. The Annex accompanying the Delegated Regulation highlights the minimum list of information on financial contracts.

It is now for the Council of the EU and the European Parliament to consider the Delegated Regulation. Subject to any objection, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ).

Bank Recovery and Resolution Directive; Exceptions to “Bail-In” of Liabilities

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On February 4, 2016, the European Commission adopted a Delegated Regulation (C(2016) 379) which (taking into account advice given by the European Banking Authority in March 2015) specifies where exclusion from the application of write-down or conversion powers is allowed under Article 44(3) of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD).

The BRRD’s bail-in tool gives a resolution authority the power to bail in all the liabilities of a firm in resolution, subject to exclusions specified in Article 44 of the BRRD. In exceptional circumstances, Article 44(3) permits the resolution authority to exclude certain liabilities from the scope of the bail-in tool, if certain conditions are met. The Commission has the power under Article 44(11) to adopt a delegated act specifying the circumstances in which exclusions from the bail-in tool are necessary under Article 44(3).

The Delegated Regulation:

  • Lays down common rules to be applied whenever a resolution authority considers excluding a liability from the application of the bail-in tool under Article 44(3).
  • Clarifies when a liability can be excluded from bail-in based on the impossibility of bailing-in that liability within a reasonable timeframe.
  • Lays down the elements to determine the reasonable time after which a liability can be excluded from bail-in.
  • Clarifies when a liability can be excluded from bail-in based on the need to preserve certain critical functions and core business lines, to avoid widespread contagion or to avoid value destruction.

The Council of the EU and the European Parliament are now considering the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU.