minimum requirement for own funds and eligible liabilities

Delegated Regulation on RTS Specifying Criteria for Setting MREL under BRRD published in OJ

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On September 3, 2016, the Commission Delegated Regulation ((EU) 2016/1450) supplementing the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) with regulatory technical standards (RTS) highlighting the criteria relating to the methodology for setting the minimum requirement for own funds and eligible liabilities (MREL) has been published in the Official Journal of the EU (OJ).

Article 45(6) of the BRRD specifies certain criteria that a resolution authority must consider when determining the level of MREL for a BRRD institution. Article 45(2) of the BRRD gave the European Commission the power to adopt a Delegated Regulation containing RTS further specifying the Article 45(6) assessment criteria.

The RTS contain provisions relating to the interpretation of the six assessment criteria set out in Article 45(6). They also permit resolution authorities to provide a transitional period for reaching the final MREL for firms or entities to which resolution tools have been applied.

The Delegated Regulation was adopted by the Commission on May 23, 2016. It shall enter into force 20 days after its publication in the OJ (i.e. September 23, 2016).

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.