Delegated regulation 2016/1450 - Supplement to Directive 2014/59/EU with regard to regulatory technical standards specifying the criteria relating to the methodology for setting the minimum requirement for own funds and eligible liabilities - Main contents

EN

Official Journal of the European Union

L 237/1

Effective resolution can only be feasible and credible if adequate internal financial resources are available to an institution to absorb losses and for recapitalisation purposes without affecting certain liabilities, in particular those excluded from bail-in. Directive 2014/59/EU provides that institutions should meet a minimum requirement for own funds and eligible liabilities (‘MREL’) to avoid that institutions excessively rely on forms of funding that are excluded from bail-in, since failure to meet MREL would impact negatively institutions' loss absorption and recapitalisation capacity and, ultimately, the overall effectiveness of resolution.

When determining MREL in accordance with points (a) and (b) of Article 45(6) of Directive 2014/59/EU, the resolution authority should consider the need, in case of application of the bail-in tool, to ensure that the institution is capable of absorbing an adequate amount of losses and being recapitalised by an amount sufficient to restore its Common Equity Tier 1 ratio to a level sufficient to maintain the capital requirements for authorisation and at the same time to sustain sufficient market confidence. This close relationship with supervisory decisions requires that such assessments are made by the resolution authority in close consultation with the competent authority consistently with the framework set out in Article 45(6) of Directive 2014/59/EU, and that accordingly the resolution authority should, in the framework of the obligation of the resolution authority to consult the competent authority under Article 45(6) of Directive 2014/59/EU, take account of the assessments made by the competent authority on the business model, funding model, and risk profile of the institution for the purposes of setting prudential requirements.

In particular, the assessment of the necessary capacity to absorb losses should be closely linked to the institution's current capital requirements, and the assessment of the necessary capacity to restore capital should be closely linked to likely capital requirements after the application of the resolution strategy, unless there are clear reasons why losses in resolution should be assessed differently than in going concern. A similar assessment is necessary to ensure the MREL is sufficient to ensure resolvability of an institution when resolution tools other than bail-in are to be applied.

Point (c) of Article 45(6) of Directive 2014/59/EU also requires that resolution authorities consider the possibility that certain classes of liabilities, identified in resolution plans and in the resolvability assessment, might be excluded from bail-in. Liabilities of that kind should not be relied on for purposes of meeting the MREL. Resolution authorities should also ensure that, when significant amounts of any insolvency class of liabilities are excluded from bail-in on either a mandatory or discretionary basis, that exclusion would not result in liabilities of the same or a more senior class bearing greater losses than they would in insolvency, as this would be an impediment...