EBF response to EBA report on implementation and design of the MREL framework (EBA/OP/2016/12)
EBF advisor: Timothy Buenker
Publication date: 30 August 2016
EBF supports the EBA proposal to align the MREL denominator with TLAC i.e. determining MREL as a percentage of RWA and maintaining the leverage exposure as a backstop. To achieve comparability and market transparency between EU and non-EU banks, the EBF believes that EU should not use a MREL ratio expressed as a percentage of total liabilities and own funds.
The EBA should be mindful of the impact on the MREL calibration arising from potential increases in RWAs under the capital standards recently proposed by the Basel Committee.
Clarity and consistency across Member States should be ensured with regard to the stacking of CET1 buffers for all banks, including G-SIBs.
A breach of MREL should not be an automatic indication of failing or likely to fail. A MREL breach should not automatically trigger consequences. Rather the consequences of a breach should be assessed on a case-by-case basis and tailored to accommodate the nature of the breach
In the case of G-SIBs, the TLAC requirement should be the reference point.
The MREL calibration should be closely linked to the resolution strategy for the specific institution, including resolution actions, defined by the resolution authority (there should be no standard/uniform MREL-minimum). If buffers sit on top of the MREL requirement, it would follow, that buffer requirements should not form part of the MREL requirement.
The application of the RTS should not automatically lead to a higher MREL requirement due to higher capital requirements (e.g. Systemic Risk Buffer or O-SII buffer). The 8% Total Liabilities should not be envisaged as a floor for calibrating the MREL, in particular since this 8% consists of an amount of own funds and liabilities to be bailed-in which is broader than MREL eligible instruments.
In the case of D-SIBs and other banks a MREL requirement should be set no higher than the TLAC standard requirement based on the bank’s resolution strategy.
Concerning internal MREL, we call for the introduction of an element of materiality rather than requiring MREL for each subsidiary. Supervisory scope and cooperation between jurisdictions should also be considered for groups operating in the single market or in the banking union.
Mandatory subordination for G-SIBs should only be required to meet the minimum non-firm specific MREL requirement (subject to the TLAC term sheet exemptions especially the 2.5/3.5% exemption).
Any decisions about eligibility criteria and/or subordination requirement should duly inform the calibration discussion.
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