Commission Delegated Regulation (EU) 2016/1450 of 23 May 2016 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the criteria relating to the methodology for setting the minimum requirement for own funds and eligible liabilities (Text with EEA relevance)
Determining the amount necessary to ensure loss absorption
1. Resolution authorities shall determine the loss absorption amount which the institution or group should be capable of absorbing.
2. For the purpose of determining the loss absorption amount in accordance with this Article and of any contribution of the deposit guarantee scheme to the resolution costs pursuant to Article 6, the resolution authority shall, consistently with Article 45(6) of Directive 2014/59/EU, request from the competent authority a summary of the capital requirements currently applicable to an institution or group, and in particular the following:
(a)
own funds requirements pursuant to Articles 92 and 458 of Regulation (EU) No 575/2013 of the European Parliament and of the Council ( 4 ) , which include:
(i)
CET1 capital ratio of 4,5 % of the total risk exposure amount;
(ii)
a Tier 1 capital ratio of 6 % of the total risk exposure amount;
(iii)
a total capital ratio of 8 % of the total risk exposure amount;
(b)
any requirement to hold additional own funds in excess of these requirements, in particular pursuant to point (a) of Article 104(1), of Directive 2013/36/EU;
(c)
combined buffer requirements as defined in Article 128(6) of Directive 2013/36/EU;
(d)
the Basel I floor according to Article 500 of Regulation (EU) No 575/2013;
(e)
any applicable leverage ratio requirement.
3. For the purposes of this Regulation, capital requirements shall be interpreted in accordance with the competent authority's application of transitional provisions laid down in Chapters 1, 2 and 4 of Title I of Part Ten of Regulation (EU) No 575/2013 and in the provisions of national legislation exercising the options granted to the competent authorities by that Regulation.
4. The loss absorption amount to be determined by the resolution authority shall be the sum of the requirements referred to in points (a) (b), and (c) of paragraph 2, or any higher amount necessary to comply with the requirements referred to in points (d) or (e) of paragraph 2.
5. The resolution authority may set a loss absorption amount using either of the following methods:
(a)
a loss absorption amount equal to the default loss absorption amount determined in accordance with paragraph 4;
(b)
a loss absorption amount, which may be either:
(i)
higher than the default loss absorption amount determined pursuant to paragraph (4) where:
—
the need to absorb losses in resolution is not fully reflected in the default loss absorption amount, taking into account information requested from the competent authority relating to the institution's business model, funding model, and risk profile pursuant to Article 4, or
—
it is necessary to reduce or remove an impediment to resolvability or absorb losses on holdings of MREL instruments issued by other group entities;
(ii)
lower than the default loss absorption amount determined pursuant to paragraph (4) to the extent that, taking into account information received from the competent authority relating to the institution's business model, funding model, and risk profile pursuant to Article 4:
—
additional own funds requirements referred to in paragraph 2(b), which have been determined on the basis of the outcome of stress tests or to cover macroprudential risks, are assessed not to be relevant to the need to ensure losses can be absorbed in resolution, or
—
part of the combined buffer requirement referred to in paragraph 2(c) is assessed by the resolution authority not to be relevant to the need to ensure losses can be absorbed in resolution.
6. Where the option in paragraph 5(b) is applied, the resolution authority shall provide the competent authority with a reasoned explanation of the loss absorption amount that has been set, in the framework of the obligation of the resolution authority to consult the competent authority under Article 45(6) of Directive 2014/59/EU.
Determination of the amount necessary to continue to comply with conditions for authorisation and to carry out activities and sustain market confidence in the institution
1. Resolution authorities shall determine an amount of recapitalisation which would be necessary to implement the preferred resolution strategy, as identified in the resolution planning process.
2. Where the resolvability assessment concludes that liquidation of the institution under normal insolvency proceedings is feasible and credible, the recapitalisation amount shall be zero, unless the resolution authority determines that a positive amount is necessary on the grounds that liquidation would not achieve the resolution objectives to the same extent as an alternative resolution strategy.
3. When estimating the institution's regulatory capital needs after implementation of the preferred resolution strategy, the resolution authority shall use the most recent reported values for the relevant total risk exposure amount or leverage ratio denominator, as applicable, unless all the following factors apply:
(a)
the resolution plan identifies, explains, and quantifies any change in regulatory capital needs immediately as a result of resolution action;
(b)
the change referred to in point (a) is considered in the resolvability assessment to be both feasible and credible without adversely affecting the provision of critical functions by the institution, and without recourse to extraordinary financial support other than contributions from resolution financing arrangements, consistently with Article 101(2) of Directive 2014/59/EU and the principles governing their use set out in paragraphs 5 and 8 of Article 44 of that Directive.
4. Where the changes referred to in paragraph 3 are dependent on the actions of a purchaser of assets or business lines of the institution under resolution, or of third parties, the resolution authority shall prepare a reasoned explanation to the competent authority regarding the feasibility and credibility of that change.
5. The recapitalisation amount shall be at least equal to the amount necessary to satisfy applicable capital requirements necessary to comply with the conditions for authorisation after the implementation of the preferred resolution strategy.
6. The capital requirements referred to in paragraph 5 shall include the following:
(a)
own funds requirements pursuant to Articles 92 and 458 of Regulation (EU) No 575/2013, which include:
(i)
a CET1 capital ratio of 4,5 % of the total risk exposure amount;
(ii)
a Tier 1 capital ratio of 6 % of the total risk exposure amount;
(iii)
a total capital ratio of 8 % of the total risk exposure amount;
(b)
any requirement to hold own funds in excess of the requirement listed in point (a) of this paragraph, in particular pursuant to point (a) of Article 104(1) of Directive 2013/36/EU;
(c)
the Basel I floor according to Article 500 of Regulation (EU) No 575/2013;
(d)
any applicable leverage ratio requirement.
7. The recapitalisation amount shall also include any additional amount that the resolution authority considers necessary to maintain sufficient market confidence after resolution.
8. The default additional amount shall be equal to the combined buffer requirement, as specified in Chapter 4, Section 1 of Directive 2013/36/EU which would apply to the institution after the application of resolution tools.
The additional amount required by the resolution authority may be lower than the default amount, if the resolution authority determines that a lower amount would be sufficient to sustain market confidence and ensure both the continued provision of critical economic functions by the institution and the access to funding without recourse to extraordinary financial support other than contributions from resolution financing arrangements, consistently with Article 101(2) and paragraphs 5 and 8 of Article 44 of Directive 2014/59/EU.
The assessment of the amount necessary to support market confidence shall take into account whether the capital position of the institution after the resolution would be appropriate in comparison with the current capital position of peer institutions.
9. The resolution authority may determine, in consultation with the competent authority and taking into account information received from the competent authority relating to the institution's business model, funding model, and risk profile pursuant to Article 4, that, notwithstanding the provisions of paragraph 3, it would be feasible and credible for all or part of any additional own funds requirement or buffer requirements currently applicable to the entity not to apply after implementation of the resolution strategy. In this case that part of the requirement may be disregarded for the purposes of determining the recapitalisation amount.
10. The assessment referred to in paragraph 7 shall take account of capital resources in other group entities which would credibly and feasibly be available to support market confidence in the entity following resolution, in the case of entities which:
(a)
are subsidiaries of a group subject to a consolidated MREL;
(b)
would continue to fulfil the conditions referred to in point (a) following implementation of the preferred resolution strategy; and
(c)
would not be expected to maintain market confidence and access to funding on an individual basis following implementation of the preferred resolution strategy.
11. Where the assets, liabilities or business lines of the institution are to be split between more than one entity following implementation of the preferred resolution strategy, references to risk exposure amounts and capital requirements in paragraphs 1 to 10 should be understood as the aggregate amounts across these entities.
Exclusions from bail-in or partial transfer which are an impediment to resolvability
1. The resolution authority shall identify any liabilities which are excluded from bail-in under Article 44(2) of Directive 2014/59/EU or are reasonably likely to be fully or partially excluded from bail-in under Article 44(3) of that Directive, or transferred to a recipient in full, using other resolution tools based on the resolution plan.
2. Without prejudice to Article 6, if any liability which qualifies for inclusion in MREL is identified as being potentially fully or partially excluded pursuant to paragraph 1, the resolution authority shall ensure that the MREL is sufficient for purposes of the loss absorption amount determined pursuant to Article 1 and for achieving the amount of recapitalisation determined pursuant to Article 2 without write down or conversion of those liabilities.
3. The resolution authority shall determine whether liabilities identified in accordance with paragraph 1 rank equally or junior in the insolvency creditor hierarchy to any class of liabilities which includes liabilities that qualify for inclusion in MREL and, for each such class, whether the amount of liabilities identified totals more than 10 % of that class.
Where the resolution authority determines that conditions referred to in the first subparagraph are met, it shall also assess whether the need to absorb losses and to contribute to the recapitalisation which would be borne by the liabilities referred to in the first subparagraph, were they not excluded from bail-in, can be satisfied by liabilities which qualify for inclusion in MREL and are not excluded from loss absorption or recapitalisation without breaching the creditor safeguards provided in Article 73 of Directive 2014/59/EU.
4. The resolution authority shall keep a record of any assumptions, valuations or other information used to determine that the MREL meets the conditions set out in paragraph 3.
Business model, funding model and risk profile
1. For purposes of point (d) of Article 45(6) of Directive 2014/59/EU and within the framework of the consultation required by Article 45(6) of Directive 2014/59/EU, the resolution authority shall take into account information received from the competent authority, including the summary and explanation of the outcomes of the supervisory review and evaluation process conducted pursuant to Article 97 of Directive 2013/36/EU and in particular:
(a)
a summary of the assessment of each of the business model, funding model, and overall risk profile of the institution;
(b)
a summary of the assessment of whether capital and liquidity held by an institution ensure sound coverage of the risks posed by the business model, funding model, and overall risk profile of the institution;
(c)
information on how risks and vulnerabilities arising from the business model, funding model, and overall risk profile of the institution identified in the supervisory review and evaluation process are reflected, directly or indirectly, in the additional own fund requirements applied to an institution pursuant to point (a) of Article 104(1) of Directive 2013/36/EU, based on the outcomes of the supervisory review and evaluation process;
(d)
information on other prudential requirements applied to an institution to address risks and vulnerabilities arising from the business model, funding model and overall risk profile of the institution identified in the supervisory review and evaluation process.
2. The information referred to in paragraph 1 shall be taken into account by the resolution authority where it makes any adjustments to the default loss absorption and recapitalisation amounts, as described in Article 1(5) and Article 2(9), in order to ensure that the adjusted MREL, adequately reflects risks affecting resolvability arising from the institution's business model, funding profile and overall risk profile.
The resolution authority shall provide the competent authority with a reasoned explanation on how that information has been taken into account in any such adjustment, in the framework of the obligation of the resolution authority to consult the competent authority under Article 45(6) of Directive 2014/59/EU.
3. In the case of an entity or group which is subject to capital and prudential requirements pursuant to Regulation (EU) No 648/2012 of the European Parliament and of the Council ( 5 ) or Regulation (EU) No 909/2014 of the European Parliament and of the Council ( 6 ) , only capital requirements pursuant to Regulation (EU) No 575/2013 and Directive 2013/36/EU should be taken into account for assessing the default loss absorption and recapitalisation requirements pursuant to Articles 1 and 2 of this Regulation.
The resolution authority may adjust the loss absorption amount to take account of feasible and credible contributions to loss absorption or recapitalisation envisaged by specific sources required by Regulation (EU) No 648/2012 or Regulation (EU) No 909/2014.
4. In the case of entities which are subsidiaries of a group subject to a consolidated MREL, the resolution authority may exclude from its assessment of the loss absorption amount and recapitalisation amount any buffer which is set only on a consolidated basis.
5. Where an authority other than the competent authority has been designated as the responsible authority for setting the countercyclical buffer rate, the resolution authority may request additional information from the designated authority.
Size and systemic risk
1. For institutions and groups which have been designated as G-SIIs or O-SIIs by the relevant competent authorities, and for any other institution which the competent authority or the resolution authority considers reasonably likely to pose a systemic risk in case of failure and which does not fall within Article 2(2) of this Regulation, the resolution authority shall take into account the requirements set out in Article 44 of Directive 2014/59/EU.
2. Where a joint decision on MREL by the resolution college is required in accordance with Article 45 of Directive 2014/59/EU, for institutions which have been designated as G-SIIs or O-SIIs by the relevant competent authorities, and institutions within them, and for any other institution which the competent authority or the resolution authority considers reasonably likely to pose a systemic risk in case of failure, any downward adjustment to estimate capital requirements after resolution pursuant to Article 2(3) shall be documented and explained in the information provided to the members of the resolution college.
Contributions by the deposit guarantee scheme to the financing of resolution
1. The resolution authority may reduce the MREL to take account of the amount which a deposit guarantee scheme is expected to contribute to the financing of the preferred resolution strategy in accordance with Article 109 of Directive 2014/59/EU.
2. The size of any such reduction shall be based on a credible assessment of the potential contribution from the deposit guarantee scheme, and shall at least:
(a)
be less than a prudent estimate of the potential losses which the deposit guarantee scheme would have had to bear, had the institution been wound up under normal insolvency proceedings, taking into account the priority ranking of the deposit guarantee scheme pursuant to Article 108 of Directive 2014/59/EU;
(b)
be less than the limit on deposit guarantee scheme contributions set out in the second subparagraph of Article 109(5) of Directive 2014/59/EU;
(c)
take account of the overall risk of exhausting the available financial means of the deposit guarantee scheme due to contributing to multiple bank failures or resolutions; and
(d)
be consistent with any other relevant provisions in national law and the duties and responsibilities of the authority responsible for the deposit guarantee scheme.
3. The resolution authority shall, after consulting the authority responsible for the deposit guarantee scheme, document its approach as regards the assessment of the overall risk of exhausting the available financial means of the deposit guarantee scheme and apply reductions in accordance with paragraph 1, provided that that risk is not excessive.
Combined assessment of MREL
1. Resolution authorities shall ensure that MREL is sufficient to allow the write down or conversion of an amount of own funds and qualifying eligible liabilities at least equal to the sum of loss absorption and the recapitalisation amounts, as determined by the resolution authorities in accordance with Articles 1 and 2, subject to provisions laid down in Articles 3 to 6.
2. Resolution authorities shall express the calculated MREL as a percentage of total liabilities and own funds of the institution, with derivative liabilities included in the total liabilities on the basis that full recognition is given to counterparty netting rights.
3. Resolution authorities shall establish a schedule or process for updating the MREL, taking into account:
(a)
the need to update the MREL in parallel with the assessment of resolvability;
(b)
whether the volatility of the entity or group's total liabilities and own funds as a result of its business model would be likely to result in the MREL no longer being appropriate at an earlier date.
Transitional and post-resolution arrangements
1. By way of derogation from Article 7, resolution authorities may determine an appropriate transitional period to reach the final MREL or for an institution or entity to which resolution tools have been applied.
2. For the purposes of paragraph 1, resolution authorities shall determine an appropriate transitional period which is as short as possible. They shall also communicate to the institution a planned MREL for each 12 month period during the transitional period. At the end of the transitional period, the final MREL shall be equal to the amount determined under Article 7.
3. Resolution authorities shall not be prevented from subsequently revising either the transitional period or any planned MREL.
Entry into force
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union .
Source: EUR-Lex (Publications Office of the EU), © European Union, reuse permitted under Commission Decision 2011/833/EU.
