There is no minimum level of banks' assets that can be wiped out by regulators when a lender is wound down, the European Commission said in draft legislation which softens requirements for lenders. The regulation, seen by Reuters, sets the EU executive on collision course with the recently-established EU body in charge of winding down failing banks, the Single Resolution Board (SRB).
SRB chair, Elke Koenig, has repeatedly said that the minimum requirement for eligible liabilities (MREL) should be of 8 percent of total liabilities and banks' funds, and should be higher for systemically important lenders. The MREL is essential to allow the so-called bail-in of banks' assets, a procedure aimed at forcing banks' shareholders, bondholders and large depositors to pay for the rescue of a lender before taxpayers' money can be used. The Commission refused to introduce a harmonised minimum level for the MREL in its draft regulation that is expected to be adopted next week and will be automatically applicable.
It said that "resolution authorities shall determine the loss absorption amount which the institution or group should be capable of absorbing" on a case-by-case basis. The SRB will be still able to impose an MREL of 8 percent or more on banks, but only if it demonstrated its necessity. The body is currently drafting resolution plans for the more than 140 banks under its watch.
In the draft regulation, which clarifies existing rules, the Commission has also refused to impose a minimum transitional period for banks to reach an appropriate MREL. The European Banking Authority wanted a 4-year limit. "Resolution authorities shall determine an appropriate transitional period which is as short as possible," the regulation said. The Commission said existing EU rules do not set a minimum level of MREL and a clear transitional period to reach it, and these issues cannot be solved with secondary legislation.
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