The EU’s new banking package also changes regulations on crisis resolution
Amendments related to the legislative framework for banks have been adopted within the EU. These amendments strengthen the banking union and reduce risks to the financial system. This so-called banking package was published in the EU’s Official Journal on 7 June 2019, and parts of it enter into force already on 27 June 2019.
The banking package includes amendments to the Capital Requirements Regulation (Directive 2013/36/EU, CRR) to strengthen banks’ capital and liquidity position. In addition, it contains measures to reinforce banks’ loss bearing capacity and to increase authorities’ powers through amendments to the Bank Recovery and Resolution Directive (Directive 2014/59/EU) and the Resolution Regulation (Regulation No 806/2014).
From the perspective of crisis resolution, the banking package includes the following changes, among others:
- a new requirement concerning the Total Loss Absorbing Capacity (TLAC), which applies to global systemically important institutions (G-SII)
- more stringent rules concerning the minimum requirement for own funds and eligible liabilities (MREL), applying to institutions identified as G-SIIs and other significant institutions (so-called subordination requirement)
- new powers for the resolution authority to temporarily suspend the operation of an institution
Although the new provisions will not, in many respects, apply until after 18 or 24 months from their publication and some of them will require national implementation, the Financial Stability Authority (FFSA) notes that some of the provisions enter into force as directly applicable, already from 27 June onwards.
On that date, resolution provisions under Article 78 a) of the CRR become applicable, requiring a permission for the early redemption of subordinated MREL-eligible debt instruments. In July, the FFSA will prepare supplementations concerning the matter to its MREL policy memorandum regarding LSIs on the basis of a policy paper prepared by the SRB.
SRB press release: SRB updates MREL policy