SRB Announces 2024 MREL Policy and unveils Q4 2023 MREL Dashboard

On May 15, 2024, the Single Resolution Board (SRB) released its updated Minimum Requirement for own funds and Eligible Liabilities (MREL) policy for 2024, reflecting feedback from a public consultation held from December 14, 2023, to February 13, 2024. The consultation, influenced by recent crises in the US and Switzerland and past SRB resolution cases, gathered 18 responses from banking associations, banks, and public institutions. Key topics addressed included the Market Confidence Charge (MCC), monitoring of eligibility, discretionary exclusions, tool combinations, and long-term policy considerations.

Market Confidence Charge (MCC)

Concerns were raised about the MCC's statutory default level potentially harming bank profitability and lending capacity. Effective communication by authorities was emphasized as essential for market confidence. The SRB will now tailor the MCC to each bank's resolvability progress, potentially reducing it to 80% of the default level.

Monitoring of Eligibility

There is broad support for the SRB's proportional monitoring of eligible liabilities. Some respondents find the current quarterly management sign-off sufficient and seek clarity on the SRB's review scope and the division of responsibilities with the European Central Bank (ECB). The SRB plans to introduce a new standardized format for eligibility checks in 2025, focusing on new issuances and leveraging existing supervisory practices.

Discretionary Exclusions

Participants voiced concerns about the adequacy of derivatives eligible for bail-in and the challenges in valuing them during resolution. They also noted the potential extra costs and complexities, such as the "second-round effect" on counterparties. The SRB will consider these issues in its medium-term work.

Combination of Tools

Some respondents suggested that combining transfer tools with bail-in could reduce MREL recapitalization needs, while others cautioned against undermining bail-in-only strategies. The SRB acknowledges the value of transfer tools but maintains the bail-in tool's critical role, indicating that resolution strategies may evolve to include transfer tools.

Long-term Policy Considerations

While some participants are content with the current SRB policy, others find it complex and potentially disadvantageous compared to international standards. There is a debate over linking the MREL adjustment factor to the resolvability assessment due to concerns about increased complexity.

SRB Chair Dominique Laboureix highlighted the consultation's role in promoting transparency and stakeholder engagement. To access further details about the feedback received from the consultation, click here.

Additionally, the SRB's Q4 2023 MREL dashboard shows that banks were on track in meeting their January 1, 2024 targets and provides insights into funding costs and MREL-eligible instrument issuances.