Troubled EU banks: economic affairs MEPs approve refined resolution framework
MEPs agreed on a roadmap for banks to deal with losses, by ensuring that they hold enough capital and debt not to need taxpayer bailouts and defining conditions for remedial measures.
Draft rules amending the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR), in order to incorporate international standards on loss absorption and recapitalisation were approved by Economic and Monetary Affairs Committee (ECON) MEPs on Tuesday
The total loss-absorbing capacity (TLAC) set by the Financial Stability Board (FSB), an international standard-setter, will be integrated into the EU's ”minimum requirement for own funds and eligible liabilities” (MREL) rules. In the EU, global systemically important banks (GSIIs) will be required to comply with TLAC while non-GSIIs will remain subject to MREL rules.
MEPs amended eligibility criteria for the instruments and items that could count towards compliance with MREL rules, aligning them closely with the eligibility criteria provided in the TLAC standard for the TLAC minimum requirement while introducing “grandfathering” for existing liabilities.
They also defined the level of liabilities that could be required to be met by subordinated debt to be “bailed in” before other liabilities and also approved provisions to ensure that a bank that holds more capital is not punished in the calculation methodology.
Finally, MEPs changed the proposed rules for applying a “moratorium power” to suspend payments by banks that are getting into difficulty. The provision says that this power may be activated when it has been determined that the institution is failing or likely to fail, in order to determine next steps and in particular whether it is in the public interest to put the bank into resolution rather than insolvency. It also specifies the scope of the suspension power and its duration.
Rapporteur Gunnar Hökmark (EPP, SE), said: "By introducing TLAC we will make EU banks more resilient. We are also ensuring that the concept of BRRD, that all debt is bail-in able, and at the same time ensuring that we don't punish well-capitalised banks".
Committee negotiators are ready for three-way talks with the Commission and the Council, once the text has been announced at Parliament’s July plenary session. The Council agreed its common approach at the end of May.