Response to consultation on RTS on minimum requirement for own funds and eligible liabilities (MREL)

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2. Should the resolution authority be allowed to adjust downwards? What are the specific circumstances under which resolution authorities should allow a smaller need to be able to absorb losses before entry into resolution and in the resolution process than indicated by the capital requirements?

YBS disagrees here, and the Society suggests that the text should say “adjust” not “increase”. There may well be circumstances where a reduction is appropriate (e.g. due to national gold plating under Pillar 2). The drafting should also make clearer that the imposition of a higher amount should be exceptional, not routine.

3. Should any additional benchmarks be used to assess the necessary degree of loss absorbency? If yes, how should these be defined and how should they be used in combination with the capital requirements benchmark? Should such benchmarks also allow for a decrease of the loss absorption amount compared to the institution’s capital requirements?

The Society would question whether this is in fact susceptible to benchmarking. The CP established a very important point in the second paragraph on page 9, illustrated very clearly in the Box 1 diagram on page 11, to be given effect in Article 3.2 : if the resolvability assessment concludes that liquidation under normal insolvency processes is feasible, and no alternative preferred resolution strategy is identified, the re-capitalisation amount shall be zero. YBS would support this. BRRD Article 32.1 (c ) establishes a high public interest threshold for the use of formal resolution tools rather than insolvency procedures, and this must be respected. YBS suggests that attention is drawn to this by a further Recital to underline the point in the context of MRELs.

4. Do you consider that any of these components of the overall capital requirement are not appropriate indicators of the capital required after resolution, and if so why?

The Society would submit to exclude the leverage ratio, for reasons given above. Also exclude the combined buffer, as that is not a minimum requirement, but a buffer. In terms of the Financial Stability Board, the TLAC approach excludes buffer.

6. The approach outlined in Articles 2 and 3 will reflect differences between consolidated and subsidiary capital requirements. Are there additional ways in which specific features of subsidiaries within a banking group should be reflected?

This is not relevant to building societies. However, BRRD does not envisage recapitalisation to full ex-ante status.

7. Do you agree that there should be a de minimis derogation from this provision for excluded liabilities which account for less than 10% of a given insolvency class?

YBS would support this approach.

8. Do you agree that resolution authorities should seek to ensure that systemic institutions have sufficient MREL to make it possible to access resolution funds for the full range of financing purposes specified in the BRRD?

YBS agrees with this proposal.

9. Is this limit on the transition period appropriate?

YBS opposes this, and would suggest six years in its place. The early part of that period will overlap with the build up to Basel 3 end point, so not sensible to concentrate demands to issue risk-bearing instruments for several purposes in that narrow window, otherwise market capacity may be insufficient.

10. Should the resolution authority also set a transitional period for the MREL of banks which are undergoing or have undergone a resolution process?

The Society agrees with this proposal.

11. Overall, do you consider that the draft RTS strikes the appropriate balance between the need to adapt the MREL to the circumstances of individual institutions and promoting consistency in the setting of adequate levels of MREL across resolution authorities?

The Society feels the correct balance has broadly been struck.

12. Are there additional issues, not identified in this section, which should be considered in the final impact assessment?

YBS does not have anything additional to add.

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Name of organisation

Yorkshire Building Society