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Municipality Finance Plc

Unfortunately MuniFin (Municipality Finance Plc) is not able to provide this information at this stage but to understand materiality of the matter for us please note that MuniFin is a Finnish public sector SSM bank, with following key figures (as of 30 June 2020):
- balance sheet total EUR 41.3 billion
- total funding EUR 35.8 billion

MuniFin's total funding consists of bonds issued on capital markets only as MuniFin's license as a credit society (as defined in the Finnish Act on Credit Institutions) does not allow deposit taking.
See our answer under Question 1
Yes. This coincides with our lack of need for these instruments. Taking into account that MuniFin's resolution strategy is liquidation under normal insolvency producers, we deem that there is no need for these instruments.
We agree that this should not be confined only to market making.

Senior preferred liabilities to the extent these are grandfathered are in scope of the the proposed ad-hoc permissions. Time schedule of 4 months for these Ad-hoc permissions cannot be considered appropriate for such instruments for which buybacks are often driven by market conditions requiring a short lead time. As described under Q1 MuniFin is an active issuer on capital markets and actions necessary to be taken depend on the market conditions where 4 months supervisory process does not fit with the nature of the instruments and the market needs.

Another very important example is callable funding. MuniFin's funding transactions include call structures that are kicked-in based on the market conditions. By imposing ad-hoc permissions with a lead time of 4 months, the market risk, operational burden and the cost will effectively be increased.

Illustration: a callable funding transaction gives an issuer a right but not an obligation to redeem the outstanding instrument at par at a specific future moment. A bank typically manages callable funding as instrument with a maturity equal to the first call date. The call option is then viewed as an option to extend the funding. The main drivers of this decision are the prevailing interest rates at the time of the call. To align the management of these instruments and to achieve efficient cost, a bank typically sells this right in the swap market. This means that the exercise of the call is fully controlled by a rational agent (a counterpart in the swap market) and not by the bank itself. The notice period is usually 2 weeks, which does not align with the period of ad-hoc permission. Moreover, if there is a possibility that ad-hoc permission for these instruments is not timely given, this will imply that our existing positions are not fully hedged anymore for the market risk. This implication will force a bank to ask ad-hoc permission for all callable instruments on continuous basis, introducing a huge operational burden on the bank and the regulator. Moreover, a possibility to not receive a timely permission will probably place issuance of new callable funding outside of risk appetite of the banks due to unmanageable market risks, which leads to marginal increase of the funding cost. Finally and most importantly, the existing callable instruments will have a position of unmanageable risk since we can no longer conclude that a bank can always call the funding if the associated swaps are called. Note that each instance of failure in this scenario will lead to a loss for the bank.

The urgency for more flexibility in liability management operations coincides with the decision to exempt certain entities from the prior permission regime.
We consider that the limit should not be applicable to entities subject to simplified obligations. Furthermore, for other instruments we suggest that the maximum limit should be increased at least to 5%. This would be necessary to allow banks to manage their liabilities more freely.
The intention is to apply the permission process to to all institutions in the same manner is not appropriate. It would mean that institutions where resolution measures have been set but will liquidated as part of normal insolvency proceedings were to be covered by the permission process. The MREL requirement for such entities is in principle equal to the own funds requirement. Therefore, the eligible liability instruments for which permission is required, will only consist of grandfathered senior preferred liabilities. These entities did not issue these instruments with the intention to meet the MREL requirement, but from a funding perspective.

We also argue that the permission regime should not apply to instruments with a remaining maturity of less than 1 year. Although these instruments could be eligible instruments, they do no contribute to the MREL requirement.
No, insofar it concerns entities under simplified obligations/normal insolvency. As mentioned under the questions Q12, Q13 and Q14, a permission request for these entities is probably limited to senior preferred liabilities that are in scope of MREL based on grandfathering. However, for these entities such instruments are not necessary to meet the MREL requirement. Therefore, for insolvency institutions, which are not subject to any obligation to hold eligible liabilities, the information requested pursuant to Art. 32d of the RTS draft is disproportionate and unnecessary, since it does not contribute to the conclusion that reducing these liabilities does not affect the possibility to meet the MREL requirement.
We consider the 4 months application deadline as disproportionately long for permission with a validity period of one year. Therefore, we welcome the efforts to shorten the application period for renewal of permissions.
Mari Tyster