Article 45

Path:
Bank Recovery and Resolution Directive (BRRD) > TITLE IV > CHAPTER IV > Section 5 > Subsection 2 > Article 45
Title:
Article 45
Description: 
Application of the minimum requirement
Main content: 
 
 
 
 
5. Where a liability is governed by the law of a third-country, resolution authorities may require the institution to demonstrate that any decision of a resolution authority to write down or convert that liability would be effective under the law of that third country, having regard to the terms of the contract governing the liability, international agreements on the recognition of resolution proceedings and other relevant matters. If the resolution authority is not satisfied that any decision would be effective under the law of that third country, the liability shall not be counted towards the minimum requirement for own funds and eligible liabilities.
 
 
 
 
 
 
 
 
 
7. Institutions shall comply with the minimum requirements laid down in this Article on an individual basis.
 
A resolution authority may, after consulting a competent authority, decide to apply the minimum requirement laid down in this Article to an entity referred to in point (b), (c) or (d) of Article 1(1).
 
8. In addition to paragraph 7, Union parent undertakings shall comply with the minimum requirements laid down in this Article on a consolidated basis.
 
The minimum requirement for own funds and eligible liabilities at consolidated level of an Union parent undertaking shall be determined by the group-level resolution authority, after consulting the consolidating supervisor, in accordance with paragraph 9, at least on the basis of the criteria laid down in paragraph 6 and of whether the third-country subsidiaries of the group are to be resolved separately according to the resolution plan.
 
9. The group-level resolution authority and the resolution authorities responsible for the subsidiaries on an individual basis shall do everything within their power to reach a joint decision on the level of the minimum requirement applied at the consolidated level.
 
The joint decision shall be fully reasoned and shall be provided to the Union parent undertaking by the group-level resolution authority.
 
In the absence of such a joint decision within four months, a decision shall be taken on the consolidated minimum requirement by the group-level resolution authority after duly taking into consideration the assessment of subsidiaries performed by the relevant resolution authorities. If, at the end of the four-month period, any of the resolution authorities concerned has referred the matter to EBA in accordance with Article 19 of Regulation (EU) No 1093/2010, the group- level resolution authority shall defer its decision and await any decision that EBA may take in accordance with Article 19(3) of that Regulation, and shall take its decision in accordance with the decision of EBA. The four-month period shall be deemed to be the conciliation period within the meaning of that Regulation. EBA shall take its decision within one month. The matter shall not be referred to EBA after the end of the four-month period or after a joint decision has been reached. In the absence of an EBA decision within one month, the decision of the group-level resolution authority shall apply.
 
The joint decision and the decision taken by the group-level resolution authority in the absence of a joint decision shall be binding on the resolution authorities in the Member States concerned.
 
The joint decision and any decision taken in the absence of a joint decision shall be reviewed and where relevant updated on a regular basis.
 
10. Resolution authorities shall set the minimum requirement to be applied to the group’s subsidiaries on an individual basis. Those minimum requirements shall be set at a level appropriate for the subsidiary having regard to:
 
(a) the criteria listed in paragraph 6, in particular the size, business model and risk profile of the subsidiary, including its own funds; and
 
(b) the consolidated requirement that has been set for the group under paragraph 9.
 
The group-level resolution authority and the resolution authorities responsible for subsidiaries on an individual basis shall do everything within their power to reach a joint decision on the level of the minimum requirement to be applied to each respective subsidiary at an individual level.
 
The joint decision shall be fully reasoned and shall be provided to the subsidiaries and to the Union parent institution by the resolution authority of the subsidiaries and by the group-level resolution authority, respectively.
 
In the absence of such a joint decision between the resolution authorities within a period of four months the decision shall be taken by the respective resolution authorities of the subsidiaries duly considering the views and reservations expressed by the group-level resolution authority.
 
If, at the end of the four-month period, the group-level resolution authority has referred the matter to EBA in accordance with Article 19 of Regulation (EU) No 1093/2010, the resolution authorities responsible for the subsidiaries on an individual basis shall defer their decisions and await any decision that EBA may take in accordance with Article 19(3) of that Regulation, and shall take their decisions in accordance with the decision of EBA. The four-month period shall be deemed to be the conciliation period within the meaning of that Regulation. EBA shall take its decision within one month. The matter shall not be referred to EBA after the end of the four-month period or after a joint decision has been reached. The group-level resolution authority shall not refer the matter to EBA for binding mediation where the level set by the resolution authority of the subsidiary is within one percentage point of the consolidated level set under paragraph 9 of this Article.
 
In the absence of an EBA decision within one month, the decisions of the resolution authorities of the subsidiaries shall apply.
 
The joint decision and any decisions taken by the resolution authorities of the subsidiaries in the absence of a joint decision shall be binding on the resolution authorities concerned.
 
The joint decision and any decisions taken in the absence of a joint decision shall be reviewed and where relevant updated on a regular basis.
 
11. The group-level resolution authority may fully waive the application of the individual minimum requirement to an Union parent institution where:
 
(a) the Union parent institution complies on a consolidated basis with the minimum requirement set under paragraph 8; and
 
(b) the competent authority of the Union parent institution has fully waived the application of individual capital requirements to the institution in accordance with Article 7(3) of Regulation (EU) No 575/2013.
 
12. The resolution authority of a subsidiary may fully waive the application of paragraph 7 to that subsidiary where:
 
(a) both the subsidiary and its parent undertaking are subject to authorisation and supervision by the same Member State;
 
(b) the subsidiary is included in the supervision on a consolidated basis of the institution which is the parent undertaking;
 
(c) the highest level group institution in the Member State of the subsidiary, where different to the Union parent institution, complies on a sub-consolidated basis with the minimum requirement set under paragraph 7;
 
(d) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities to the subsidiary by its parent undertaking;
 
(e) either the parent undertaking satisfies the competent authority regarding the prudent management of the subsidiary and has declared, with the consent of the competent authority, that it guarantees the commitments entered into by the subsidiary, or the risks in the subsidiary are of no significance;
 
(f) the risk evaluation, measurement and control procedures of the parent undertaking cover the subsidiary;
 
(g) the parent undertaking holds more than 50 % of the voting rights attached to shares in the capital of the subsidiary or has the right to appoint or remove a majority of the members of the management body of the subsidiary; and
 
(h) the competent authority of the subsidiary has fully waived the application of individual capital requirements to the subsidiary under Article 7(1) of Regulation (EU) No 575/2013.
 
13. The decisions taken in accordance with this Article may provide that the minimum requirement for own funds and eligible liabilities is partially met at consolidated or individual level through contractual bail-in instruments.
 
14. To qualify as a contractual bail-in instrument under paragraph 13, the resolution authority shall be satisfied that the instrument:
 
(a) contains a contractual term providing that, where a resolution authority decides to apply the bail-in tool to that institution, the instrument shall be written down or converted to the extent required before other eligible liabilities are written down or converted; and
 
(b) is subject to a binding subordination agreement, undertaking or provision under which in the event of normal insolvency proceedings, it ranks below other eligible liabilities and cannot be repaid until other eligible liabilities outstanding at the time have been settled.
 
15. Resolution authorities, in coordination with competent authorities, shall require and verify that institutions meet the minimum requirement for own funds and eligible liabilities laid down in paragraph 1 and where relevant the requirement laid down in paragraph 13, and shall take any decision pursuant to this Article in parallel with the development and the maintenance of resolution plans.
 
16. Resolution authorities, in coordination with competent authorities, shall inform EBA of the minimum requirement for own funds and eligible liabilities, and where relevant the requirement laid down in paragraph 13, that have been set for each institution under their jurisdiction.
 
 
18. Based on the results of the report referred to in paragraph 19, the Commission shall, if appropriate, submit by 31 December 2016 to the European Parliament and the Council a legislative proposal on the harmonised application of the minimum requirement for own funds and eligible liabilities. That proposal shall include, where appropriate, proposals for the introduction of an appropriate number of minimum levels of the minimum requirement, taking account of the different business models of institutions and groups. The proposal shall include any appropriate adjustments to the parameters of the minimum requirement, and if necessary, appropriate amendments to the application of the minimum requirement to groups.
 
19. EBA shall submit a report to the Commission by 31 October 2016 on at least the following:
 
(a) how the minimum requirement for own funds and eligible liabilities has been implemented at national level, and in particular whether there have been divergences in the levels set for comparable institutions across Member States;
 
(b) how the power to require institutions to meet the minimum requirement through contractual bail-in instruments has been applied across Member States and whether there have been divergences in those approaches;
 
(c) the identification of business models that reflect the overall risk profiles of the institution;
 
(d) the appropriate level of the minimum requirement for each of the business models identified under point (c);
 
(e) whether a range for the level of the minimum requirement of each business model should be established;
 
(f) the appropriate transitional period for institutions to achieve compliance with any harmonised minimum levels prescribed;
 
(g) whether the requirements laid down in Article 45 are sufficient to ensure that each institution has adequate loss- absorbing capacity and, if not, which further enhancements are needed in order to ensure that objective;
 
(h) whether changes to the calculation methodology provided for in this Article are necessary to ensure that the minimum requirement can be used as an appropriate indicator of an institution’s loss-absorbing capacity;
 
(i) whether it is appropriate to base the requirement on total liabilities and own funds and in particular whether it is more appropriate to use the institution’s risk-weighted assets as a denominator for the requirement;
 
(j) whether the approach of this Article on the application of the minimum requirement to groups is appropriate, and in particular whether the approach adequately ensures that loss absorbing capacity in the group is located in, or accessible to, the entities where losses might arise;
 
(k) whether the conditions for waivers from the minimum requirement are appropriate, and in particular whether such waivers should be available for subsidiaries on a cross-border basis;
 
(l) whether it is appropriate that resolution authorities may require that the minimum requirement be met through contractual bail-in instruments, and whether further harmonisation of the approach to contractual bail-in instruments is appropriate;
 
(m) whether the requirements for contractual bail-in instruments laid down in paragraph 14 are appropriate; and
 
(n) whether it is appropriate for institutions and groups to be required to disclose their minimum requirement for own funds and eligible liabilities, or their level of own funds and eligible liabilities, and if so the frequency and format of such disclosure.
 
20. The report in paragraph 19 shall cover at least the period from 2 July 2014 until 30 June 2016 and shall take account of at least the following:
 
(a) the impact of the minimum requirement, and any proposed harmonised levels of the minimum requirement on:
 
(i) financial markets in general and markets for unsecured debt and derivatives in particular;
 
(ii) business models and balance sheet structures of institutions, in particular the funding profile and funding strategy of institutions, and the legal and operational structure of groups;
 
(iii) the profitability of institutions, in particular their cost of funding;
 
(iv) the migration of exposures to entities which are not subject to prudential supervision;
 
(v) financial innovation;
 
(vi) the prevalence of contractual bail-in instruments, and the nature and marketability of such instruments;
 
(vii) the risk-taking behaviour of institutions;
 
(viii) the level of asset encumbrance of institutions;
 
(ix) the actions taken by institutions to comply with minimum requirements, and in particular the extent to which minimum requirements have been met by asset deleveraging, long-term debt issuance and capital raising; and
 
(x) the level of lending by credit institutions, with a particular focus on lending to micro, small and medium-sized enterprises, local authorities, regional governments and public sector entities and on trade financing, including lending under official export credit insurance schemes;
 
(b) the interaction of the minimum requirements with the own funds requirements, leverage ratio and the liquidity requirements laid down in Regulation (EU) No 575/2013 and in Directive 2013/36/EU;
 
(c) the capacity of institutions to independently raise capital or funding from markets in order to meet any proposed harmonised minimum requirements;
 
(d) consistency with the minimum requirements relating to any international standards developed by international fora.
 
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