Response to eBA consults on technical standards on indirect subscription of MREL instruments within groups
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Banking taxes being levied on the solo-unconsolidated balance sheet of local banks
Resolution Fund Contribution Fees, which are also levied on the solo-unconsolidated balance sheet of banks. In order to mitigate the negative impact on this, we suggest that EBA re-considersthe definition of the contribution base on which Resolution Fund Contributions are based and also include a deduction item for all iMREL eligible instruments, instead of Own Funds only.
In addition, and as pointed out above under point 1) the functioning of institutional protection schemes is not properly reflected in the current RTS. Such IPS are set-up and also approved by competent authorities in a way which enables the efficient up- and/or side-streaming of losses and ensures recapitali-zation in case of need. Not reflecting the IPS within the RTS can result in a deviating treatment both for regulatory capital and internal MREL purposes.
Q3. In the institutions you represent, how would you deal with daisy chain situations? Do you plan to issue eligible liabilities directly from subsidiaries to the resolution entity, or rather indirectly through the intermediate subsidiaries?
We plan to issue both directly and indirectly to the resolution entityQ4. The deduction regime increases in general12 the issuance needs of intermediate entities. What could be the financial impact(s) of such increase of issuances? (allocation of profits/distribution of dividends, capital of subsidiaries, buffers redistribution across the group, tax, etc.). Please answer qualitatively, and if possible, also quantitatively regarding the institution you represent.
The main negative impact stems from the fact that the envisaged deductions will lead to a higher inter-nal MREL issuance at the level of the intermediate entity. For liquidity-rich, deposit funded intermediate entities, this means an artificial balance sheet inflation, as the surplus liquidity out of the iMREL issuance will be placed back to the Resolution Entity, thereby inflating also its balance sheet. Albeit those transac-tions being intra-group, there could be significant negative P&L impacts due to: Banking taxes being levied on the solo-unconsolidated balance sheet of local banks
Resolution Fund Contribution Fees, which are also levied on the solo-unconsolidated balance sheet of banks. In order to mitigate the negative impact on this, we suggest that EBA re-considersthe definition of the contribution base on which Resolution Fund Contributions are based and also include a deduction item for all iMREL eligible instruments, instead of Own Funds only.
In addition, and as pointed out above under point 1) the functioning of institutional protection schemes is not properly reflected in the current RTS. Such IPS are set-up and also approved by competent authorities in a way which enables the efficient up- and/or side-streaming of losses and ensures recapitali-zation in case of need. Not reflecting the IPS within the RTS can result in a deviating treatment both for regulatory capital and internal MREL purposes.