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?

No, the text should say “adjust” not “increase”. There may well be circumstances where a reduction is appropriate (eg because of national gold plating under Pillar 2). In practice, total effective capital requirements, e.g. for systemic firms, may be set not only to capture the quantum of expected loss absorption, but even higher, so as to make the probability of loss even more remote. The drafting should also make clearer that the imposition of a higher amount should be truly 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?

We doubt this is susceptible to benchmarking – the range of circumstances is probably too diverse.

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?

Again, the leverage ratio should be excluded, for reasons given above. Also to be excluded is the combined buffer, as that is not a minimum requirement, but a buffer. Note that the FSB – TLAC approach excludes such buffers.

5. Is it appropriate to have a single peer group of G-SIIs, or should this be subdivided by the level of the G-SII capital buffer? Should the peer group approach be extended to Other Systemically Important Institutions (O-SIIs), at the option of resolution authorities? If yes, would the appropriate peer group be the group of O-SIIs established in the same jurisdiction? Should the peer group approach be further extended to other types of institution?

No building society is a G-SII, so the first part is not relevant to building societies. A building society could be an O-SII, but we doubt the peer group approach would work for O-SIIs – there are probably not enough in any jurisdiction, and the existing O-SIIs are too disparate. We also point out that BRRD does not envisage recapitalisation to full ex-ante status.

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?

See answer to question 5.

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?

Yes, this makes sense.

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?

Yes, this is probably necessary for systemic institutions.

9. Is this limit on the transition period appropriate?

No, make it at least six years, and allowing up to ten years might be sensible. The early part of that period will anyway overlap with the build up to Basel 3 end point, so it cannot be sensible to concentrate demands to issue risk-bearing instruments for several purposes in that narrow window – the market’s capacity may be insufficient. Such demands should be capable of being spread out over a longer period.

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

Yes

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?

Broadly speaking, yes.

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

Yes.

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Name of organisation

Building Societies Association