EU ambassadors today endorsed a Council negotiating mandate on amending the Union’s bank resolution framework. The so-called ‘Daisy Chain’ proposal introduces targeted adjustments that will play an essential role in improving an institution’s resolvability. The approval of the Council’s negotiating mandate will allow the incoming presidency to launch discussions with the European Parliament with a view to agreeing on a final text.
The revised Union bank resolution framework aims to better ensure that the loss absorption and recapitalisation of banks occurs through private means when those banks become financially unviable and are, subsequently, placed in resolution.
The Daisy Chain proposal amends the Union bank resolution framework by:
-incorporating a dedicated treatment for the indirect subscription of instruments eligible for internal minimum requirement for own funds and eligible liabilities (MREL)
-further aligning the treatment of global systemically important institution (G-SII) groups with a Multiple Point of Entry (MPE) resolution strategy with the treatment outlined in the FSB’s international Total Loss-absorbing Capacity Term Sheet (the ‘TLAC standard’)
-clarifying the eligibility of instruments in the context of the internal TLAC.
Background and next steps
Regulation (EU) No 575/2013 of the European Parliament and of the Council (the Capital Requirements Regulation or CRR) establishes together with Directive 2013/36/EU of the European Parliament and of the Council (the Capital Requirements Directive or CRD) the prudential regulatory framework for credit institutions operating in the Union. The CRR and the CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in particular within the Basel Committee on Banking Supervision (BCBS).
Resolution related issues have been identified since the revised TLAC/MREL framework became applicable in 2019. The Daisy Chain proposal aims to address those issues.
-Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 575/2013 and Directive 2014/59/EU as regards the prudential treatment of global systemically important institution groups with a multiple point of entry resolution strategy and a methodology for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities