MREL/TLAC requirements

The economic crisis has led to a wide range of regulatory responses to protect financial stability and minimize taxpayer exposure. Two of these responses are maintaining a minimum total loss-absorbing capacity (TLAC) and minimum requirements for eligible liabilities (MREL). The objective of TLAC for G-SIBs is to maintain economic functions in the event of resolution without threatening financial market stability or seeking tax payer support. The Financial Stability Board (FSB) has developed a set of principles as well as a term sheet that implements these principles. The MREL requirement is part of the EU Bank Recovery and Resolution Directive and is complementary to TLAC. The main difference is that TLAC only applies to G-SIBs, while MREL applies to all banks in the EU.

 

2019
2020
2021
2022
2023
2024
3
4
1
Implementation / enforcement 05/2014 - 07/2015
2
Discussion / consultation 07/2015 - 01/2016
3
Implementation / enforcement 01/2016 - 01/2020
4
In effect 01/2020 -

STATUS
National implementations of MREL must be completed 1 January 2016 at the latest and national resolution authorities must determine an appropriate transitional period which cannot be longer than 48 months. The FSB's TLAC standards must first be transposed into European law is a manner that articulates well with exiting MREL and capital requirements and the TLAC effective date is no earlier than 1 January 2019.

TLAC is a minimum regulatory capital requirement in addition to the existing requirements. It consists of instruments that can be written down or converted into equity in case of resolution and these requirements would be implemented in two steps. As from January 2019, G-SIBs will have to comply with a minimum TLAC of 16% of the resolution group's risk-weighted assets and 6% of the Basel 111 leverage ratio. As from January 2022, these minimum requirements will increase to 18% and 6,75%, respectively. For MREL, banks are required to hold a minimum of 8% of own funds and eligible liabilities. MREL will be phased in from 2016 to 2020. Banks are recommended to review existing liabilities against TLAC and MREL requirements to understand the impact on their business model and funding structure.


Further information:
EBA: Regulatory Technical Standards on MREL
FSB: Total Loss-Absorbing Capacity (TLAC) Principles and Term Sheet

author
Rob Voster Senior Manager
Categories: Liquidity Capital and Risk