The European Commission is proposing more detailed rules for dealing with banks when they get into financial difficulty. On 17 May, it adopted a delegated regulation that specifies the criteria that resolution authorities will be asked to take into account when setting the Minimum Requirement for Own Funds and Eligible Liabilities, or MREL. But what exactly is MREL? How does it fit into the Bank Recovery and Resolution Directive (BRRD)? And why does the Commission want to amend it?   

How does MREL fit in to the BRRD?

The BRRD, which was adopted in spring 2014, aims to protect taxpayers' money and increase financial stability by providing common rules throughout the EU for dealing with failing banks and bank resolution. The directive helps minimise the risk of taxpayers having to bail-out banks by making shareholders and creditors bear the burden of bank failure – so-called 'bail-in'. BRRD provisions on bail-in, including on MREL, entered into force in January 2016.

What is its overall aim?

The overall purpose of MREL is to make sure that banks have enough regulatory capital and loss-absorbing liabilities to make bail-in an effective instrument in resolution. In other words, banks need to be resolvable without causing financial instability and without needing public money. In order to cater for the diversity of institutions and business models across the EU, the MREL is not a fixed figure. Instead, it is bank-specific and must be set by resolution authorities on a case-by-case basis.

Why more detailed rules on MREL are needed?

BRRD requires resolution authorities to determine MREL for each bank by taking into account a minimum set of general criteria such as bank size, funding model or risk profile. The delegated regulation aims to achieve that these general criteria are interpreted by resolution authorities in a consistent manner across Member States. This is important for maintaining the level playing field for banks and enhancing the level of preparation for future bank resolutions, which in turn should lead to more effective resolution outcomes.

Does the regulation apply to all Member States?

Yes, the regulation applies to all 28 EU countries, both Banking Union and non-Banking Union Member States.

What happens next?

The Commission is carrying out a review of MREL this year. Importantly, this work takes into consideration the international Total Loss Absorbing Capacity (TLAC) standard for global systemically important banks, recently adopted by the G-20. The Commission intends to make a proposal to introduce this standard into EU law in 2016, well before the internationally agreed start of its application in 2019.

Read more on MREL and crisis management