EU banks get different MREL levels and deadlines

Average bail-in requirement is 28% of RWAs

A number of European banks will have to hold funds and eligible liabilities equivalent to 28% of their risk-weighted assets on average, their respective central banks have said.
 
Beginning in December 2017, Handelsbanken, Nordea, SEB and Swedbank were notified of the new minimum requirement for own funds and eligible liabilities (MREL) set up by the Single Resolution Board (SRB). 

In May, AIB, Banco Sabadell, Bank of Ireland, BBVA, KBC, OP Financial Group, Santander and UniCredit were also informed by their respective central banks, while ING was notified this month.
 
Handelsbanken was handed the highest requirement at 35.3% of RWAs held as of December 31, 2016, while Banco Sabadell got away with only 22.7%. 

Santander’s MREL requirement is 24.35%, KBC’s is 25.9%, Bank of Ireland’s 26.39%, SEB’s 26.9%, OP Financial Group 27.6%, AIB and BBVA’s are 28.04%, Nordea’s 28.9%, ING’s 29.3% and Swedbank’s 34.8%. 

The new requirements will come into force in 2020 for Banco Sabadell, BBVA, UniCredit and Santander, while the two Irish banks, AIB and Bank of Ireland, will have to comply 12 months later.
 
Swedish banks Handelsbanken, Nordea, SEB and Swedbank are already compliant as of January, while OP Financial Group has been in compliance since May. ING was required to meet the requirement upon notification on July 2 and KBC will have to be compliant from May 2019.
 
When Nordea moves its headquarters from Sweden to Finland later this year, its MREL requirement, which was determined by the Swedish National Debt Office, will be revised by the European Union’s SRB and reset early next year. 

What is it?

The MREL requirement has been established to ensure that banks in the EU have sufficient own funds and eligible liabilities to absorb losses in the case of a potential bank failure. It is determined on a per-institution basis.
 
The Bank Recovery and Resolution Directive (BRRD) created this requirement to make sure that troubled institutions can recapitalise without having to resort to public funds.  

The EU’s SRB, together with national resolution authorities, started assessing banks’ loss-absorbing capacities in 2016. The following year it started developing binding requirements for major banking groups and this year began setting specific targets.

Why it matters

Following a set of amendments by the BRRD, the method for calculating MREL is currently under discussion in a meeting of the European Parliament, the Council and the Commission. This means the final requirements could still diverge from those communicated to the banks.
 
But even if the requirements remained the same, it is not clear why some banks had to comply straight away, while the other banks got two or even three years to meet the standard. The patchwork approach risks an unlevel playing field developing across the single market. 

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What do you make of these different timings? Do banks have reasons to be happy or upset about it? Let us know your thoughts at [e-mail], @aimoneale or @RiskQuantum.

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