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The Debt Office publishes information on how banks are meeting requirements
News 29 November 2019
For the first time, the Swedish National Debt Office is publishing a report on how Swedish banks comply with their requirements for own funds and eligible liabilities (MREL). These liabilities can be written down or converted into equity if the Debt Office manages a bank in crisis through resolution.
For the first time, the Swedish National Debt Office is publishing a report on how Swedish banks comply with their requirements for own funds and eligible liabilities (MREL). These liabilities can be written down or converted into equity if the Debt Office manages a bank in crisis through resolution.
If a systemically important bank or other financial institution is in crisis, the Debt Office can assume control and implement crisis management measures to safeguard financial stability. This procedure is called resolution. It is intended to enable the central government to manage a bank in crisis without resorting to taxpayers’ money. Instead, the institution’s shareholders and investors are to bear the costs of crisis management.
The importance of resilience
To ensure banks have sufficient resources to finance crisis management, the Debt Office sets requirements for them to have a certain level of own funds and liabilities that can be written down to absorb losses and restore capital in a crisis. Therefore, the Debt Office makes annual decisions on the minimum requirement for own funds and eligible liabilities (MREL).
The Debt Office is now for the first time publishing a report on how the banks are complying with these requirements. These reports will be published on a quarterly basis.
It is important to continually secure and strengthen the financial sector’s resilience to crisis. Publishing information on how banks are meeting the set requirements allows market participants and the general public to monitor how well the banks are complying with crisis management regulations, says Debt Office Director General Hans Lindblad.
The report shows that all systemically important institutions comply with the current requirements. In accordance with a decision by the Debt Office, a certain proportion of the requirement is to be met with liabilities. The report shows that all institutions have sufficient liabilities for meeting the requirement.
Subordinated liabilities from 2022
Starting 1 January 2022, the liabilities proportion is to be met with a certain type of liabilities – subordinated liabilities. The report shows that the systemically important institutions have begun to issue subordinated liabilities. Altogether, as at 30 September 2019, the institutions had issued subordinated liabilities amounting to approximately SEK 13.5 billion, which corresponds to approximately 4.5 per cent of the total issuance requirement.
Read the report: Crisis Preparedness of Swedish Banks, Q3 2019
Resolution – the central government assumes control
Resolution entails that a bank’s shareholders and creditors are to bear the costs of crisis management. Taxpayers shall not be affected. During the resolution procedure, the bank is kept open so that customers have access to their accounts and other services as usual.
Resolution only applies to systemically important banks and other institutions. The Debt Office conducts an annual assessment as to which banks are considered systemically important.
Read more about resolution planning
Deposit insurance always applies
Protection for depositors is the same regardless of whether an institution is put into bankruptcy or resolution.
Read more about the deposit insurance scheme
About MREL
For the Debt Office to be able to carry out resolution effectively, the bank or institution must have sufficient own funds and liabilities that can be written down or converted into equity. Therefore, the Debt Office makes decisions on a minimum requirement for own funds and eligible liabilities for each bank and institution deemed systemically important.
This requirement is called the Minimum Requirement for own funds and Eligible Liabilities, referred to by the abbreviation MREL.
The purpose of MREL is to ensure there are sufficient own funds and liabilities that can be written down or converted into equity if a bank or institution is in crisis. This allows the central government to take quick action and maintain the critical functions of the bank or institution without using taxpayers’ money. The requirement also helps clarify which lenders are to bear the primary costs for crisis management.
In November 2019, the Debt Office began publishing all institutions’ individual compliance with their MREL requirements.