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Debt Office extends phase-in for subordination of liabilities to support credit supply
News 7 April 2020
The Swedish National Debt Office has decided, effective immediately, to extend the phase-in period for the banks to meet MREL with own funds and subordinated liabilities to 2024 (from 2022). The measure is being taken to facilitate the banks’ ability to support the credit supply to businesses and households in the difficult financial situation that has arisen from the coronavirus pandemic.
We are making this change so that it will be easier for the banks to support the credit supply in the economy in this critical situation, says Director General Hans Lindblad.
New requirements are to be met by 2024
In conjunction with the introduction of the minimum requirements for own funds and eligible liabilities (MREL), the Debt Office decided that the requirement was to be met in full with own funds and subordinated liabilities (the subordination principle) no later than 1 January 2022. The decision was based on the international standard adopted by the G20 body the Financial Stability Board (FSB) in 2015. In 2019, the standard was implemented in the EU through amendments to a number of EU regulations and directives. These changes are collectively known as the banking package and entail, among other things, that subordination requirements are being imposed on banks within the EU. These requirements must be met no later than 1 January 2024. Transposition of the EU banking package into Swedish law is currently underway, and the new rules will come into force on 28 December 2020.
As a result of the situation that has arisen from the coronavirus pandemic, the Debt Office is deciding to extend the phase-in until 2024. This means that Swedish banks will have more time to adapt to the requirements and that issuance of subordinated liabilities will not have to take place while the uncertainty from the coronavirus remains. This helps to alleviate the banks’ financing situation and thereby also facilitates their ability to support the credit supply to businesses and households.
The Debt Office expects the banks’ issuance of subordinated liabilities to resume when conditions return to normal and that the build up towards the requirements at that point will continue at a reasonable pace. In connection with the new rules entering into force, the Debt Office will provide further details on the phase-in until 1 January 2024.
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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.