The Debt Office’s report on how banks are complying with MREL requirements – Q4 2019

News 5 March 2020

As of the end of the fourth quarter 2019, all banks complied with the requirements for own funds and eligible liabilities (MREL requirements) set by the Debt Office.

If a systemically important bank or financial institution experiences a crisis, the Debt Office can assume control of it and implement crisis management measures to safeguard financial stability. This procedure, called resolution, is intended to enable the central government to manage an institution in crisis without resorting to using taxpayers’ money to rescue it. Instead, the institution’s shareholders and investors are to bear the costs of crisis management.

Requirements for a certain amount of own funds and liabilities

As a way to ensure that institutions have sufficient resources to finance the crisis management, the Debt Office sets requirements for them to have a sufficient level of own funds and liabilities that can be used to absorb losses and to restore capital in a crisis. Accordingly, the Debt Office makes annual decisions on minimum requirements for own funds and eligible liabilities (MREL requirements).

The Debt Office is publishing a quarterly report on how well the institutions are meeting these requirements. The report, published today, presents MREL compliance as of the end of the fourth quarter of 2019. It shows that all systemically important institutions met the requirements.

The report also shows that all the institutions had a sufficient amount of liabilities required to comply with the Debt Office’s liabilities proportion principle.

In accordance with the liabilities proportion principle, these liabilities shall, starting 1 January 2022, consist of a specific type of debt called subordinated liabilities. The report shows that the systemically important institutions continue to issue subordinated liabilities. Altogether, on 31 December 2019, the institutions had issued subordinated liabilities amounting to approximately SEK 40.6 billion, which corresponds to approximately 13.8 per cent of the total issuance requirement.

Read the report: Crisis Preparedness of Swedish Banks, Q4 2019

Resolution – the central government assumes control

Resolution is only applied for systemically important banks or financial institutions. The Debt Office conducts an annual assessment of which institutions are to be considered systemically important. During the resolution procedure, the institution continues its operations so that customers have access to their accounts and other services as usual.

Read more about planning for resolution

Deposit insurance always applies

Protection for depositors is the same regardless of whether an institution goes into bankruptcy or is resolved through 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.

Read more about MREL