Press release 26 April 2016
The Swedish National Debt Office has today published a proposal on how the minimum requirement for own funds and eligible liabilities (MREL) should be applied to banks and certain other financial institutions. The purpose of the requirement is to ensure that banks have sufficient capital and liabilities which can be written down or converted in a crisis. This is a pre-requisite for ensuring taxpayers do not have to meet the costs of future financial crises.
– Given the large bank sector Sweden has, it is of the utmost importance that we are well prepared to be able to handle financial crises. The proposals we are outlining regarding the size of MREL and how it should be complied with ensure that a crisis stricken bank can be safely and effectively managed. We have to be able to preserve the bank’s socially important functions and maintain financial stability without taxpayers having to foot the bill, said the Debt Office General Director Hans Lindblad.
A new framework for management of banking crises came into force in Sweden on 1 February 2016. The new framework means that the Debt Office can take control over a crisis stricken bank by means of process known as resolution, if such action is required to preserve financial stability. In a resolution the shareholders and lenders will be exposed to the bank's losses, not taxpayers. The lenders’ liabilities will, in simple terms, be written down in the same way as in insolvency, albeit with certain exceptions. Debt write down (also known as “bail-in”) will therefore become the central tool for handling bank crises.
In order to execute a resolution, banks must always have a certain amount of own funds and liabilities which can be written down in order to cover losses or reinstate the bank’s capital base. The introduction of MREL is a key part of the EU Bank Recovery and Resolution Directive which was implemented in Sweden in the Resolution Act. The Debt Office, as designated Resolution Authority, will make decisions on the specificities of MREL.
The Debt Office’s proposal includes, amongst other things, the following points:
In accordance with the proposal, MREL requirements will be set for every bank on the basis of the first two points above during autumn 2017. Until that point, MREL will be set at a level equal to the banks’ currently applicable capital requirements.
Regarding subordination, the Debt Office’s intention is to publish further information at the start of 2017 regarding the nature, extent and implementation timetable for such a requirement.
Summary of the Debt Office’s consultation paper on MREL, pdf
More on managing banking crises (resolution)
Linda Rudberg, Press Officer, +46 (0)8 613 45 38