The general resolution principle for SIFIs is that it should be possible to restructure them and return them to the market with adequate capitalisation to ensure market confidence. The MREL for SIFIs has been determined based on this principle.
Mortgage credit institutions are exempt from MREL
Instead of MREL, mortgage credit institutions must fulfil a so-called debt buffer requirement of 2 percent of their unweighted loans.
Due to this exemption, the mortgage credit institutions are not included in the consolidation when determining the MREL for the groups. Furthermore, liabilities and own funds used to fulfil MREL cannot be simultaneously used to fulfil the capital and debt buffer requirements that apply to mortgage credit institutions.
Minimum requirement of 8 percent in groups
With a new legislative proposal, it is ensured that the total requirements for each individual Danish SIFI group will always constitute at least 8% of all liabilities including own funds.
MREL eligible liabilities and own funds bear losses before senior unsecured creditors
The Financial Supervisory Authority imposes the requirement that all the MREL eligible liabilities and own funds must bear losses before other senior unsecured claims in both resolution and insolvency (subordination). This is to limit the risk of losses for depositors and other senior unsecured creditors. A legislative proposal that is currently being processed will introduce a new layer in the creditor hierarchy for financial institutions, so called non-preferred senior debt.
SIFIs must fulfil their MREL from 1 July 2019, but until 1 January 2022, they can also include senior preferred liabilities issued before 1 January 2018 and which fulfils all other MREL criteria.
The Financial Supervisory Authority monitors international development and participates in negotiations within the EU on new regulatory frameworks. The Financial Supervisory Authority incorporates the developments in the EU and internationally on an ongoing basis, including when determining MREL. The Danish MREL will thus be adjusted if the new directive on crisis management (so-called BRRD2), which is currently being negotiated in the EU, leads to changes in Danish legislation.