Background

The directive (EU) 2019/879 (BRRD2), together with regulation 2019/877 (SRMR2), effect changes to the Bank Recovery and Resolution Directive (EU) 2014/59 (BRRD) and the Single Resolution Mechanism regulation 806/2014 (SRMR) with respect to loss absorption and recapitalisation capacity of banks and investment firms.

Main changes under BRRD2

One of the main purposes of BRRD2 is to clarify the calculation of the amount (quantity) and quality of the Minimum Required own funds and Eligible Liabilities (MREL). This is the minimum amount of equity and subordinated debt banks or (certain) investment firms must maintain to support an effective resolution.

Amongst other reasons, the mandatory rules introduced with CRR2 as to the leverage ratio of 3% required that in the resolution provisions the TLAC and MREL calculations based on the Leverage Ratio basis needed to be aligned. Furthermore, further clarifications needed to be processed to emphasise that the third test of the Total Liabilities and Own Funds (TLOF) of 8% was properly captured in the regime.

An important change has been the introduction of the Maximum Distributable Amount (MDA-R) regime permitting the resolution authorities to regulate dividend distributions of banks and certain investment firms to ensure that minimum levels of TLAC or MREL are upheld by the relevant institutions upon determination of the required levels.

BRRD2 now henceforth distinguishes between four different categories of entities each of which has to meet its own MREL. These are:

    1. Global Systemically Important Institutions (G-SIIs) for which the TLAC requirements are particularly contained in CRR2;
    2. banks with assets above EUR 100 billion (“top-tier banks”);
    3. banks with assets lower than EUR 100 billion and which are still deemed to be of systemic importance (the so-called ‘fished banks’), and
    4. all other banks.

The revised Total Loss Absorbing Capital (TLAC) requirements for G-SIIs have already been implemented in CRR2 (regulation (EU) 2019/876) and some of its provisions became applicable as early as July 2019 with some transitional provisions included in CRR2. The BRRD2 text aims at coordinating the provisions for G-SIIs with the directive provisions for all other banks.

The Implementation Act BRRD2

BRRD2 provisions will be implemented in the Dutch Financial Supervision Act and the Dutch Bankruptcy Act provisions with respect to banks (and a limited sub-group of investment firms) which are subject to BRRD2 based on the competences of the national resolution authorities (in the Netherlands: the Dutch Central Bank) and not SRMR2 (being banks which are directly subject to powers and authorities of the Single Resolution Board).

Timing Implementation

SRMR2 is already applicable from 28 December 2020. The implementation deadline of the BRRD2 expired on 28 December 2020. However, the Dutch implementation process of the BRRD2 was delayed. The implementation act BRRD2 was published on 9 September 2021 and is currently under review by the Dutch Parliament. To view the parliamentary documents (Dutch only), click here.

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