Speech by Elke König to European Parliament ECON Committee

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Dear Chair, Honourable Members, Ladies and Gentlemen,

Thank you for the invitation, and congratulations dear Chair on your recent election. We have a shared vested interest in making sure that Europe’s resolution regime is as strong and as effective as possible – a resolution regime that works to protect the European taxpayer. 

I’d like to start with a look at the current areas of priority for the SRB, and then speak a little about the SRB’s priorities for 2020 as we move into a new decade in little over a month’s time.

The Banking Package

Dear Chair, honourable members, a word on the Banking Package. The implementation of this package will be a major priority for the months ahead. 

We are finalising the 2018/19 planning cycle under the BRRD1. By the year-end, nearly all banks will have binding targets at group level, and where relevant at entity level too.

The Banking Package strengthens the resolution framework, but also poses implementation challenges for the SRB. The package introduced the Total Loss-Absorbing Capacity (TLAC) requirement of the Financial Stability Board into European Union Law. This new requirement applies to G-SIIs, and aligns the MREL framework with the FSB’s TLAC minimum requirements.

G-SIIs, “Top Tier banks” with total assets exceeding €100bn, as well as certain other banks chosen by the respective national resolution authority will need to hold a minimum part of their MREL in subordinated resources. All other banks are not subject to mandatory minimum levels of subordination, but the SRB may require an amount of subordination in order to avoid a breach of the No-Creditor-Worse-Off principle. Please let’s keep in mind that all banks under our remit have to become resolvable.

The new legislation requires banks to move from individual to internal MREL requirements. Subsidiaries should issue eligible instruments within the resolution group, directly or indirectly to the resolution entity. These instruments would be written down or converted into equity, and losses of these subsidiaries would thus be up-streamed to the resolution entity when the non-resolution entities reach the point of non-viability, without formally placing these entities into resolution. This only applies to non-resolution entities and mainly in the context of Single Point of Entry or SPE, the main concept for G-SIIs or other significant banks.

The building up of MREL is of course very important for our resolution planning. MREL is possibly the most well-known condition for making banks resolvable by ensuring they have sufficient funds to absorb losses and be recapitalised - thereby replacing the need for a taxpayer-funded bail-out with a privately financed “bail-in”. That is why it is one of our most important policies. The SRB has taken a gradual, multi-year approach to MREL, with the goal of maintaining proportionality in the system while preserving a level playing field and upholding high resolution standards across the Banking Union.

The lack of sufficient MREL could, of course, be an important barrier to executing the preferred resolution strategy. Therefore I want to give you a few figures:

MREL targets represent on average 25.2% TREA or Total Risk Exposure Amount and on aggregate are equal to €1759 billion (1.759 trillion) in Q4 2018, compared to €1722 billion (1.722 trillion) in Q4 2017. The SRB also requires - or expects, for banks without colleges during the 2018 planning cycle -  an average amount of 17.8% TREA to be met, with subordinated instruments. This is €1243 billion (1.243 trillion) in Q4 2018 compared to €1213 billion (1.213 trillion) in Q4 2017. The average MREL shortfall equalled 2.0% TREA in Q4 2018. In absolute amounts, the total shortfall equalled €137.1 billion (0.137 trillion) in Q4 2018.

In the last two resolution planning cycles,[1] the SRB has taken binding MREL-decisions at consolidated and individual levels. By the end of this year, the SRB will have adopted decisions with MREL targets at consolidated level for approximately 83% of the banks with resolution plans.

Policy work

Even though the BRRD2 and SRMR2 only kick in from 28 December 2020 - so just over a year’s time - the SRB has already advanced in revising its MREL policy with a view to discuss new policy elements with the SRM’s participants, and with a view to consulting industry in early 2020. The goal is to have the new MREL policy ready by Q2 2020. This would allow the SRB to start applying it in the course of the 2020 resolution planning cycle and to take MREL decisions based on the new legal framework in Q1/Q2 2021, when SRMR2 will be applicable and when Member States should have transposed the BRRD2.


There is much work ongoing, but it might not be all plain sailing. We do face challenges in implementing this new Banking Package. The new framework requires banks to continue their path towards resolvability, but also to follow stricter rules for MREL. I’d like to mention just three examples:

  • the new framework introduces firmer conditions for instruments to be considered MREL eligible;
  • it requires a number of banks to meet higher subordination requirements, and;
  • it calls for banking groups to comply with internal MREL requirements.

All of this is clearly in the interest of resolvability. But the new legislation is also extremely complex. The SRB is working with National Resolution Authorities and is in touch with the European Commission, as well as with the European Central Bank and the European Banking Authority. Recent experience shows, however, that it will inevitably take some time for authorities to overcome interpretation and implementation issues. This is another argument for the step-by-step introduction of the new framework, since it is already clear that the EBA’s level two texts will be delayed.

Another challenging task which is very high on our agenda, is the resolvability assessment. For this important topic, we have a number of ongoing workstreams. Firstly, we have published our ‘Expectations for Banks’ document which is open for public consultation until tomorrow. This document is not a new set of policies, but rather it sets out in a single document what we expect banks to do in order to make themselves resolvable. Thus it provides guidance, best practice and benchmarking - for the banks and for our assessment.

This document is in addition to what we call the ‘priority letters’, which is an annual tailor-made letter for each bank, stating where their priorities should be in terms of making themselves resolvable. Here we give clear guidance for the banks’ individual work programs. It will be followed by the SRB’s assessment of the progress made - a bit like a report card that tells them where they should now focus their energies in order to improve. On this basis, if need be, the SRB will trigger impediments procedures if banks just don’t make sufficient progress.

Based on these ongoing efforts, we are currently revising our internal policy on resolvability assessment, in order to integrate an overall consistent resolvability assessment into the upcoming resolution planning cycle for 2020.

Concretely, we envisage the creation of a ‘heat-map’ classifying banks in accordance with progress made on each resolvability condition, and the relative impact this progress has on the feasibility of the preferred resolution strategy. Let me clarify once more that the responsibility is best achieved by banks implementing the targeted work programme. The impediments procedure is simply a last resort, not the first choice. So far, we are making good progress.

The end goal for all of this is clear – to improve resolvability, and thus ensure financial stability.

We have learnt lessons, too, from past decisions not to resolve banks. The latest decision was taken in August this year. An area where improvements need to be made is the need for a better alignment between resolution and insolvency, including a bank liquidation regime or harmonised license withdrawal process. Dear members, I am happy to explain this more for those who may be interested.  

Other issues for 2020 and beyond

Let me briefly mention some of the other topics of importance for the SRB over the next year or so.

We hope that an agreement can be reached on the third and final pillar of the Banking Union. There seems to be some positive momentum building around a European deposit insurance scheme so let us hope that this can be finalised during this parliamentary term.

The SRB would also like to see more work to complete and strengthen the Capital Markets Union and I was pleased to hear  Executive Vice President Valdis Dombrovskis mention this topic recently, too. A stronger, European capital market is in everyone’s interest – for investors, enterprises and last but not least for financial institutions.

Unfortunately a solution for liquidity in resolution is still not in sight. Let’s hope that the new year will bring new solutions. In 2020, we’ll continue to increase the SRF, while we also hope that the details around the backstop to the Fund can be worked out and hopefully progress can be made soon – perhaps even in tomorrow’s meeting of the EuroGroup.


Dear Chair, honourable members, I am coming to a close to allow for some time to answer your questions. We have made very good progress in the past four years, and as we celebrate our fifth anniversary in 2020, I hope that we will further strengthen Europe’s resolution regime.

It is in all our interests to work together in order to ensure that we complete the Banking Union framework so that we can promote financial stability and protect the taxpayer.


Contact the Single Resolution Board

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