News
23. 2. 2021

CNB revises and supplements General Approach to MREL

Due to changes in the regulatory framework,[1] the Czech National Bank has revised and supplemented its General Approach to Setting a Minimum Requirement for Own Funds and Eligible Liabilities (MREL).[2] The CNB has also extended its General Approach to include the setting of a minimum requirement for own funds and eligible liabilities (MREL) expressed in relation to the leverage ratio.[3]

Starting 2021, the CNB will set MREL in relation to both the total risk exposure amount (TREA) and the total exposure measure (LRE). Both levels of the requirement will be binding on institutions.

In addition to the above supplements, this revised general approach to setting MREL contains the CNB’s approach to setting

  • MREL for institutions whose resolution plan assumes the use of a transfer tool; and
  • requirements for the subordination of MREL eligible instruments.

The CNB sets  MREL for the institutions in its area of competence on an annual basis. The requirement must be met on 1 January 2024 at the latest. In order to ensure a steady increase in own funds and eligible liabilities to the required level, the CNB also sets a binding intermediate target in accordance with the requirement of Directive (EU) 2019/879. Institutions are obliged to meet this target on 1 January 2022 at the latest.

The full text of the CNB’s general approach to setting a minimum requirement for own funds and eligible liabilities is available at https://www.cnb.cz/en/resolution/general-approach-of-the-czech-national-bank-to-setting-a-minimum-requirement-for-own-funds-and-eligible-liabilities-mrel/index.html

[1] The overall resolution framework has recently been revised and supplemented through changes to Directive 2014/59/EU of the European Parliament and of the Council and amended Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 (BRRD II), and changes to Regulation (EU) No 575/2013 of the European Parliament and of the Council and amended Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019.

[2] In order to increase transparency and better inform financial market entities and the professional public, the CNB produced a General Approach to Setting a Minimum Requirement for Own Funds and Eligible Liabilities (General Approach), which it published on its website on 31 October 2018. This document followed up on a previous CNB explanatory memorandum on the issues of resolution planning and determining the best resolution strategies.

[3] Pursuant to Article 45(2)(a) and (b) of Directive 2014/59/EU of the European Parliament and of the Council, the MREL is set as a percentage of the total risk exposure amount (TREA) and simultaneously as a percentage of the total exposure measure (LRE).