The CNB has set the minimum requirement for capital and eligible liabilities for banks

The resolution framework is based on the assumption that banks have sufficient capacity for the absorption of losses and subsequent recapitalisation. Therefore, in 2020 the CNB set for banks the minimum requirement for capital and eligible liabilities (MREL). The CNB set this requirement for all banks for which a potential failure cannot be credibly resolved through liquidation or normal insolvency procedures. The CNB also set 31 December 2023 as the binding deadline by which banks must fully comply with MREL. This marks a significant step in resolution planning and a move towards a gradual strengthening of resolvability of Czech banks.

The CNB will review the requirement annually with a view to updating the relevant resolution plans. MREL and its implementation will become an equally important parameter for banks, investors, rating agencies and other economic agents as, for example, capital requirements.

MREL is specific to each individual bank, and the CNB does not publish individual MREL values. However, in line with the general approach approved by the CNB Bank Board in October 2018, MREL is derived from prudential capital requirements and is set

• in the amount of 2*(P1 + P2) for large, systemically important and complex banks which provide a number of critical economic functions with the planned use of the CNB’s write-down and conversion powers or with the planned use of the bail-in tool; no interruption of activities is expected as a consequence of resolution measures;
• in the amount of (P1 + P2) + coefficient * (P1 + P2) for medium-sized, less complex banks which provide a limited number of critical economic functions, mostly in the area of deposit-taking and related payments, with the use of the planned “transfer” tool; the recapitalisation component is reduced by a coefficient (less than 1) and takes into account the extent of the critical economic functions transferred (the “transfer perimeter” is mostly a function of the share of covered deposits in the bank’s total assets).

The CNB has not yet formally set MREL for banks (and other institutions to which the recovery and resolution framework applies) for which the resolution plan is based on liquidation or normal insolvency procedures. It plans to do so in the coming months. The CNB will de facto set this requirement at the level of the capital requirements, i.e. without the recapitalisation component.