CNB publishes procedure for setting MREL

The Czech National Bank has published its General approach to setting a minimum requirement for own funds and eligible liabilities (MREL). By taking this step, the CNB is transparently informing banks and the professional public in advance about how it will proceed in setting this new requirement for individual banks in the years ahead.

The MREL is part of the new European framework formed in response to the financial crisis of 2008–2009, when many countries and central banks were involved in the resolution of banks, including with the use of public funds. The aim of the MREL is to increase banks’ ability to contribute to the resolution of their potential crises. The MREL is therefore a buffer for “bad times” aimed at protecting taxpayers’ money.

Under this system of regulation, the Czech National Bank is the resolution authority authorised to set the MREL in the Czech Republic. It will set an MREL for each domestic bank on an individual basis as from next year. With regard to the stability of the domestic banking system, the CNB has set the calculation method so that it better corresponds to the situation of Czech banks. The CNB currently considers the requirement based on the general approach as sufficient.

Banks will achieve compliance with the MREL requirement gradually over a sufficiently long transition period, either by raising capital or by issuing bonds or other instruments. The CNB expects banks to top up their capital and eligible liabilities by an estimated CZK 120–1 40 billion over the next four years to meet the requirement.

The new resolution rules have no implications for the rules for deposit insurance and the position of depositors. Deposit claims of up to EUR 100,000 (and up to EUR 200,000 in defined cases) thus still have absolute priority and will not be affected by any resolution arrangements.

Markéta Fišerová
Director of the Communications Division and CNB Spokesperson