Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 806/2014 as regards loss-absorbing and Recapitalisation Capacity for credit institutions and investment firms
Date: 2016-11-23
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: Economic and Monetary Union, aid to undertakings, company in difficulties, credit institution, euro area, financial control, financial solvency, investment company, loss

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   EUROPEAN COMMISSION  Brussels, 23.11.2016  COM(2016) 851 final 2016/0361 (COD)   Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 806/2014 as regards loss-absorbing and Recapitalisation Capacity for credit institutions and investment firms (Text with EEA relevance) {SWD(2016) 377} {SWD(2016) 378}  
 
EXPLANATORY MEMORANDUM 

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CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The  proposed  amendments  to  Regulation  (EU) 806/2014  (the  Single  Resolution  Mechanism 
Regulation  or  SRMR)  are  part  of  a  legislative  package  that  includes  also  amendments  to 
Regulation  (EU)  No  575/2013  (the  Capital  Requirements  Regulation  or  CRR),  to  Directive 
2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the 
Bank Recovery and Resolution Directive or BRRD). 

Over  the  past  years  the  EU  implemented  a  substantial  reform  of  the  financial  services 
regulatory  framework  to  enhance  the  resilience  of  financial  institutions  in  the  EU,  largely 
based  on  global  standards  agreed  with  the  EU’s  international  partners.  In  particular,  the 
reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation 
or  CRR)  and  Directive  2013/36/EU  (the  Capital  Requirements  Directive  or  CRD),  on 
prudential  requirements for and supervision of institutions, Directive 2014/59/EU (the Bank 
Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and 
Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). 

These measures were taken in response to the financial crisis that unfolded in 2007-2008.The 
absence  of  adequate  crisis  management  and  resolution  frameworks  forced  governments 
around  the  world  to  rescue  banks  following  the  financial  crisis.    The  subsequent  impact  on 
public  finances  as  well  as  the  undesirable  incentive  of  socialising  the  costs  of  bank  failure 
have  underscored  that  a  different  approach  is  needed  to  manage  bank  crises  and  protect 
financial stability. 

Within  the  Union  and  in  line  with  the  significant  steps  that  have  been  agreed  and  taken  at 
international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD)1 
and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR)2 have 
established a robust bank resolution framework to effectively manage bank crises and reduce 
their  negative  impact  on  financial  stability  and  public  finances.  A  cornerstone  of  the  new 
resolution framework is the “bail-in” which consists of writing down debt or converting debt 
claims  or  other liabilities  into  equity  according  to  a  pre-defined  hierarchy.    The  tool  can  be 
used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, 
so that its viability is restored.  Therefore, shareholders and other creditors will have to bear 
the burden of an institution's failure instead of taxpayers.  In contrast to other jurisdictions, the 
Union bank recovery and resolution framework has already mandated resolution authorities to 
set for each credit institution or investment firm ('institution') a minimum requirement for own 
funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used 
to  absorb  losses  and  recapitalise  institutions  in  case  of  failures.  The  delegated  legislation 

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Directive  2014/59/EU  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  establishing  a 
framework  for  the  recovery  and  resolution  of  credit  institutions  and  investment  firms,  OJ  L  173, 
12.6.2014, p. 190 
Regulation  (EU)  No  806/2014  of  the  European  Parliament  and  of  the  Council  of  15  July  2014 
establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain 
investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and 
amending Regulation (EU) No 1093/2010, OJ L 225, 30.7.2014, p. 1 

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concerning the practical implementation of this requirement has been adopted recently by the 
Commission3. 

At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 
the  Total  Loss-absorbing  Capacity  (TLAC)  Term  Sheet  ('the  TLAC  standard')  that  was 
adopted  a  week  later  at  the  G20  summit  in  Turkey4.    The  TLAC  standard  requires  global 
systemically  important  banks  (G-SIBs),  referred  to  as  global  systemically  important 
institutions  (G-SIIs)  in  the  Union  legislation,  to  hold  a  sufficient  amount  of  highly  loss 
absorbing  (bail-inable)  liabilities  to  ensure  smooth  and  fast  absorption  of  losses  and 
recapitalisation in resolution.  In its Communication of 24 November 20155, the Commission 
committed to  bring forward a legislative proposal by the end of this year so that the TLAC 
standard  can  be  implemented  by  the  agreed  deadline  of  2019.  In  addition,  the  Commission 
committed to review the existing MREL rules with the view to provide full consistency with 
the  internationally  agreed  TLAC  standard  by  considering  the  findings  of  a  report  that  the 
European Banking Authority (EBA) is required to provide to the Commission under Article 
45(19) of the BRRD. An interim version of that report has already been published by the EBA 
on 19 July 20166 and the final report is expected to be submitted in the course of December 
2016. 

While the general BRRD and SRMR frameworks remain valid and sound, the main objective 
of this proposal is to implement  the TLAC standard and to integrate the TLAC requirement 
into the general MREL rules by avoiding duplication by applying two parallel requirements. 
Although  TLAC  and  MREL  pursue  the  same  regulatory  objective,  there  are,  nevertheless, 
some differences between them in the way they are constructed.  The scope of application of 
MREL covers not only G-SIIs, but the entire Union banking industry.  Differently from the 
TLAC  standard,  which  contains  a  harmonised  minimum  level,  the  level  of  MREL  is 
determined  by  resolution  authorities  on  the  basis  of  a  case-by-case  institution  specific 
assessment.  Finally,  the  minimum  TLAC  requirement  should  be  met  in  principle  with 
subordinated  debt  instruments,  while  for  the  purposes  of  MREL,  subordination  of  debt 
instruments could be required by resolution authorities on a case-by-case basis to the extent it 
is  needed  to  ensure  that  in  a  given  case  bailed  in  creditors  are  not  treated  worse  than  in  a 
hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In 
order  to  achieve  a  simple  and  transparent  framework  providing  legal  certainty  and 
consistency,  the  Commission  is  proposing  to  integrate  the  TLAC  standard  into  the  existing 
MREL rules and ensure that both requirements are met with largely similar instruments. This 
approach  requires  introducing  limited  adjustments  to  the  existing  MREL  rules  ensuring 
technical consistency with the structure of any future requirements for G-SIIs. 

In  particular,  further  appropriate  technical  amendments  to  the  existing  rules  on  MREL  are 
needed to align them with the TLAC standard as regards inter alia the denominators used for 
measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure 

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Commission  Delegated  Regulation  (EU)  2016/1450  of  23  May  2016  supplementing  Directive 
2014/59/EU  of  the  European  Parliament  and  of  the  Council  with  regard  to  regulatory  technical 
standards specifying the criteria relating to the methodology for setting the minimum requirement for 
own funds and eligible liabilities, OJ L 237, 3.9.2016, p. 1  
FSB,  Principles on Loss-absorbing and Recapitalisation Capacity of Globally Systemically Important 
Banks (G-SIBs) in Resolution, Total Loss-absorbing Capacity (TLAC) Term sheet, 9.11.2015   
Communication from the Commission to the European Parliament, the Council, the European Central 
Bank, the European Economic and Social Committee and the Committee of the Regions, "Towards the 
completion of the Banking Union", 24.11.2015, COM(2015) 587 final. 
https://www.eba.europa.eu/documents/10180/1360107/EBA+Interim+report+on+MREL 

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of risks to investors and their application in relation to different resolution strategies. While 
implementing the TLAC standard for G-SIIs, the Commission's approach will not materially 
affect  the  burden  of  institutions  which  are  not  G-SIIs  to  comply  with  the  provisions  on 
MREL.  

Operationally, the harmonised minimum level of the TLAC standard will be introduced in the 
Union through amendments to the Capital Requirements Regulation and Directive (CRR and 
CRD)7 while the institution-specific add-on for G-SIIs and the institution specific MREL for 
non-G-SIIs  will  be  dealt  with  through  targeted  amendments  to  the  BRRD  and  SRMR.    As 
such, this proposal is part of a wider review package of the Union financial legislation aiming 
at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. 

This  proposal  covers  specifically  the  targeted  amendments  to  the  SRMR  related  to  the 
implementation  of  the  TLAC  standard  in  the  Union.  This  proposal  will  apply  to  the  Single 
Resolution  Board  (SRB)  and  national  authorities  of  the  Member  States  participating  in  the 
Single Resolution Mechanism (SRM) when they set and implement the requirements on loss 
absorbing and recapitalisation capacity of financial firms established in the Banking Union.  

• 

Consistency with existing policy provisions in the policy area 

The existing Union bank resolution framework already requires all European banks to hold a 
sufficient  amount  of  highly  loss  absorbing  (bail-inable)  liabilities.  By  aligning  the  existing 
requirement  for  G-SIIs  with  the  global  TLAC  standard,  the  proposal  will  improve  and 
facilitate the application of the existing rules. The proposal is, therefore, consistent with the 
overall objective of the Union bank resolution framework to reduce taxpayers' support in bank 
resolution. This proposal is fully consistent with the proposal of the Commission to amend the 
BRRD as regards the rules on loss absorbing and recapitalisation of banks applicable in the 
entire Union. 

• 

Consistency with other Union policies 

The proposal is part of a wider review of the Union financial legislation aiming at reducing 
risks in the financial sector while promoting sustainable financing of the economic activity. It 
is fully consistent with the EU's fundamental goals of promoting financial stability, reducing 
taxpayers' support in bank resolution as well as contributing to a sustainable financing of the 
economy. 

2. 

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LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The proposed Regulation amends an existing Regulation, the SRMR. The legal basis for the 
proposal is the same as the legal basis of the SRMR, which is Article 114 of the TFEU. That 
provision allows the adoption of measures for the approximation of national provisions which 
have as their object the establishment and functioning of the internal market. 

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Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on 
prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 
648/2012,  OJ  L  176,  27.6.2013,  p.1;  Directive  2013/36/EU  of  the  European  Parliament  and  of  the 
Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of 
credit  institutions  and  investment  firms,  amending  Directive  2002/87/EC  and  repealing  Directives 
2006/48/EC and 2006/49/EC, OJ L 176, 27.6.2013, p. 338    

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The  proposal  harmonises  national  laws  of  Member  States  participating  in  the  SRM  on 
recovery  and  resolution  of  credit  institutions  and  investment  firms,  in  particular  as  regards 
their  loss-absorbing  and  recapitalisation  capacity  in  resolution,  to  the  extent  necessary  to 
ensure  that  the  SRB  and  national  resolution  authorities  of  participating  Member  States  and 
banks  established  in  the  Banking  Union  have  the  same  tools  and  capacity  to  address  bank 
failures in line with the agreed international standards (TLAC standard).  

By establishing harmonised requirements for banks in the Member States participating in the 
SRM, the proposal reduces considerably the risk of divergent national rules in those Member 
States  on  loss-absorbing  and  recapitalisation  capacity  in  resolution,  which  could  distort 
competition in the internal market. The proposal has, therefore, as its object the establishment 
and functioning of the internal market. 

Article 114 of the TFEU is, therefore, the appropriate legal base. 

• 

Subsidiarity   

Under the principle of subsidiarity set out in Article 5.3 of the TEU, in areas which do not fall 
within its exclusive competence, the Union should act only if and in so far as the objectives of 
the  proposed  action  cannot  be  sufficiently  achieved  by  the  Member  States,  either  at  central 
level  or  at  regional  and  local  level,  but  can  rather,  by  reason  of  the  scale  or  effects  of  the 
proposed action, be better achieved at Union level. 

The Union and its Member States, in particular the Member States participating in the SRM, 
are  committed  to  implement  international  standards.  In  the  absence  of  any  Union  action, 
Member  States  would  have  needed  to  implement  themselves  the  global  TLAC  standard  in 
their own jurisdictions without the possibility of amending the existing framework that stem 
from the BRRD and SRMR. As a result, in view of important differences between the TLAC 
standard  and  existing  framework  as  well  as  possibly  diverging  interpretations  of  the  TLAC 
term sheet by the national regulators, banks, in particular G-SIIs, would have been subject to 
two  parallel  requirements  (with  the  TLAC  requirement  itself  being  applied  differently  from 
one Member State to another), which would imply additional costs for both banks and public 
authorities  (supervision  and  resolution  authorities).  Union  action  is,  therefore,  desirable  to 
implement in a harmonised way the global TLAC standard in the Member States participating 
in  the  SRM  and  to  align  the  existing  framework  with  that  standard  in  order  to  alleviate  as 
much  as  possible  the  compliance  costs  of  banks  and  public  authorities  while  ensuring  an 
effective resolution in case of bank failures. 

• 

Proportionality 

Under  the  principle  of  proportionality,  the  content  and  form  of  Union  action  should  not 
exceed what is necessary to achieve its objectives, consistent with the overall objectives of the 
Treaties. 

While  implementing  TLAC  for  global  G-SIIs,  the  proposal  would  not  materially  affect  the 
burden  of  banks  to  comply  with  the  existing  rules  on  loss  absorbing  and  recapitalisation 
capacity  since  the  proposal  does  not  extend  the  application  of  the  TLAC  minimum  level 
beyond  G-SIIs.  In  addition,  the  proposal  limits  to  a  large  extent  the  costs  of  banks,  in 
particular G-SIIs, for compliance with the TLAC standard by aligning the existing rules to the 
extent possible with that standard. Finally, the proposal does not extend the application of the 
TLAC minimum level beyond G-SIIs. On the contrary, for non-GSIIs, the proposal maintains 

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the existing overall principle that the quality and level of the requirement on loss-absorbing 
and recapitalisation should be tailored by resolution authorities for each specific bank based 
on its risk, size, interconnectedness and the chosen resolution strategy. As regards G-SIIs that 
are subject to the TLAC minimum level, before requiring any institution specific add-on, the 
proposal demands the SRB and national resolution authorities to assess whether any such add-
on  is  necessary,  proportionate  and  justified.  The  provisions  of  the  proposal  are,  therefore, 
proportionate to what is necessary to achieve its objectives. 

3. 

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RESULTS OF IMPACT ASSESSMENTS 

Impact assessment 

Being  part  of  a  wider  review  package  of  the  Union  financial  legislation  aiming  at  reducing 
risks in the financial sector (CRR/CRD review), the proposal has been subject to an extensive 
impact assessment. The draft impact assessment report was submitted on 7 September 2016 to 
the Commission's Regulatory Scrutiny Board8. The Board issued a negative opinion on [date]. 
After strengthening the evidence base for certain elements of the review package, the Board 
issued a positive opinion on 27 September 2016. 

In line with its "Better Regulation" policy, the Commission conducted an impact assessment 
of  several  policy  alternatives.  Policy  options  were  assessed  against  the  key  objectives  of 
enhancing  loss  absorbing  and  recapitalisation  capacity  of  banks  in  resolution  and  legal 
certainty  and  coherence  of  the  resolution  framework.  The  assessment  was  done  by 
considering  the  effectiveness  of  achieving  the  objectives  above  and  the  cost  efficiency  of 
implementing different policy options.  

As regards the implementation of the TLAC standard in the Union, three policy options have 
been  considered  in  the  impact  assessment.  Under  the  first  option,  the  BRRD  and  SRMR 
would continue to apply in its current form. Under the second option, the TLAC standard for 
G-SIIs would be integrated in the existing resolution framework, while that framework would 
be  amended  as  appropriate  to  ensure  full  compatibility  with  the  TLAC  standard.  The  third 
policy option proposed to extend, additionally, the scope of the TLAC minimum level to other 
systemically important institutions in the Union (O-SIIs) than G-SIIs. The impact assessment 
concluded  that  the  second  policy  option  achieves  the  relevant  policy  objectives  the  best.  In 
particular, contrary to the first option, it provides a harmonized implementation of the TLAC 
standard  for  all  Union  G-SIIs  by  reducing  their  costs  of  complying  with  potentially  two 
different  requirements  (the  TLAC  standard  and  the  existing  BRRD  and  SRMR)  while 
providing for a consistent interpretation of the TLAC term sheet in the EU. This option will 
increase the resolvability of G-SIIs in the Union and prevent contagion effects stemming from 
G-SIIs  cross-holdings  through  specific  rules  of  the  TLAC  standard  that  are  not  currently 
provided in the BRRD and the SRMR (i.e. TLAC minimum level in the form of subordinated 
debt instruments, deduction of cross-holdings of TLAC eligible instruments held by G-SIIs). 
This  option  will  ensure  that  the  TLAC  standard  is  implemented  in  the  Union,  which  would 
reinforce the expectation on other jurisdictions to do the same with the view of strengthening 
the resolvability of G-SIBs worldwide. On the other hand, this policy option is preferable to 
the third option because it will not have the disadvantage of extending the minimum TLAC 
level to banks other than G-SIIs (O-SIIs), for which that level of minimum TLAC requirement 
may not appear to be well calibrated in view of their high diversity in terms of size, business 
model, interconnectedness and systemic importance.  

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[Link to Impact Assessment and to its summary] 

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Fundamental rights 

This proposal complies with the fundamental rights and observes the principles recognised in 
particular by the Charter of Fundamental Rights of the European Union, notably the rights to 
property  and  the  freedom  to  conduct  a  business,  and  has  to  be  applied  in  accordance  with 
those  rights  and  principles.  In  particular,  this  Regulation  ensures  that  interference  with 
property rights of bank creditors should not be disproportionate. Affected creditors should not 
incur  greater  losses  than  those  which  they  would  have  incurred  if  the  institution  had  been 
wound  up  under  normal  insolvency  proceedings  at  the  time  that  the  resolution  decision  is 
taken. 

4. 

BUDGETARY IMPLICATIONS 

The proposal does not have implications for the Union budget.   

5. 

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OTHER ELEMENTS 

Detailed explanation of the specific provisions of the proposal 

As  explained  above,  the  amendments  to  the  CRR,  which  is  part  of  the  same  legislative 
package  will  include  the  rules  on  the  TLAC  minimum  requirement  for  G-SIIs  while  this 
proposal  deals  with  the  institution  specific  add-on  for  G-SIIs  and  the  general  requirements 
applicable to banks established in the Banking Union. This proposal introduces a number of 
targeted amendments to the existing SRMR.  

Amendments to Articles 3, 8 and 9 of the SRMR 

The TLAC standard and the BRRD with SRMR recognise both Single Point of Entry (SPE) 
and  Multiple  Point  of  Entry  (MPE)  resolution  strategies.  Under  the  SPE  strategy,  only  one 
group  entity  (usually  the  parent)  is  resolved  whereas  other  group  entities  (usually  operating 
subsidiaries) are not put in resolution, but upstream their losses to the entity to be resolved. 
Under  the  MPE  strategy,  more  than  one  entity  may  be  resolved.  A  clear  identification  of 
entities to  be resolved ('resolution  entities')  and subsidiaries  that  belong  to  them ('resolution 
groups')  is  important  to  apply  effectively  the  desired  resolution  strategy.  Moreover,  this 
identification  is  also  relevant  for  determining  the  level  of  application  of  the  rules  on  loss 
absorbing  and  recapitalisation  capacity  that  financial  firms  should  comply  with.  For  this 
reason, amendments to Article 3 of the SRMR introduce the concepts of 'resolution entity' and 
'resolution  group'.  Amendments  to  Articles  8  and  9  concerning  group  resolution  planning 
explicitly require the Board to identify the resolution entities and resolution groups within a 
financial group and consider appropriately the implications of any planned  resolution action 
within the group to ensure an effective group resolution. 

Amendments to Article 12 of the SRMR 

Article 12 is repealed and replaced with the following new provisions: Articles 12, 12a, 12b, 
12c, 12d, 12e, 12f, 12g, 12h, 12i and 12j. 

Article 12 determines the institutional framework as regards the application of the minimum 
requirement  for  own  funds  and  eligible  liabilities  by  underlining  the  respective  roles  of  the 
SRB, national resolution and competent authorities of the participating Member States. 

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Currently, the institution specific minimum requirement for own funds and eligible liabilities 
('the  MREL')  is  measured  as  a  percentage  of  the  total  liabilities  of  the  institution.  The 
amended  Article  12a  aligns  the  measurement  metrics  of  the  MREL  with  those  of  the 
minimum harmonised requirement for G-SIIs as provided in the TLAC standard ('the TLAC 
minimum requirement'). The institution specific requirement should, therefore, be expressed 
as a percentage of the total risk exposure amount and of the leverage ratio exposure measure 
of the relevant institution. 

Article  12b  keeps  the  existing  exemption  from  the  MREL  for  mortgage  credit  institutions 
under the condition that national insolvency or similar procedures allow for an effective loss 
absorption  by  creditors  that  meets  the  resolution  objectives.  It  also  clarifies  that  institutions 
that are exempted from the MREL should not be part of the overall consolidated requirement 
at the level of the resolution group. 

Article 12c specifies the eligibility criteria for the instruments and items that could count for 
meeting the MREL by aligning them closely with the eligibility criteria provided in the TLAC 
standard for the TLAC minimum requirement. These criteria are, therefore, identical with the 
exception of the following.  

As regards the scope of the instruments covered, certain instruments with derivative features, 
such as structured notes, are eligible for meeting the MREL because they could be sufficiently 
loss  absorbing  in  resolution.  Structured  notes  are  debt  obligations  with  an  embedded 
derivative component. Their return is adjusted to the performance of reference assets such as 
single  equity,  equity  indices,  funds,  interest  rates,  commodities  or  currencies.  Article  12c 
clarifies that structured notes are eligible for the MREL to the extent that they have a fixed 
principal amount repayable at maturity while only an additional return is linked to a derivative 
and depends on the performance of a reference asset. The  rationale for this is that the fixed 
principal  amount  is  known  in  advance  at  the  time  of  the  issuance,  its  value  is  stable 
throughout the lifecycle of the structured note and could be easily bailed-in in resolution. 

Under  the  TLAC  standard,  the  TLAC  minimum  requirement  should  be  met  using  largely 
subordinated  debt  instruments  that  rank  in  insolvency  below  senior  liabilities  explicitly 
excluded from the minimum TLAC requirement, such as covered deposits, derivatives, tax or 
other  public  law  related  liabilities.  To  meet  the  institution  specific  MREL,  subordination  of 
eligible  debt  instruments  could  currently  be required  by resolution  authorities  on  a case-by-
case  basis.  The  new  provisions  of  Article  12c  further  specify  that  subordination  could  be 
required  to  the  extent  that  it  is  needed  to  facilitate  the  application  of  the  bail-in  tool,  in 
particular when there are clear indications that bailed-in creditors are likely to bear losses in 
resolution  that  would  exceed  their  potential  losses  in  insolvency  and  only  to  the  extent 
necessary to cover the portion of the losses above likely insolvency losses. Any subordination 
requested  by  Board  for  the  institution  specific  MREL  should  be  without  prejudice  to  the 
possibility  to  partly  meet  the  TLAC  minimum  requirement  with  non-subordinated  debt 
instruments  in  accordance  with  Regulation  (EU)  No  575/2013  and  in  line  with  the  TLAC 
standard. 

Article 12d specifies the conditions for determining the MREL for all entities by the Board. 
The requirement should allow banks to absorb losses expected in resolution and recapitalise 
the bank post-resolution. The Board shall duly justify the level of the MREL imposed based 
on the chosen resolution strategy. As such, that level should not exceed the sum of the amount 
of  losses  expected  in  resolution  that  correspond  to  the  institutions'  own  funds  requirements 

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and  the  recapitalisation  amount  that  allows  the  entity  post-resolution  to  meet  its  own  funds 
requirements  necessary  for  being  authorised  to  pursue  its  activities  under  the  chosen 
resolution strategy. The MREL should be expressed as a percentage of the total risk exposure 
and  leverage  ratio  measures,  and  institutions  should  meet  the  level  resulting  from  the  two 
measurements.  

As  regards  G-SIIs,  Article  12e  specify  that  an  institution  specific  add-on  to  the  TLAC 
minimum  level  as  provided  in  the  TLAC  standard  could  be  imposed  only  where  that 
minimum  is  not  sufficient  to  absorb  losses  and  recapitalise  a  G-SII  under  the  chosen 
resolution strategy. The Board's decision to impose such an add-on should be duly justified. 

As in the proposal amending the CRD, this proposal introduces in Article 12f the concept of 
'guidance'. This allows the Board to require institutions to meet higher levels of MREL while 
addressing in a more flexible manner any breaches of those levels, in particular by alleviating 
the  automatic  effects  of  such  breaches  in  the  form  of  limitations  to  the  Maximum 
Distributable  Amounts  (MDAs).  In  particular,  Article  12f  allows  the  Board  to  require 
institutions to meet additional amounts to cover losses in resolution that are higher than those 
expected under a standard resolution scenario (i.e. above the level of the existing own funds 
requirements) and ensure a sufficient market confidence in the entity post-resolution (i.e. on 
top  of  the  required  recapitalisation  amount).  Article  12f  specifies,  nevertheless,  that  for  the 
loss absorption part of the MREL, the level of the guidance should not exceed the level of the 
'capital  guidance'  when  such  guidance  is  requested  by  supervisory  authorities  under 
supervisory  stress  testing  to  cater  for  losses  above  normal  requirements.  For  the 
recapitalisation  part,  the  level  of  the  guidance  to  ensure  market  confidence  should  allow 
institutions  post-resolution  to  meet  their  authorisation  requirement  for  an  appropriate  period 
of  time.  This  market  confidence  buffer  should  not  exceed  the  combined  capital  buffer 
requirement under Directive 2013/36/EU unless a higher level is necessary to ensure that that, 
following  the  event  of  resolution,  the  entity  continues  to  meet  the  conditions  for  its 
authorisation for an appropriate period 

Articles 12g and 12h deal with the level of application of the MREL. As regards institutions 
that  qualify  as  resolution  entities,  the  MREL  applies  to  them  at  the  consolidated  resolution 
group  level  only.  This  means  that  resolution  entities  will  be  obliged  to  issue  eligible  (debt) 
instruments  to  external  third  party  creditors  that  would  be  bailed-in  should  the  resolution 
entity  (i.e.  resolution  group)  enter  resolution.  As  regards  other  entities  of  the  group,  the 
proposal introduces the concept of an 'internal' MREL in line with a similar concept brought 
forward  by  the  TLAC  standard.  This  means  that  other  resolution  group  entities  which 
themselves are not resolution entities should issue eligible (debt) instruments internally within 
the  resolution  group,  i.e.  such  instruments  should  be  bought  by  resolution  entities.  Where  a 
resolution group entity which itself is not a resolution entity reaches the point of non-viability, 
such instruments are written down or converted into equity and losses of that entity are then 
up-streamed  to  the  resolution  entity.  The  main  advantage  of  the  internal  MREL  is  that  it 
allows recapitalising a resolution group entity (with critical functions) without placing it into 
formal  resolution,  which  could  potentially  have  disruptive  effects  on  the  market.  The 
application  of  this  requirement  should  nevertheless  comply  with  the  chosen  resolution 
strategy, in particular, it should not change the ownership relationship between the entity and 
its  resolution  group  after  its  recapitalisation.  The  proposal  also  specifies  that,  under  certain 
safeguards, the internal MREL could be replaced with collateralised guarantees between the 
resolution  entity  and  other  resolution  group  entities  that  could  be  triggered  under  the 
equivalent  timing  conditions  that  the  instruments  eligible  for  the  internal  MREL.  The 

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proposed safeguards include, in particular, the agreement of the relevant resolution authorities 
to replace the internal MREL and collateralisation of the guarantee given by resolution entity 
to its subsidiary with highly liquid collateral with minimal credit and market risk. 

Article 12i specifies that, under certain safeguards, the internal MREL of a subsidiary could 
be waived by the Board if both the subsidiary and its parent resolution entity are established 
in the same participating Member State.   

Amendments in Article 12g deal with the breaches of the MREL. Article 12g lists the powers 
available to resolution authorities in the event of breaches of the MREL. Since a breach of the 
requirement could constitute an impediment to institution or group resolvability, amendments 
to Article 10 shorten the existing procedure to remove impediments to resolvability to address 
expediently  any  breaches  of  the  requirement.  They  also  introduce  new  powers  for  Board  to 
require  modifications  in  the  maturity  profiles  of  eligible  instruments  and  plans  from 
institutions to restore the level of the MREL. 

Amendments to Articles 16, 18, 20 and 21 

Amendments  to  Article  16,  18,  20  and  21  ensure  that  instruments  eligible  for  the  internal 
MREL  other  than  capital  instruments  (e.g.  debt  instruments)  could  also  be  written  down  or 
converted  into  equity  by  the  Board  where  the  resolution  group  entity  which  itself  is  not  a 
resolution entity that issues them reaches the point of non-viability. 

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2016/0361 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Regulation (EU) No 806/2014 as regards loss-absorbing and Recapitalisation 
Capacity for credit institutions and investment firms 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Central Bank9, 
Having regard to the opinion of the European Economic and Social Committee10, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

9 

10 
11 

12 

The  Financial  Stability  Board  (FSB)  published  the  Total  Loss-Absorbing  Capacity 
(TLAC) Term Sheet ('the TLAC standard') on 9 November 2015, which was endorsed 
by  the  G-20  in  November  2015.  The  TLAC  standard  requires  global  systemically 
important  banks  ('G-SIBs'),  referred  to  as  global  systemically  important  institutions 
('G-SIIs') in the Union framework, to hold a sufficient minimum amount of highly loss 
absorbing  (bailin-able)  liabilities  to  ensure  smooth  and  fast  absorption  of  losses  and 
recapitalisation  in  resolution.    In  its  Communication  of  24  November  201511,  the 
Commission committed to bring forward a legislative proposal by the end of 2016 that 
would  enable  the  TLAC  standard  to  be  implemented  by  the  internationally  agreed 
deadline of 2019. 

The implementation of the TLAC standard in the Union needs to take account of the 
existing  institution-specific  minimum  requirement  for  own  funds  and  eligible 
liabilities ('MREL') applicable to all Union credit institutions and investment firms as 
laid  down  in  Directive  2014/59/EU  of  the  European  Union  and  of  the  Council12.  As 
TLAC and MREL pursue the same objective of ensuring that Union institutions have 
sufficient loss absorbing and recapitalisation capacity, the two requirements should be 
complementary  elements  of  a  common  framework.  Operationally,  the  harmonised 

OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
Communication from the Commission to the European Parliament, the Council, the European Central 
Bank, the European Economic and Social Committee and the Committee of the Regions, "Towards the 
completion of the Banking Union", 24.11.2015, COM(2015) 587 final 
Directive  2014/59/EU  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  establishing  a 
framework  for  the  recovery  and  resolution  of  credit  institutions  and  investment  firms,  OJ  L  173, 
12.6.2014, p. 190  

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(3) 

(4) 

minimum  level  of  the  TLAC  standard  for  G-SIIs  ('TLAC  minimum  requirement') 
should be introduced in Union legislation through amendments to Regulation (EU) No 
575/201313, while the institution-specific add-on for G-SIIs and the institution-specific 
requirement  for  non-G-SIIs,  referred  to  as  minimum  requirement  for  own  funds  and 
eligible  liabilities,  should  be  addressed  through  targeted  amendments  to  Directive 
2014/59/EU  and  Regulation  (EU)  No  806/201414.  The  relevant  provisions  of  this 
Regulation  as  regards  loss  absorbing  and  recapitalisation  capacity  of  institutions 
should be applied together with those in the aforementioned pieces of legislation and 
in Directive 2013/36/EU15 in a consistent way. 

The  absence  of  harmonised  rules  in  the  Member  States  participating  in  the  Single 
Resolution Mechanism (SRM) in respect of the implementation of the TLAC standard 
would  create  additional  costs  and  legal  uncertainty  for  institutions  and  make  the 
application of the bail-in tool for cross-border institutions more difficult. The absence 
of  harmonised  Union  rules  also  results  in  competitive  distortions  on  the  internal 
market  given  that  the  costs  for  institutions  to  comply  with  the  existing  requirements 
and  the  TLAC  standard  may  differ  considerably  across  the  participating  Member 
States.  It  is  therefore  necessary  to  remove  those  obstacles  to  the  functioning  of  the 
internal market and to avoid distortions of competition resulting from the absence of 
harmonised  rules  in  respect  of  the  implementation  of  the  TLAC  standard. 
Consequently,  the  appropriate  legal  basis  for  this  Regulation  is  Article  114  of  the 
Treaty  on  the  Functioning  of  the  European  Union  (TFEU),  as  interpreted  in 
accordance with the  case law of the Court of Justice of the European Union. 

In  line  with  the  TLAC  standard,  Regulation  (EU)  No  806/2014  should  continue  to 
recognise  the  Single  Point  of  Entry  (SPE),  as  well  as  the  Multiple  Point  of  Entry 
(MPE) resolution strategy. Under the SPE strategy, only one group entity, usually the 
parent  undertaking,  is  resolved  whereas  other  group  entities,  usually  operating 
subsidiaries,  are  not  put  in  resolution,  but  upstream  their  losses  and  recapitalisation 
needs to the entity to be resolved. Under the MPE strategy, more than one group entity 
may be resolved. A clear identification of entities to be resolved ('resolution entities') 
and  subsidiaries  that  belong  to  them  ('resolution  groups')  is  important  to  apply  the 
desired  resolution  strategy  effectively.  That  identification  is  also  relevant  for 
determining the level of application of the rules on loss absorbing and recapitalisation 
capacity  that  financial  firms  should  apply.  It  is  therefore  necessary  to  introduce  the 
concepts of 'resolution entity' and 'resolution group' and to amend Regulation (EU) No 
806/2014  concerning  group  resolution  planning  in  order  to  explicitly  require  the 
Single Resolution Board ('the Board') to identify the resolution entities and resolution 
groups  within  a  group  and  to  consider  the  implications  of  any  planned  resolution 
action within the group appropriately to ensure an effective group resolution. 

13 

14 

15 

Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on
prudential  requirements for credit institutions and investment firms and amending Regulation 

(EU) No 648/2012, OJ L 176, 27.6.2013, p.1 
Regulation  (EU)  No  806/2014  of  the  European  Parliament  and  of  the  Council  of  15  July  2014 
establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain 
investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and 
amending Regulation (EU) No 1093/2010, OJ L 225, 30.7.2014, p. 1   
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the 
activity of credit institutions and the prudential supervision of credit institutions and investment firms, 
amending  Directive  2002/87/EC  and  repealing  Directives  2006/48/EC  and  2006/49/EC,  OJ  L  176, 
27.6.2013, p. 338 

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(5) 

(6) 

(7) 

(8) 

(9) 

The  Board  should  ensure  that  institutions  have  sufficient  loss  absorbing  and 
recapitalisation  capacity  to  ensure  smooth  and  fast  absorption  of  losses  and 
recapitalisation  in  resolution  with  a  minimum  impact  on  financial  stability  and 
taxpayers.  That  should  be  achieved  through  compliance  by  institutions  with  an 
institution-specific  minimum  requirement  for  own  funds  and  eligible  liabilities    as 
provided in Regulation (EU) No 806/2014. 

In  order  to  align  denominators  that  measure  the  loss  absorbing  and  recapitalisation 
capacity of institutions with those provided in the TLAC standard, the MREL should 
be  expressed  as  a  percentage  of  the  total  risk  exposure  amount  and  of  the  leverage 
ratio exposure measure of the relevant institution. 

Eligibility  criteria  for  liabilities  for  the  MREL  should  be  closely  aligned  with  those 
laid  down in Regulation (EU) No  575/2013  for the TLAC  minimum requirement, in 
line  with  the  complementary  adjustments  and  requirements  introduced  in  this 
Regulation.  In  particular,  certain  debt  instruments  with  an  embedded  derivative 
component, such as certain structured notes, should be eligible to meet the MREL to 
the extent that they have a fixed principal amount repayable at maturity while only an 
additional  return  is  linked  to  a  derivative  and  depends  on  the  performance  of  a 
reference  asset.  In  view  of  their  fixed  principal  amount,  those  instruments  should  be 
highly loss-absorbing and easily bail-inable in resolution. 

The scope of liabilities to meet the MREL includes, in principle, all liabilities resulting 
from  claims  arising  from  unsecured  non-preferred  creditors  (non-subordinated 
liabilities)  unless  they  do  not  meet  specific  eligibility  criteria  provided  in  this 
Regulation. To enhance the resolvability of institutions through an effective use of the 
bail-in tool, the Board should be able to require that the firm-specific requirement is 
met  with  subordinated  liabilities,  in  particular  when  there  are  clear  indications  that 
bailed-in  creditors  are  likely  to  bear  losses  in  resolution  that  would  exceed  their 
potential  losses  in  insolvency.  The  requirement  to  meet  MREL  with  subordinated 
liabilities  should  be  requested  only  for  a  level  necessary  to  prevent  that  losses  of 
creditors  in  resolution  are  above  losses  that  they  would  otherwise  incur  under 
insolvency.  Any  subordination  of  debt  instruments  requested  by  the  Board  for  the 
MREL  should  be  without  prejudice  to  the  possibility  to  partly  meet  the  TLAC 
minimum  requirement  with  non-subordinated  debt  instruments  in  accordance  with 
Regulation (EU) No 575/2013 as permitted by the TLAC standard. 

The  MREL  should  allow  institutions  to  absorb  losses  expected  in  resolution  and 
recapitalise  the  institution  post-resolution.  The  Board  should,  on  the  basis  of  the 
resolution  strategy  chosen  by  them,  duly  justify  the  imposed  level  of  the  MREL,  in 
particular  as  regards  the  need  and  the  level  of  the  requirement  referred  to  in  Article 
104a  of  Directive  2013/36/EU  in  the  recapitalisation  amount.  As  such,  that  level 
should  be  composed  of  the  sum  of  the  amount  of  losses  expected  in  resolution  that 
correspond to the institution's own funds requirements and the recapitalisation amount 
that  allows  the  institution  post-resolution  to  meet  its  own  funds  requirements 
necessary  for  being  authorised  to  pursue  its  activities  under  the  chosen  resolution 
strategy. The MREL should be expressed as a percentage of the total risk exposure and 
leverage ratio measures, and institutions should meet the levels resulting from the two 
measurements simultaneously. The Board should be able to adjust the recapitalisation 
amounts  in  cases  duly  justified  to  adequately  reflect  also  increased  risks  that  affect 
resolvability  arising  from  the  resolution  group’s  business model,  funding  profile and 
overall  risk  profile  and  therefore  in  such  limited  circumstances  require  that  the 

EN 

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recapitalisation amounts referred to in the first subparagraph of Article 12d(3) and (4) 
are exceeded. 

(10)  To  enhance  their  resolvability,  the  Board  should  be  able  to  impose  an  institution-
specific MREL on G-SIIs in addition to the TLAC minimum requirement provided in 
Regulation (EU) No 575/2013. That institution-specific MREL may only be imposed 
where  the  TLAC  minimum  requirement  is  not  sufficient  to  absorb  losses  and 
recapitalise a G-SII under the chosen resolution strategy.  

(11)  When  setting  the  level  of  MREL,  the  Board  should  consider  the  degree  of  systemic 
relevance  of  an  institution  and  the  potential  adverse  impact  of  its  failure  on  the 
financial  stability.  The  Board  should  take  into  account  the  need  for  a  level  playing 
field between G-SIIs and other comparable institutions with systemic relevance within 
the participating Member States. Thus MREL of institutions that are not identified as 
G-SIIs  but  the  systemic  relevance  within  participating  Member  States  of  which  is 
comparable to the systemic relevance of G-SIIs should not diverge disproportionately 
from the level and composition of MREL generally set for G-SIIs.. 

(12)  Similarly to powers conferred to competent authorities by Directive 2013/36/EU, the 
Board should be allowed to impose higher levels of MREL while addressing in a more 
flexible manner any breaches of those levels, in particular by alleviating the automatic 
effects  of  those  breaches  in  the  form  of  limitations  to  the  Maximum  Distributable 
Amounts ('MDAs'). The Board should be able to give guidance to institutions to meet 
additional  amounts  to  cover  losses  in  resolution  that  are  above  the  level  of  the  own 
funds  requirements  laid  down  in  Regulation  (EU)  No  575/2013  and  Directive 
2013/36/EU,  and/or  to  ensure  sufficient  market  confidence  in  the  institution  post-
resolution. To ensure consistency Directive 2013/36/EU, guidance to cover additional 
losses  may  only  be  given  where  the  'capital  guidance'  has  been  requested  by  the 
competent  supervisory  authorities  in  accordance  with  Directive  2013/36/EU  and 
should not exceed the level requested in that guidance. For the recapitalisation amount, 
the  level  requested  in  the  guidance  to  ensure  market  confidence  should  enable  the 
institution  to  continue  to  meet  the  conditions  for  authorisation  for  an  appropriate 
period  of  time  including  by  allowing  the  institution  to  cover  the  costs  related  to  the 
restructuring  of  its  activities  following  resolution.  The  market  confidence  buffer 
should  not  exceed  the  combined  capital  buffer  requirement  under  Directive 
2013/36/EU  unless  a  higher  level  is  necessary  to  ensure  that,  following  the  event  of 
resolution,  the  entity  continues  to  meet  the  conditions  for  its  authorisation  for  an 
appropriate period. Where an entity consistently fails to have additional own funds and 
eligible liabilities as expected under the guidance, the Board should be able to require 
that the amount of the MREL be increased to cover the amount of the guidance. For 
the purposes of considering whether there is a consistent failure, the Board should take 
into account the entity's reporting on the MREL as required by Directive 2014/59/EU. 

(13) 

(14) 

In  line  with  Regulation  No  575/2013,  institutions  that  qualify  as  resolution  entities 
should only be subject to the MREL at the consolidated resolution group level. That 
means that resolution entities should be obliged to issue eligible instruments and items 
to meet the MREL to external third party creditors that would be bailed-in should the 
resolution entity enter resolution.  

Institutions  that  are  not  resolution  entities  should  comply  with  the  firm-specific 
requirement  at  individual  level.  Loss  absorption  and  recapitalisation  needs  of  those 
institutions should be generally provided by their respective resolution entities through 
the acquisition by resolution entities of eligible liabilities issued by those institutions 

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and  their  write-down  or  conversion  into  instruments  of  ownership  when  those 
institutions are no longer viable. As such, the MREL applicable to institutions that are 
not  resolution  entities  should  be  applied  together  and  consistently  with  the 
requirements applicable to resolution entities. That should allow the Board to resolve a 
resolution  group  without  placing  certain  of  its  subsidiary  entities  in  resolution,  thus 
avoiding potentially disruptive effects on the market. Subject to the agreement of the 
Board, it should be possible to replace the issuance of eligible liabilities to resolution 
entities  with  collateralised  guarantees  between 
its 
subsidiaries,  that  can  be  triggered  when  the  timing  conditions  equivalent    to  those 
allowing  the  write  down  or  conversion  of  eligible  liabilities  are  met.  The  collateral 
backing  the  guarantee  should  be  highly  liquid  and  have  minimal  market  and  credit 
risk.  The  Board  should  also  be  able  to  fully  waive  the  application  of  the  MREL 
applicable to institutions that are not resolution entities if both the resolution entity and 
its subsidiaries are established in the same participating Member State.  

the  resolution  entity  and 

(15)  The  application  of  the  MREL  to  institutions  that  are  not  resolution  entities  should 
comply  with  the  chosen  resolution  strategy.  In  particular,  it  should  not  change  the 
ownership  relationship  between  the  institutions  and  its  resolution  group  after  those 
institutions have been recapitalised. 

(16)  Any  breaches  of  the  TLAC  minimum  requirement  and  of  the  MREL  should  be 
appropriately addressed and remedied by competent authorities, resolution authorities 
and  the  Board.  Given  that  a  breach  of  those  requirements  could  constitute  an 
impediment  to  institution  or  group  resolvability,  the  existing  procedures  to  remove 
impediments  to  resolvability  should  be  shortened  to  address  any  breaches  of  those 
requirements  expediently.  The  Board  should  also  be  able  to  require  institutions  to 
modify  the  maturity  profiles  of  eligible  instruments  and  items  and  to  prepare  and 
implement plans to restore the level of those requirements. 

(17)  This  Regulation  complies  with  the  fundamental  rights  and  observes  the  principles 
recognised in particular by the Charter, notably the rights to property and the freedom 
to  conduct  a  business,  and  has  to  be  applied  in  accordance  with  those  rights  and 
principles. 

(18)  Since  the  objectives  of  this  Regulation,  namely  to  lay  down  uniform  rules  for  the 
purposes of Union recovery and resolution framework, cannot be sufficiently achieved 
by the Member States and can therefore, by reason of the scale of the action, be better 
achieved at Union level, the Union may adopt this Regulation, in accordance with the 
principle  of  subsidiarity  as  set  out  in  Article  5  of  the  Treaty  on  European  Union.  In 
accordance  with  the  principle  of  proportionality,  as  set  out  in  that  Article,  this 
Regulation does not go beyond what is necessary in order to achieve those objectives. 

(19)  To allow for an appropriate time for the application of this Regulation, this Regulation 

should be applied [18 months from its entry into force].  

HAVE ADOPTED THIS REGULATION: 

1. 

Amendments to Regulation (EU) No 806/2014Article 3(1) is amended as follows: 

(a) 

the following points are inserted: 

Article 1 

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"(24a)'resolution entity' means an entity established in the Union identified by 
the  Board  in  accordance  with  Article  8  as  an  entity  in  respect  of  which  the 
resolution plan provides for resolution action; 

(24b) 
'resolution group' means a group of entities identified by the Board in 
accordance  with  Article  8,  which  consists  of  resolution  entity  and  its 
subsidiaries that are not themselves resolution entities and are not subsidiaries 
of another resolution entity; 

(b) 

in point (49), 'eligible liabilities' are replaced with 'bail-inable liabilities'. 

 the following point (49a) is inserted: 

'eligible liabilities' means bail-inable liabilities that fulfil the conditions 

'(49a) 
of Article 12c or point (a) of Article 12h(3).". 

2. 

In Article 7, point (d) of paragraph (3) is replaced by the following: 

setting  the  level  of  minimum  requirement  for  own  funds  and  eligible 

'(d) 
liabilities, in accordance with Articles 12 to 12k'. 

3. 

Article 8 is amended as follows: 

(a)  paragraph 5 is replaced by the following: 

'5. 
The  resolution  plan  shall  set  out  options  for  applying  the  resolution 
tools  and  exercising  resolution  powers  referred  to  in  this  Regulation  to  the 
entities referred to in paragraph 1.'. 

(b)  The first and second subparagraphs of paragraph (6) are replaced by the 

following: 

'The  resolution  plan  shall  provide  for  the  resolution  actions  which  the  Board 
may  take  where  an  entity  referred  to  in  paragraph 1  meets  the  conditions  for 
resolution. 

The information referred to in point (a) of paragraph 9 shall be disclosed to the 
entity concerned.'. 

(c)  point (p) of paragraph(9) is replaced by the following: 

the minimum requirement for own funds and subordinated instruments 

'(p) 
pursuant to Article 12c, and a deadline to reach that level, where applicable;'; 

(d)  paragraph (10) is replaced by the following: 

Group  resolution  plans  shall  include  a  plan  for  the  resolution  of  the 
'10 
group   referred  to  in  paragraph  1,  headed  by  the  Union  parent  undertaking 
established in a participating Member State and shall identify measures for the 
resolution of: 

(a) 

(b) 

(c) 

(d) 

the Union parent undertaking; 

the subsidiaries that are part of the group and that are established in the 
Union; 

the entities referred to in Article 2(b); and 

subject to Article 33, the subsidiaries that are part of  the group and that 
are established outside the Union. 

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In  accordance  with  the  measures  referred  to  in  the  first  subparagraph,  the 
resolution plan shall identify the following for each group: 

(a) 

(b) 

the resolution entities; 

the resolution groups.'; 

(e)  points (a) and (b) of paragraph (11) are replaced by the following: 

''(a) 
set  out  the  resolution  actions  foreseen  to  be  taken  in  relation  to  a 
 resolution  entity  in  the  scenarios  provided  for  in  paragraph  6  and  the 
implications   of  such  actions  in  respect  of  other  group  entities,  the  parent 
undertaking and  

subsidiary institutions referred to in paragraph 1; 

(a1)   where  a  group  referred  to  in  paragraph  1  comprises  more  than  one 
group,  set  out  resolution  actions  foreseen  in  relation  to  the 
resolution  
resolution entities of each  
resolution  group  and  the  implications  of  such 
actions on both of the following: 

(i) other group entities that belong to the same resolution   group; 

(ii) other resolution groups; 

(b) 
examine the extent to  which the resolution  tools and powers  could be 
and  exercised  in  a 
applied to resolution entities established in the Union 
coordinated manner,   including  measures  to  facilitate  the  purchase  by  a  third 
party of the group as a  
whole, or separate business lines or activities that 
are delivered by a number of  group  entities,  or  particular  group  entities  or 
resolution groups, and identify any   potential  impediments  to  a  coordinated 
resolution;". 

4. 

Article 10 is amended as follows: 

(a)  paragraph (4) is replaced by the following: 

'4. 
A group shall be deemed to be resolvable if it is feasible and credible 
for  the  Board  to  either  liquidate  group  entities  under  normal  insolvency 
proceedings  or  to  resolve  them  by  applying  resolution  tools  and  exercising 
resolution  powers  in  relation  to  resolution  entities  while  avoiding,  to  the 
maximum  extent  possible,  any  significant  adverse  consequences  for  financial 
systems,  including  circumstances  of  broader  financial  instability  or  system 
wide  events,  of  the Member States in  which  group  entities are established,  or 
other Member States or the Union and with a view to ensuring the continuity of 
critical functions carried out by those group entities, where they can be easily 
separated in a timely manner or by other means. 

The Board shall notify EBA in a timely manner where a group is deemed not to 
be resolvable. 

Where a group is composed of more than one resolution group, the Board shall 
assess  the  resolvability  of  each  resolution  group  in  accordance  with  this 
Article. 

The  assessment  referred  to  in  the  first  subparagraph  shall  be  performed  in 
addition to the assessment of the resolvability of the entire group'. 

(b)  The following subparagraph is added to paragraph (7): 

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'Where  the  impediment  to  resolvability  of  the  entity  or  group  is  due  to  a 
situation  referred  to  in  Article  141a(2)  of  Directive  2013/36/EU,  the  Board 
shall notify its assessment of that impediment to the Union parent undertaking.' 

(c)  The following subparagraph is added to paragraph (9): 

'Where  an  impediment  to  resolvability  is  due  to  a  a  situation  referred  to  in 
Article  141a(2)  of  Directive  2013/36/EU,  the  Union  parent  undertaking  shall 
propose to the Board possible measures to address or remove the impediment 
identified  in  accordance  with  the  first  subparagraph  within  two  weeks  of  the 
date of receipt of a notification made in accordance with paragraph 7. ' 

(d) 

In points (i) and (j) of paragraph (11), 'Article 12' is replaced by 'Articles 
12g and Article 12h'. 

(e) 

in paragraph (11) the following points are added: 

'(k) 
require  an  entity  to  submit  a  plan  to  restore  compliance  with  Articles 
12g  and  12h,  and  the  requirement  referred  to  in  Article  128(6)  of  Directive 
2013/36/EU; 

(l) 
require an entity to change the maturity profile of items referred to in 
Article  12c  and  points  (a)  and  (b)  of  Article  12h(3)  to  ensure  continuous 
compliance with Article 12g and Article 12h.' 

5. 

Article 12 of Regulation (EU) No 806/2014 is replaced by the following Articles: 

1. 

2. 

3. 

4. 

5. 

"Article 12 
Determination of the minimum requirement for own funds and eligible liabilities  

The  Board  shall,  after  consulting  competent  authorities,  including  the  ECB, 
determine the minimum requirement for own funds and eligible liabilities as referred 
to  in  Articles  12a  to  12i,  subject  to  write-down  and  conversion  powers,  which  the 
entities and groups referred to in Article 7(2), and the entities and groups referred to 
in Article 7(4)(b) and (5) when the conditions for the application of these paragraphs 
are met, are required to meet at all times. 

When  drafting  resolution  plans  in  accordance  with  Article 9,  national  resolution 
authorities  shall,  after  consulting  competent  authorities,  determine  the  minimum 
requirement  for  own  funds  and  eligible  liabilities,  as  referred  to  in  Articles  12a  to 
12i,  subject to  write-down  and  conversion  powers,  which  the  entities  referred  to  in 
Article 7(3) are required to meet at all times. In that regard the procedure established 
in Article 31 shall apply.  

The  Board  shall  take  any  determination  referred  to  in  paragraph  1,  in  parallel  with 
the development and maintenance of the resolution plans pursuant to Article 8. 

The Board shall address its determination to the national resolution authorities. The 
national  resolution  authorities  shall  implement  the  instructions  of  the  Board  in 
accordance  with  Article  29.  The  Board  shall  require  that  the  national  resolution 
authorities  verify  and  ensure  that  institutions  and  parent  undertakings  maintain  the 
minimum requirement for own funds and eligible liabilities laid down in paragraph 1 
of this Article. 

The  Board  shall  inform  the  ECB  and  EBA  of  the  minimum  requirement  for  own 
funds  and  eligible  liabilities  that  it  has  determined  for  each  institution  and  parent 
undertaking under paragraph 1. 

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6. 

In order to ensure effective and consistent application of this Article, the Board shall 
issue guidelines and address instructions to national resolution authorities relating to 
specific entities or groups. 

Article 12a  

Application and calculation of the minimum requirement for own funds and eligible liabilities 

1. 

2. 

1. 

The Board and national resolution authorities shall ensure that entities referred to in 
Article 12(1) and 12(2) meet, at all times, a minimum requirement for own funds and 
eligible liabilities in accordance with Article 12a to 12i. 

This  requirement  referred  to  in  paragraph  1  shall  be  calculated  in  accordance  with, 
Article 12d(3) or (4) as applicable, as the amount of own funds and eligible liabilities 
and expressed as a percentage of: 

(a) 

(b) 

the  total  risk  exposure  amount  of  the  relevant  entity  referred  to  in 
paragraph  1  calculated  in  accordance  with  Article  92(3)  of  Regulation 
(EU) No 575/2013; and  

the  leverage  ratio exposure  measure  of  the relevant  entity  referred  to  in 
paragraph 1 calculated  in accordance with Article 429(3) of Regulation 
(EU) No 575/2013. 

Article 12b 

Exemption from the minimum requirement for own funds and eligible liabilities 

Notwithstanding Article 12a, the Board shall exempt  from the requirement referred 
to  in  article  12a(1)  mortgage  credit  institutions  financed  by  covered  bonds  which, 
according  to  national  law  are  not  allowed  to  receive  deposits  where  all  of  the 
following conditions are met: 

(a) 

(b) 

institutions  will  be  wound-up 

those 
insolvency 
procedures, or other types of procedure implemented in accordance with 
Article  38,  40  or  42  of  Directive  2014/59/EU  laid  down,  provided  for 
those institutions; and 

through  national 

such  national  insolvency  procedures,  or  other  types  of  procedure,  will 
ensure  that  creditors  of  those  institutions,  including  holders  of  covered 
bonds where relevant, will bear losses in a way that meets the resolution 
objectives. 

2. 

Institutions  exempted  from  the  requirement  laid  down  in  Article  12(1)  shall  not  be 
part of the consolidation referred to in Article 12g(1). 

Article 12c 

Eligible liabilities for resolution entities   

1. 

2. 

Eligible  liabilities  shall  be  included  in  the  amount  of  own  funds  and  eligible 
liabilities of resolution entities only where they satisfy the conditions referred to in 
72a(2), except for point (d) of Article 72b(2) of Regulation (EU) No 575/2013. 

By  way  of  derogation  from  point  (l)  of  Article  72a(2)  of  Regulation  (EU)  No 
575/2013, liabilities that arise from debt instruments with derivative features, such as 
structured notes, shall be included in the amount of own funds and eligible liabilities 
only where all of the following conditions are met: 

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(a) 

a given amount of the liability arising from the debt instrument is known 
in  advance  at  the  time  of  issuance,  is  fixed  and  not  affected  by  a 
derivative feature; 

(b) 

the debt instrument, including its derivative feature, is not subject to any 
netting agreement and its valuation is not subject to Article 49(3); 

(c)  The liability referred to in the first subparagraph shall only be included in 
the  amount  of  own  funds  and  eligible  liabilities  for  the  part  that 
corresponds  with  the  amount  referred  to  in  point  (a)  of  the  first 
subparagraph.  

3. 

The Board, on its own initiative after consulting the national resolution authority or 
upon  proposal  by  a  national  resolution  authority,  may  decide  that  the  requirement 
referred to in Article 12g is met by resolution entities with instruments that meet all 
conditions referred to in Article 72a of Regulation (EU) No 575/2013 with a view to 
ensure  that  the  resolution  entity  can  be  resolved  in  a  manner  suitable  to  meet  the 
resolution objectives. 

The  Board's  decision  under  this  paragraph  shall  contain  the  reasons  for  that 
decision on the basis of the following elements: 

(a)  non-subordinated liabilities referred to in the paragraph (1) and (2) have 
the same priority ranking in the national insolvency hierarchy as certain 
liabilities excluded from the application of the write-down or conversion 
powers  in  accordance  with  Article  44(2)  or  Article  44(3)  of  Directive 
2014/59/EU ; 

(b) 

(c) 

as a result of a planned application of write-down and conversion powers 
to non-subordinated liabilities that are not excluded from the application 
of the write-down or conversion powers in accordance with Article 44(2) 
or  Article  44(3)  of  Directive  2014/59/EU,  creditors  of  claims  arising 
from  those  liabilities  incur  greater  losses  than  they  would  incur  in  a 
winding up under normal insolvency proceedings; 

the  amount  of  subordinated  liabilities  shall  not  exceed  the  amount 
necessary to ensure that creditors referred to in point (b) shall not incur 
losses above the level of losses that they would otherwise have incurred 
in a winding up under normal insolvency proceedings. 

Article 12d 

Determination of the minimum requirement for own funds and eligible liabilities 

1. 

The requirement referred to in Article 12a(1)of each entity shall be determined by the 
Board  resolution  authority,  after  having  consulted  the  competent  authorities, 
including the ECB, on the basis of the following criteria: 

(a) 

(b) 

the  need  to  ensure  that  the  resolution  entity  can  be  resolved  by  the 
application of the resolution tools including, where appropriate, the bail-
in tool, in a way that meets the resolution objectives; 

the  need  to  ensure,  in  appropriate  cases,  that  the  resolution  entity  and 
their  subsidiaries  that  institutions,  but    not  resolution  entities  have 
sufficient  eligible  liabilities  to  ensure  that,  if  the  bail-in  tool  or  write 
down  and  conversion  powers  were  to  be  applied  to  them,  respectively, 

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losses  could  be  absorbed  and  the  capital  requirements  or,  as  applicable, 
the leverage ratio in the form of Common Equity Tier 1 of the relevant 
entities can be restored to a level necessary to enable them to continue to 
comply with the conditions for authorisation and to carry on the activities 
for  which  they  are  authorised  under  Directive 2013/36/EU  or  Directive 
2014/65/EU; 

the  need  to  ensure  that,  if  the  resolution  plan  anticipates  that  certain 
classes  of  eligible  liabilities  might  be  excluded  from  bail-in  pursuant  to 
Article 27(5) or might be transferred to a recipient in full under a partial 
transfer,  the  resolution  entity  has  sufficient  other  eligible  liabilities  to 
ensure that losses could be absorbed and the capital requirements or, as 
applicable, the leverage ratio in the form of Common Equity Tier 1 of the 
resolution  entity  can  be  restored  to  a  level  necessary  to  enable  it  to 
continue to comply with the conditions for authorisation and to carry on 
the  activities  for  which  it  is  authorised  under  Directive  2013/36/EU  or 
Directive 2014/65/EU; 

the size, the business model, the funding model and the risk profile of the 
entity; 

the extent to which the Deposit Guarantee Scheme could contribute to the 
financing of resolution in accordance with Article 79;  

the  extent  to  which  the  failure  of  the  relevant  entity  would  have  an 
the 
adverse  effect  on 
interconnectedness of the entity with other institutions or entities or with 
the rest of the financial system through contagion to other institutions or 
entities. 

including,  due 

financial 

stability, 

to 

(c) 

(d) 

(e) 

(f) 

2. 

Where the resolution plan provides that resolution action is to be taken or write-down 
and  conversion  powers  are  to  be  applied,  the  requirement  referred  to  in  Article 
12a(1) shall equal an amount sufficient to ensure that:  

(a) 

(b) 

the  losses  that  might  be  expected  to  be  incurred  by  the  entity  are  fully 
absorbed ('loss absorption'); 

the  entity  or  its  subsidiaries  that  are  institutions,  but  not  resolution 
entities are recapitalised  to a level necessary to enable them  to continue 
to  comply  with  the  conditions  for  authorisation  and  carry  out  the 
activities  for  which  they  are  authorised  under  Directive  2013/36/EU, 
Directive 2014/65/EU or equivalent legislation ('recapitalisation');  

Where  the  resolution  plan  provides  that  the  entity  shall  be  wound  up 
under  normal  insolvency  proceedings,  the  requirement  referred  to  in 
Article  12a(1)for  that  entity  shall  not  exceed  an  amount  sufficient  to 
absorb losses in accordance with point (a) of the first subparagraph. 

3. 

Without  prejudice  to  the  last  subparagraph,  for  resolution  entities,  the  amount 
referred to in paragraph 2 shall not exceed the greater of the following: 

(a) 

 the sum of: 

(i)  the  amount  of  losses  that  may  need  to  be  absorbed  in  resolution  that 
corresponds  to  the  requirements  referred  to  in  Article  92(1)(a),(b)  and  (c)  of 
Regulation  (EU)  No  575/2013  and  Article  104a  of  Directive  2013/36/EU    of 
the resolution entity at sub-consolidated resolution group level,  

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(ii)  a  recapitalisation  amount  that  allows  the  resolution  group  resulting  from 
resolution  to  restore  its  total  capital  ratio  referred  in  Article  92(1)(c)  of 
Regulation (EU) No 575/2013 and its requirement referred to in Article 104a of 
Directive 2013/36/EU at resolution group sub-consolidated level in accordance 
with the resolution actions foreseen in the resolution plan;  

(b) 

the sum of: 

(i)  the  amount  of  losses  to  be  absorbed  in  resolution  that  corresponds  to  the 
resolution entity's leverage ratio requirement referred to in Article 92(1)(d) of 
Regulation (EU) No 575/2013 at resolution group sub-consolidated level; and  

(ii)  a  recapitalisation  amount  that  allows  the  resolution  group  resulting  from 
resolution  to  restore  the  leverage  ratio  referred  to  in  Article  92(1)(d)  of 
Regulation  (EU)  No  575/2013  at  resolution  group  sub-consolidated  level  in  
accordance with the resolution actions foreseen in the resolution plan;  

For the purposes of point (a) of Article 12a(2), the requirement referred to in 
Article 12a(1) shall be expressed as the amount calculated in accordance with 
point (a) divided by the total risk exposure amount ('TREA'). 

For the purposes of point (b) of Article 12a(2) ,the requirement referred to in 
Article 12a(1) shall be expressed as the amount calculated in accordance with 
point (b) divided by the leverage ratio exposure measure. 

The  Board  shall  set  the  recapitalisation  amounts  referred  to  in  the  previous 
subparagraphs  in  accordance  with  the  resolution  actions  foreseen  in  the 
resolution  plan  and  may  adjust  those  recapitalisation  amounts  to  adequately 
reflect  risks  that  affect  resolvability  arising  from  the  resolution  group’s 
business model, funding profile and overall risk profile. 

4. 

Without  prejudice  to  the  last  subparagraph,  for  entities  that  are  not  themselves 
resolution entities, the amount referred to in paragraph 2 shall not exceed any of the 
following: 

(a) 

the sum of: 

(i)  the  amount  of  losses  to  be  absorbed  in  resolution  that  corresponds  to  the 
requirements referred to in Article 92(1)(a),(b) and (c) of Regulation (EU) No 
575/2013 and Article 104a of Directive 2013/36/EU of the entity, and 

(ii)  a  recapitalisation  amount  that  allows  the  entity  to  restore  its  total  capital 
ratio  referred  in  Article  92(1)(c)  of  Regulation  (EU)  No  575/2013  and  its 
requirement referred to in Article 104a of Directive 2013/36/EU in accordance 
with the resolution plan; or 

(b) 

the sum of: 

(i)  the  amount  of  losses  to  be  absorbed  in  resolution  that  corresponds  to  the 
entity's leverage ratio requirement referred to in Article 92(1)(d) of Regulation 
(EU) No 575/2013; and 

(ii) a recapitalisation amount that allows the entity to restore its leverage ratio 
referred to in Article 92(1)(d) of Regulation (EU) No 575/2013 in  accordance 
with the resolution plan;  

For the purposes of point (a) of Article 12a(2), the requirement referred to in 
Article 12a(1) shall be expressed in percentage terms as the amount calculated 

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5. 

6. 

in  accordance  with  point  (a)  divided  by  the  total  risk  exposure  amount 
('TREA'). 

For the purposes of point (b) of Article 12a(2), the requirement referred to in 
Article 12a(1) shall be expressed in percentage terms as the amount calculated 
in accordance with point (b) divided by the leverage ratio exposure measure. 

The Board shall set the recapitalisation amounts referred to in this paragraph in 
accordance with the resolution actions foreseen in the resolution plan and may 
adjust those recapitalisation amounts to adequately reflect risks that affect the 
recapitalisation needs arising from the entity's business model, funding profile 
and overall risk profile. 

Where the Board expects that certain classes of eligible liabilities might be excluded 
from bail-in under Article 27(5) or might be transferred to a recipient in full under a 
partial  transfer,  the  requirement  referred  to  in  Article  12a(1)  shall  not  exceed  an 
amount sufficient to: 

(a) 

cover  the  amount  of  excluded  liabilities  identified  in  accordance  with 
Article 27(5); 

(b) 

ensure that the conditions referred to paragraph 2 are fulfilled. 

The  Board's  decision  to  impose  a  minimum  requirement  of  own  funds  and  eligible 
liabilities  under  this  Article  shall  contain  the  reasons  for  that  decision,  including  a 
full  assessment  of  the  elements  referred  to  in  paragraphs  2  to  5,  in  particular  as 
regards  the  need  and  the  level  of  the  requirement  referred  to  in  Article  104a  of 
Directive 2013/36/EU in the recapitalisation amount. 

7. 
For  the  purposes  of  paragraphs  3  and  4,  capital  requirements  shall  be 
interpreted  in  accordance  with  the  competent  authority's  application  of  transitional 
provisions laid down in Chapters 1, 2 and 4 of Title I of Part Ten of Regulation (EU) 
No  575/2013  and  in  the  provisions  of  national  legislation  exercising  the  options 
granted to the competent authorities by that Regulation. 

The  Board  may  reduce  the  requirement  referred  to  in  Article  12a(1)  to  take 
8. 
account of the amount which a deposit guarantee scheme is expected to contribute to 
the financing of the preferred resolution strategy in  accordance with  Article 109 of 
Directive 2014/59/EU.  

The  size  of  any  such  reduction  shall  be  based  on  a  credible  assessment  of  the 
potential contribution from the deposit guarantee scheme, and shall at least:  

(a) be less than a prudent estimate of the potential losses which the deposit guarantee 
scheme  would  have  had  to  bear,  had  the  institution  been  wound  up  under  normal 
insolvency  proceedings,  taking  into  account  the  priority  ranking  of  the  deposit 
guarantee scheme pursuant to Article 108 of Directive 2014/59/EU;  

(b)  be  less  than  the  limit  on  deposit  guarantee  scheme  contributions  set  out  in  the 
second subparagraph of Article 109(5) of Directive 2014/59/EU;  

(c) take account of the overall risk of exhausting the available financial means of the 
deposit guarantee scheme due to contributing to multiple bank failures or resolutions; 
and  

(d) be consistent with any other relevant provisions in national law and the duties and 
responsibilities of the authority responsible for the deposit guarantee scheme.  

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The Board shall, after consulting the authority responsible for the deposit guarantee 
scheme,  document  its  approach  as  regards  the  assessment  of  the  overall  risk  of 
exhausting the available financial means of the deposit guarantee scheme and apply 
reductions  in  accordance  with  subparagraph  1,  provided  that  that  risk  is  not 
excessive. 

Determination of the requirement for entities that are G-SIIs 

Article 12e 

1. 

The minimum requirement for own funds and eligible liabilities of a resolution entity 
that is a G-SII or part of a G-SII shall consist of: 

(a) 

(b) 

the  requirement  referred  to  in  Article  92a  of  Regulation  (EU)  No 
575/2013,and 

any  additional  requirement  for  own  funds  and  eligible  liabilities 
determined by the resolution authority specific to the entity in accordance 
with  paragraph  2,  which  shall  be  met  with  liabilities  that  meet  the 
conditions of Article 12c. 

2. 

The  Board  may  impose  an  additional  requirement  for  own  funds  and  eligible 
liabilities referred to in point (b) of paragraph 1 only : 

(a)  where  the  requirement  referred  to  in  point  (a)  of  paragraph  1  is  not 

sufficient  

to fulfil the conditions set out in Article 12d; and  

(b) 

to an extent that the amount of required own funds and eligible liabilities 
does not exceed a level that is necessary to fulfil the conditions of Article 
12d. 

The  decision  of  the  Board  to  impose  an  additional  requirement  of  own  funds  and 
eligible  liabilities  under  point  (b)  of  paragraph  1  shall  contain  the  reasons  for  that 
decision, including a full assessment of the elements referred to in paragraph 2. 

Article 12f 

Guidance for the minimum requirement for own funds and eligible liabilities 

The Board may give guidance to an entity to have own funds and eligible liabilities 
that fulfil the conditions of Article 12c and Article 12h(3) in excess of the levels set 
out in Article 12d and Article 12e for amounts for the following purposes: 

(a) 

(b) 

to  cover  potential  additional  losses  of  the  entity  to  those  covered  in 
Article 12d, and/or 

to ensure that, in the event of resolution, a sufficient market confidence 
in  the  entity  is  sustained  through  capital  instruments  in  addition  to  the 
requirement in point (b) of Article 12d(2) ('market confidence buffer'). 

The  guidance  shall  be  only  provided    and  calculated  with  respect  to  the 
requirement referred to in Article 12a(1)  calculated in accordance with point 
(a) of Article 12a(2). 

The amount of the guidance given in accordance with point (a)  of paragraph 1 may 
be  set  only  where  the  competent  authority  has  already  set    its  own  guidance  in 
accordance  with  Article  104b  of  Directive  2013/36/EU  and  shall  not  exceed  the  
level of that guidance. 

3. 

1. 

2. 

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The amount of guidance given in accordance with point (b) of paragraph 1 shall not 
exceed  the  amount  of  the  combined  buffer  requirement  referred  to  in  point  (6)  of 
Article 128 of Directive 2013/36/EU, except for the requirement referred to in point 
(a) of that provision unless a higher level is necessary to ensure that, following the 
event  of  resolution,  the entity  continues  to  meet  the  conditions  for  its  authorisation 
for an appropriate period of time that is not longer than one year. 

The resolution authority shall provide to the entity the reasons and a full assessment 
for the need and the level of the guidance given in accordance with this Article. 

Where an entity consistently fails to have additional own funds and eligible liabilities 
as  expected  under  the  guidance  referred  to  in  the  first  paragraph,  the  Board  may 
require that the amount of the requirement referred to in Article 12d(2) be increased 
to cover the guidance given pursuant to this Article. 

An entity that fails to have additional own funds and eligible liabilities as expected 
under  the  guidance  referred  to  in  the  first  paragraph  shall  not  be  subject  to  the 
restrictions referred to in Article 141 of Directive 2013/36/EU. 

3. 

4. 

Article 12g 

Application of the minimum requirement for own funds and eligible liabilities to resolution 
entities 

1. 

2. 

1. 

Resolution  entities  shall  comply  with  the  requirements  laid  down  in  12d  to  Article 
12f on a consolidated basis at the level of the resolution group. 

The requirement referred to  in  Article 12a(1) of a  resolution entity established in  a 
participating  Member  State  at  the  consolidated  resolution  group  level  shall  be 
determined  by  the  Board,  after  consulting  the  group-level  resolution  authority  and 
the consolidating supervisor, on the basis of the requirements laid down in Articles 
12d  to  12f  and  of  whether  the  third-country  subsidiaries  of  the  group  are  to  be 
resolved separately according to the resolution plan. 

Article 12h 

Application of the requirement to entities that are not themselves resolution entities 

Institutions  that  are  subsidiaries  of  a  resolution  entity  and  are  not  themselves 
resolution  entities  shall  comply  with  the  requirements  laid  down  in  Articles  12d  to 
12f on an individual basis.  

The Board may, after consulting a competent authorities and the ECB, decide 
to  apply  the  requirement  laid  down  in  this  Article  to  an  entity  referred  to  in 
point (b), (c) or (d) of Article 1(1) of Directive 2014/59/EU that is a subsidiary 
of a resolution entity and is not itself a resolution entity. 

2. 

The  requirement  referred  to  in  Article  12a(1)  of  entities  referred  to  in  the  first 
paragraph shall be subject to the following conditions:  

(a) 

(b) 

the resolution entity complies with the consolidated requirement referred 
to in Article 12g; 

the  sum  of  all  requirements  to  be  applied  to  the  resolution  group's 
subsidiaries  shall  be  covered  by  and  not  exceed  the  consolidated 
requirement  referred  to  in  Article  12g  unless  this  is  only  due  to  the 

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effects  of  the  consolidation  at  the  level  of  the  resolution  group  in 
accordance with Article 12g(1); 

(c) 

(d) 

it shall fulfil the eligibility criteria provided in paragraph 3;  

it shall not exceed the contribution of the subsidiary to the consolidated 
requirement referred to in 12g(1). 

3. 

The requirement referred to  in  Article 12a(1)  shall  be met  with  one or  more of the 
following: 

(a) 

liabilities that: 

(i) are issued to and bought by the resolution entity; 

(ii) fulfil the eligibility criteria referred to in Article 72a, except for point (b) of 
Article 72b(2) of Regulation (EU) No 575/2013; 

(iii) are ranking in normal insolvency proceedings below liabilities other than 
those  eligible  for  own  funds  requirements  that  are  issued  to  and  bought  by 
other entities than the resolution entity; 

(iv) are subject to the power of write down or conversion in accordance with 
Articles  21  that  is  consistent  with  the  resolution  strategy  of  the  resolution 
group, notably by not affecting the control of the subsidiary by the resolution 
entity. 

(b) 

eligible own funds instruments issued to and bought by other entities than 
the  resolution  entity  when  the  exercise  of  the  power  of  write  down  or 
conversion  in  accordance  with  Article  21  does  not  affect  the  control  of 
the subsidiary by the resolution entity. 

4. 

Subject to the agreement of the Board, the requirement referred to in Article 12a(1) 
may be met with a guarantee of the resolution entity granted to its subsidiary, which 
fulfils the following conditions: 

(a) 

(b) 

(c) 

(d) 

(e) 

the guarantee is provided for at least the equivalent amount as the amount 
of the requirement for which it substitutes; 

the guarantee is triggered when the subsidiary is unable to pay its debts 
or  other  liabilities  as  they  fall  due  or  a  determination  has  been  made  in 
accordance with Article 21(3) in respect of the subsidiary, whichever is 
the earliest; 

the guarantee is collateralised through a financial collateral arrangement 
as defined in point (a) of Article 2(1) of Directive 2002/47/EC for at least 
50 per cent of its amount; 

the  guarantee  and  financial  collateral  arrangement  are  governed  by  the 
laws  of  the  Member  State  where  the  subsidiary  is  established  unless 
otherwise specified by the Board; 

the  collateral  backing  the  guarantee  fulfils  the  requirements  of  Article 
197  of  Regulation  (EU)  No  575/2013,  which,  following  appropriately 
conservative haircuts, is sufficient to fully cover the amount guaranteed; 

(f) 

the collateral backing the guarantee is unencumbered and in particular is 
not used as collateral to back any other guarantee; 

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(g) 

(h) 

the  collateral  has  an  effective  maturity  that  fulfils  the  same  maturity 
condition  as  that  referred  to  in  Article  72c(1)  of  Regulation  (EU)  No 
575/2013; and 

there are no legal, regulatory or operational barriers to the transfer of the 
collateral from the resolution entity to the relevant subsidiary, including 
when resolution action is taken in respect of the resolution entity.  

Article 12i 

Waiver of the minimum requirement for own funds and eligible liabilities applied to entities 
that are not themselves resolution entities 

The Board may fully waive the application of Article 12h for a subsidiary of a 
resolution entity established in a participating Member State where: 

(a)  both  the  subsidiary  and  the  resolution  entity  are  established  the  same 

participating Member State; 

(b) 

(c) 

the resolution entity complies with the requirement referred to in Article 
12g; 

there is no current or foreseen material, practical or legal impediment to 
the  prompt  transfer  of  own  funds  or  repayment  of  liabilities  by  the 
resolution entity to the subsidiary in respect of which a determination has 
been  made  in  accordance  with  Article  21(3),  in  particular  when 
resolution action is taken in respect of the resolution entity. 

Article 12g 
Breaches of the requirement 

1. 

Any breach of the minimum requirement for own funds and eligible liabilities by an 
entity shall be addressed by the Board and other relevant authorities through at least 
one of the following means: 

(a)  powers to address or remove impediments to resolvability in accordance 

with Article 10; 

(b)  measures referred to in Article 104 of Directive 2013/36/EC;  

(c) 

(d) 

early intervention measures in accordance with Article 13; 

administrative penalties and other administrative measures in accordance 
with Article 110 and Article 111 of Directive 2014/59/EU". 

2. 

The Board, resolution authorities and competent authorities of participating Member 
States shall consult each other when they exercise their respective powers referred to 
in points (a) to (d) of paragraph 1." 

6. 

Article 16 is amended as follows: 

(a)  paragraph (2) is replaced by the following: 

'2.The Board shall take a resolution action in  relation to  a parent undertaking 
referred  to  in  point  (b)  of  Article 2  where  the  conditions  laid  down  in 
Article 18(1) are met.'; 

(b) 

 paragraph (3) is replaced with the following: 

'3.  Notwithstanding  the  fact  that  a  parent  undertaking  does  not  meet  the 
conditions  established  in  Article 18(1),  the  Board  may  decide  on  resolution 

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action with regard to that parent undertaking when it is a resolution entity and 
when one or more of its subsidiaries which are institutions and not resolution 
entities  meet  the  conditions  established  in  Article 18(1)  and  their  assets  and 
liabilities  are  such  that  their  failure  threatens  an  institution  or  the  group  as  a 
whole and resolution action with regard to that parent undertaking is necessary 
for  the  resolution  of  such  subsidiaries  which  are  institutions  or  for  the 
resolution of the group as a whole.'. 

7. 

8. 

'Relevant  capital  instruments'  in  point  (b)  of  Article  18(1)  is  replaced  by  'relevant 
capital instruments and eligible liabilities'. 

Point (c) of Article 20(5) is replaced by the following: 

'(c)  when  the  power  to  write  down  or  convert  relevant  capital  instruments  and 
eligible liabilities in accordance with Article 21(7) is applied, to inform the decision 
on  the  extent  of  the  cancellation  or  dilution  of  instruments  of  ownership,  and  the 
extent  of  the  write-down  or  conversion  of  relevant  capital  instruments  and  eligible 
liabilities;'. 

9. 

Article 21 is amended as follows:  

(a) 

the title is replaced by the following: 

'Write-down and conversion of capital instruments and eligible liabilities' 

(b) 

(c) 

(d) 

(e) 

'capital instruments' in the first sentence of paragraph (1) is replaced by 
'capital instruments and eligible liabilities' 

'capital  instruments'  in  point  (b)  of  paragraph  (1)  is  replaced  by  'capital 
instruments and eligible liabilities'; 

'capital instruments'  in point (b) of paragraph (3) is replaced by 'capital 
instruments and eligible liabilities'; 

'capital  instruments'    in  the  second  subparagraph  of  paragraph  (8)  is 
replaced by 'capital instruments and eligible liabilities'; 

(f) 

paragraph (7) is replaced by the following: 

'7. 
If one or more of the conditions referred to in paragraph 1 are met, the 
Board,  acting  under  the  procedure  laid  down  in  Article 18,  shall  determine 
whether the powers to write down or convert relevant capital instruments and 
eligible liabilities are to be exercised independently or, in accordance with the 
procedure under Article 18, in combination with a resolution action. 

The  power  to  write  down  or  convert  eligible  liabilities  independently  of 
resolution  action  may  be  exercised  only  in  relation  to  eligible  liabilities  that 
meet  the  conditions  referred  to  in  point  (a)  of  Article  12(3),  except  the 
condition related to the remaining maturity of liabilities.'. 

(g) 

the following point is added in paragraph (10): 

'(d) 
the principal amount of eligible liabilities referred to in paragraph 7 is 
written down or converted into Common Equity Tier 1 instruments or both, to 
the extent required to achieve the resolution objectives set out in Article 14 or 
to  the  extent  of  the  capacity  of  the  relevant  eligible  liabilities,  whichever  is 
lower.'. 

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Article 6 
Entry into force 

1. 

2. 

This amending Regulation shall enter into force on the twentieth day following that 
of its publication in the Official Journal of the European Union. 

This Regulation shall apply within 18 months from the date of its entry into force. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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