Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 575/2013 and Directive 2014/59/EU as regards the prudential treatment of global systemically important institution groups with a multiple point of entry resolution strategy and a methodology for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities
Date: 2021-10-27
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: bank resolution, capital increase, financial legislation, financial requirements, parent company, private-sector liquidity, subsidiary, third country

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   EUROPEAN COMMISSION  Brussels, 27.10.2021  COM(2021) 665 final 2021/0343 (COD)  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 575/2013 and Directive 2014/59/EU as regards the prudential treatment of global systemically important institution groups with a multiple point of entry resolution strategy and a methodology for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities (Text with EEA relevance)  
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

• 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council1  (the  Capital 
Requirements  Regulation  or  CRR)  establishes  together  with  Directive  2013/36/EU  of  the 
European  Parliament  and  of  the  Council2  (the  Capital  Requirements  Directive  or  CRD)  the 
prudential regulatory framework for credit institutions operating in the Union. The CRR and 
the  CRD  were  adopted  in  the  aftermath  of  the  2008-2009  financial  crisis  to  enhance  the 
resilience  of  institutions  operating  in  the  EU  financial  sector,  largely  based  on  global 
standards  agreed  with  the  EU’s  international  partners,  in  particular  the  Basel  Committee  on 
Banking Supervision (BCBS). 

The CRR has  been subsequently  amended to  tackle remaining weaknesses in  the regulatory 
framework  and  to  implement  some  outstanding  elements  of  the  global  financial  services 
reform that are essential to ensure institutions' resilience. A major revision was brought by the 
‘Risk Reduction Measures Package’, which was adopted by the European Parliament and the 
Council on 20 May 2019 and published in the Official Journal on 7 June 2019. That package 
included inter alia changes  to  the Union bank resolution  framework through Directive (EU) 
2019/879 of the European Parliament and of the Council3, amending Directive 2014/59/EU of 
the  European  Parliament  and  of  the  Council4  (Bank  Recovery  and  Resolution  Directive  or 
BRRD),  Regulation  (EU)  2019/877  of  the  European  Parliament  and  of  the  Council5, 
amending  Regulation  (EU)  No  806/2014  of  the  European  Parliament  and  of  the  Council6 
(Single  Resolution  Mechanism  Regulation  or  SRMR)  and  Regulation  (EU)  2019/876  of  the 
European Parliament and of the Council7, amending the CRR. This reform implemented in the 

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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). 
Directive  (EU)  2019/879  of  the  European  Parliament  and  of  the  Council  of  20  May  2019  amending 
Directive  2014/59/EU  as  regards  the  loss-absorbing  and  recapitalisation  capacity  of  credit  institutions 
and investment firms and Directive 98/26/EC (OJ L 150, 7.6.2019, p. 296). 
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  and  amending 
Council  Directive  82/891/EEC,  and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC, 
2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) 
No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190). 
Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 amending 
Regulation  (EU)  No  806/2014  as  regards  the  loss-absorbing  and  recapitalisation  capacity  of  credit 
institutions and investment firms (OJ L 150, 7.6.2019, p. 226). 
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). 
Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending 
Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements 
for  own  funds  and  eligible  liabilities,  counterparty  credit  risk,  market  risk,  exposures  to  central 
counterparties,  exposures  to  collective  investment  undertakings,  large  exposures,  reporting  and 
disclosure requirements, and Regulation (EU) No 648/2012 (OJ L 150, 7.6.2019, p. 1). 

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Union  the  international  Total  Loss-Absorbing  Capacity  (TLAC)  standard  for  global 
systemically important institutions (G-SIIs) adopted by the Financial Stability Board (FSB) in 
November  20158  and  enhanced  the  application  of  the  minimum  requirement  for  own  funds 
and eligible liabilities (MREL) for all institutions established in the Union.  

The  TLAC  standard  requires  G-SIIs  to  hold  a  sufficient  amount  of  highly  loss-absorbing 
(bail-inable) liabilities to ensure smooth  and fast absorption  of losses and recapitalisation in 
the  event  of  resolution.  The  implementation  of  the  TLAC  standard  in  Union  law,  namely 
through amendments to the CRR, took into account the existing institution-specific minimum 
requirement for own funds and eligible liabilities (MREL), set out in the BRRD.9 Moreover, 
both  sets  of  rules  are  closely  interconnected,  particularly  through  cross-references  from  the 
BRRD and the SRMR to the CRR. For instance, the BRRD and the SRMR generally rely on 
the total exposure measure and the total risk exposure amount as calculated under the CRR for 
calculating and expressing MREL. Therefore, the two requirements should be understood as 
complementary  elements  of  a  common  framework.10  That  revised  framework  should  better 
ensure  that  institutions’  loss  absorption  and  recapitalisation  occurs  through  private  means 
once those institutions get into financial difficulties and are subsequently placed in resolution. 
TLAC  and  MREL  are  thus  essential  to  effectively  manage  bank  crises  and  reduce  their 
negative  impact  on  financial  stability  and  public  finances.  TLAC  and  the  revised  rules  on 
MREL became applicable in the Union on 27 June 2019 and 28 December 2020, respectively. 

In  line  with  international  standards,  Union  law  recognises  both  the  Single  Point  of  Entry 
(SPE) resolution strategy and the Multiple Point of Entry (MPE) resolution strategy.11 Under 
the  SPE  resolution  strategy,  only  one  group  entity,  typically  the  parent  undertaking,  is 
resolved (‘resolution entity’), whereas other group entities, usually operating subsidiaries, are 
not subject to resolution action. Instead, the losses of those subsidiaries are transferred to the 
resolution  entity  and  capital  is  down  streamed  to  the  subsidiary.  This  ensures  that  the 
subsidiaries can continue to operate smoothly even after they have reached the point of non-
viability. Each resolution entity forms a ‘resolution group’ together with the subsidiaries that 
belong to it and that are not themselves resolution entities. Under the MPE resolution strategy, 
more  than  one  entity  of  the  banking  group  may  be  resolved.  Consequently,  more  than  one 
resolution entity and thus more than one resolution group may exist within the banking group. 
The underlying principle of the MPE resolution approach is to enable the resolution of a given 
resolution group in a feasible and credible way without undermining the resolvability of other 
resolution entities and resolution groups in the same consolidated banking group. 

The revised bank resolution framework provides that MREL for resolution entities should be 
set  at  the  consolidated  level  of  a  resolution  group  (‘external  MREL’).12  In  addition,  that 

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Financial  Stability  Board,  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.  
More specifically, the CRR envisaged a new requirement for own funds and eligible liabilities for those 
institutions that have been identified as G-SIIs, while the institution-specific add-on for those G-SIIs as 
well as the institution-specific requirement non-G-SIIs were introduced through targeted amendments to 
the BRRD and to the SRMR. 
Recital  16  of  Regulation  (EU)  2019/876,  Recital  2  of  Directive  (EU)  2019/879  and  Recital  2  of 
Regulation (EU) 2019/877. 
Recital 4 of Directive (EU) 2019/879. 
Article 45e of the BRRD. 

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framework  envisages  how  the  loss  absorption  and  recapitalisation  capacity  should  be 
allocated within resolution groups (‘internal MREL’)13. 

According to the BRRD, as a rule, financial instruments that are eligible for internal MREL 
must be held by the resolution entity, i.e. typically the parent undertaking14. The rationale of 
this  rule  is  to  ensure  that  the  loss-absorbing  and  recapitalisation  capacity  of  a  subsidiary  is 
provided  by  its  parent,  i.e.  by  the  resolution  entity.  That  parent  may  hold  internal  MREL 
eligible instruments either directly or indirectly through other entities in the same resolution 
group (see illustration below). The possibility for instruments to be also indirectly subscribed 
by  the  parent  through  intermediate  entities  was  justified  by  the  fact  that  the  obligation  to 
comply with  internal  MREL should not  unnecessarily  alter the existing funding channels  of 
banking  groups  where  the  funding  for  acquiring  such  instruments  is  structured  around  the 
chains of ownership and distributed to the subsidiaries across the group through intermediate 
entities and not directly by ultimate parents (resolution entities). 

Illustration: Subscription of internal MREL eligible instruments (directly or indirectly) 

To operationalise the approach of indirect subscription of internal MREL eligible instruments 
within resolution groups, also referred to as the ‘daisy chain’ approach, and to ensure that it is 
prudentially  sound,  the  co-legislators  mandated  the  European  Banking  Authority  (EBA)  to 
develop draft regulatory technical standards (RTS) and the Commission to adopt on that basis 
a  delegated  act  to  specify  a  methodology  for  such  an  indirect  issuance  of  eligible 
instruments.15 According to the BRRD mandate that methodology should: 

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permit  a  proper  transfer  of  losses  from  subsidiaries  to  their  ultimate  parent 
(resolution entity) and a proper transfer of capital from that parent to subsidiaries; 

Article 45f the BRRD. The requirement is referred to as ‘internal’ in view of the fact that the eligible 
instruments generally have to be funded internally within the banking group, namely by a subsidiary’s 
ultimate parent. 
Article  45f(2),  point  (a)(i),  of  the  BRRD  also  allows  to  consider  eligible  for  internal  MREL  those 
liabilities that are issued to and bought by an existing shareholder that is not part of the same resolution 
group as long as the exercise of write down or conversion powers in accordance with Articles 59 to 62 
of the BRRD does not affect the control of the subsidiary by the resolution entity. Additionally, Article 
45f(2),  point  (b)(ii),  of  the  BRRD  allows  internal  MREL  to  be  met  by  own  funds  other  than  CET1 
capital issued to and bought by entities that are not included in the same resolution group as long as the 
exercise of write down or conversion powers in accordance  with Articles 59 to 62 does not affect the 
control of the subsidiary by the resolution entity. 
Article 45f(6) of the BRRD. 

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 

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ensure that  the loss-absorbing capacity of the subsidiary is  not  also  counted for the 
purposes of compliance with internal MREL by the intermediate parent; and  

ensure that its outcome is equivalent to that of a direct subscription by the ultimate 
parent (resolution entity) of eligible instruments issued by subsidiaries. 

Since early 2020, the EBA has been working  on that draft RTS on the basis of a deduction 
regime, in line with the mandate set out in the BRRD and the recommendations in the relevant 
international standards.16 The deduction regime developed by the EBA envisages that internal 
MREL eligible instruments issued by subsidiaries to the resolution entity via an intermediate 
parent  would  have  to  be  fully  deducted  from  the  amount  of  the  intermediate  parent’s  own 
internal  MREL  capacity.  Such  a  deduction  approach  was  considered  as  the  most  consistent 
with the conditions set out in the BRRD mandate and conducive to the operationalisation of 
the internal MREL framework.17 

The  methodology  developed  by  the  EBA  was  subject  to  a  public  consultation.18  The 
consultation  feedback  showed  general  support  to  the  draft  RTS,  but  highlighted  several 
inconsistencies  of  the  requirements  for  the  delegation  laid  down  in  the  BRRD  with  the 
existing  prudential  rules  laid  down  in  the  CRR.  Hence,  in  a  letter  to  the  European 
Commission  dated  25  January  202119,  the  EBA  outlined  that  the  interactions  between  the 
BRRD and the CRR would  not  allow the application of the prudential  treatment  needed  for 
the  mandate  to  be  fulfilled  as  originally  intended.  More  precisely,  the  EBA  noted  that  the 
CRR  did  not  allow  for  the  deduction  of  internal  MREL  eligible  instruments  and, 
subsequently, for the application of an appropriate risk weight of zero percent in all the cases 
relevant  for  the  mandate  under  the  BRRD.  Similar  issues  were  identified  in  the  area  of  the 
CRR  leverage  ratio  requirement.  This  situation  would  not  only  generate  an  inconsistency 
between the prudential and resolution framework but would also go against the requirement of 
the  BRRD  mandate  to  generate  an  outcome  equivalent  to  that  of  a  direct  subscription, 
according  to  the  EBA.  It  was  concluded  that  the  BRRD  requirements  could  not  be  fulfilled 
without additional provisions that the RTS could not bear on its own but needed rather to rely 
on the Level 1 text to specify. 

Apart  from  the  need  to  operationalise  the  indirect  subscription  of  instruments  eligible  for 
internal  MREL,  some  other  resolution  related  issues  have  been  identified  since  the  revised 
TLAC/MREL  framework  became  applicable  in  2019.20  Those  issues  mainly  relate  to  the 
regulatory treatment of G-SII groups with an MPE resolution strategy, including those MPE 
groups  that  have  subsidiaries  in  third  countries.  For  instance,  the  CRR  currently  does  not 

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Financial Stability Board, Guiding Principles on the Internal Total Loss-absorbing Capacity of G-SIBs 
(‘Internal TLAC’), 6.7.2017. Under that regime, instruments eligible for internal MREL issued by the 
subsidiary  and  subscribed  by  the  intermediate  parent  would  be  fully  deducted  from  the  eligible 
instruments issued by the intermediate parent to comply with its own internal MREL. 
In  its  work,  the  EBA  also  considered  other  approaches,  but  discarded  them  as  incompatible  with  the 
provisions of the BRRD on internal MREL or due to their lack of prudence or simplicity. 
EBA/CP/2020/18,  22  July  2020,  available  at:  https://www.eba.europa.eu/calendar/eba-consults-
technical-standards-indirect-subscription-mrel-instruments-within-groups 
EBA-2020-D-3378, 25 January 2021, available at:  https://www.eba.europa.eu/sites/default/documents/ 
files/document_library/About%20Us/Missions%20and%20tasks/Correspondence%20with%20EU%20i
nstitutions/2021/962427/2021%2001%2025%20Letter%20to%20J%20Berrigan%20re%20Art%2045f
%286%29%20BRRD%20%28daisy%20chains%29.pdf 
Chapter  5.2  to  5.5  of  the  explanatory  memorandum  contains  detailed  explanations  on  the  specific 
issues. 

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specify  whether  the  various  adjustments  to  TLAC21  for  G-SIIs  with  an  MPE  resolution 
strategy also cover those subsidiaries of a G-SII that are located in a third country. In addition, 
the formula22 for the calculation of the TLAC/MREL surplus of a subsidiary in the context of 
the general deduction regime applicable to G-SIIs with an MPE resolution strategy relies on 
the risk-based TLAC/MREL requirement of the subsidiary only, while it was omitted to also 
take  into  account  the  non-risked-based  TLAC/MREL.  Further  issues  include  some 
contradictions within the Level 1 text, notably with regard to the interplay of provisions in the 
CRR and the BRRD23 that are relevant to address potential inconsistencies between SPE and 
MPE  requirements.  Lastly,  some  issues  have  been  observed  with  regard  to  the  criteria24  for 
instruments  to  be  eligible  for  compliance  with  the  internal  TLAC  requirement,  which  is  of 
relevance  when  addressing  the  failure  of  EU  subsidiaries  of  non-EU  global  systemically 
important institutions (G-SIIs).  

Some  targeted  changes  to  specific  resolution  related  aspects  of  the  CRR  are  necessary  to 
address the above issues. In particular, the regulatory treatment of G-SII groups with an MPE 
resolution  strategy, including of those MPE  groups  that have subsidiaries in  third countries, 
needs to be better aligned with the treatment outlined in the TLAC standard. This would help 
to  ensure that, in  case of resolution,  each  resolution  entity and  group belonging to  those G-
SIIs can continue to perform critical functions without the risk of contagion. The amendments 
proposed  would  not  alter  the  overall  architecture  of  the  framework  but  would  ensure  the 
proper application of TLAC and MREL. 

the  CRR  would  address 

First,  it  is  necessary  to  incorporate  directly  into  the  CRR  a  dedicated  prudential  treatment 
related  to  the  indirect  subscription  of  instruments  eligible  for  internal  MREL  (daisy  chain 
approach).  The  proposed  modifications 
identified 
to 
inconsistencies between the CRR and the BRRD, which were outlined in the EBA’s letter to 
the  European  Commission  dated  25  January  2021.  More  precisely,  the  deduction  regime, 
which was developed by the EBA in the context of the draft RTS under the BRRD, would be 
incorporated  directly  into  the  CRR.  This  would  ensure  a  proper  functioning  of  the  indirect 
subscription of internal MREL within resolution groups with several layers of ownership, in 
line with the political agreement reached during the negotiations of Directive (EU) 2019/879. 
In  addition,  the  revisions  would  ensure  that  the  treatment  of  holdings  of  internal  MREL 
eligible instruments remains aligned in both the resolution and the prudential framework, thus 
enabling the operationalisation of the deduction methodology developed by the EBA and, at 
the  same  time,  avoiding  the  introduction  of  undue  complexity  in  the  treatment  of  those 
exposures.  

the 

Second,  the  CRR  provisions  on  the  comparison  between  the  sum  of  the  actual  TLAC 
requirements  of  all  the  resolution  groups  within  a  G-SII  group  with  an  MPE  resolution 
strategy with the theoretical SPE requirement of that G-SII group need to be clarified.25 The 
changes proposed are needed to clarify the extent to which resolution authorities can address 
the potential inconsistencies between SPE and MPE requirements. This would be achieved by 

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Article 12a and 72e(4) of the CRR. 
Article 72e(4) of the CRR. 
Articles 12a and 92a(3) of the CRR and 45h(2) of the BRRD. 
Article 72b(2) of the CRR.  
Articles 12a and 92a(3) of the CRR. 

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aligning  the  CRR  treatment  with  the  one  envisaged  under  the  BRRD26  and  the  TLAC 
standard27. 

Third, it is necessary to amend the formula for the calculation of the TLAC/MREL surplus of 
a subsidiary in the context of the general deduction regime applicable to G-SIIs with an MPE 
resolution strategy28 to ensure that that formula takes into account both the risk-based and the 
non-risk-based TLAC/MREL requirements of the subsidiary, in line with the TLAC standard. 
This would avoid that the TLAC/MREL surplus of a given subsidiary is overestimated. 

Fourth, some CRR provisions applicable to G-SIIs with an MPE resolution strategy should be 
clarified to allow for the consideration of subsidiaries established outside of the Union. This 
would align the CRR with the corresponding TLAC principle agreed internationally, which is 
applicable with respect to subsidiaries established in all FSB jurisdictions.  

Fifth, some targeted clarifications in the context of the requirement for own funds and eligible 
liabilities  for  institutions  that  are  material  subsidiaries  of  non-EU  G-SIIs  (‘internal  TLAC’) 
are  needed  to  ensure  that  debt  instruments  issued  by  those  institutions  could  meet  all 
eligibility  criteria  for  eligible  liabilities  instruments.  The  reason  for  this  change  is  that 
currently the eligibility criteria for eligible liabilities instruments are based on the assumption 
that those instruments are issued by a resolution entity, and not by subsidiaries subject to an 
internal  TLAC  requirement.  The  gap  would  be  addressed  by  clarifying  that  the  same 
eligibility  conditions  applicable  to  resolution  entities  apply  also  to  non-resolution  entities, 
mutatis mutandis. This, in turn, would enable those institutions to meet their internal TLAC 
requirement inter alia with eligible liabilities, as originally intended by the co-legislators.29  

These  proposed  amendments  to  the  CRR  can  play  an  essential  role  in  improving  an 
institution’s  resolvability.  Given  that  the  corresponding  provisions  are  already  applicable  in 
the Union, the proposed modifications would need to be made in a timely manner. The need 
for an expedited adoption is further amplified by the fact that banking groups need clarity on 
the daisy chain mechanism to decide how best to preposition their internal MREL capacity in 
view  of  the  general  MREL  compliance  deadline  that  is  set  to  1 January  2024,  with  binding 
intermediate targets needing to be complied with by 1 January 2022.30  

• 

Consistency with existing policy provisions in the policy area 

The  proposal  introduces  amendments  to  existing  legislation.  These  amendments  are  fully 
consistent  with  the  existing  policy  provisions  in  the  field  of  prudential  and  resolution 
requirements  for  institutions.  The  Union  resolution  framework  aims  at  ensuring  that  banks’ 
loss absorption and recapitalisation are occurring through private means once  their financial 
situation  deteriorates  and  are  subsequently  placed  in  resolution.  By  facilitating  the  indirect 
subscription  of  internal  MREL  within  resolution  groups,  by  better  aligning  the  regulatory 
treatment of banking groups with an MPE resolution strategy with the TLAC standard, and by 
specifying further some of the criteria for  eligibility  for compliance with the internal TLAC 

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Article 45d(4) and 45h(2) of the BRRD. 
Section 3 of the TLAC Term Sheet envisages that, where the theoretical SPE requirement is lower than 
the  sum  of  the  actual  MPE  requirements,  the  relevant  authorities  may  agree  on  an  adjustment  to 
minimise or eliminate that difference (i.e. by reducing the MPE requirements). In addition, it is clarified 
that the sum of the actual MPE requirements must never be lower than the theoretical SPE requirement. 
Article 72e(4) of the CRR. 
Article 92b(2) of the CRR. 
Article 45m(1) of the BRRD. 

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requirement, the proposal will improve the application of the existing Union rules as regards 
ensuring  the  resolvability  of  banking  groups.  This  outcome  is  consistent  with  and  will 
contribute  to  the  achievement  of  the  overall  objectives  of  the  Union  bank  resolution 
framework  of  safeguarding  the  financial  stability  and  reducing  taxpayers'  support  in  bank 
resolution.  

• 

Consistency with other Union policies 

The proposed Regulation is instrumental for an appropriate application of the wider review of 
the  Union  financial  legislation  proposed  in  2016  and  adopted  in  2019  (Risk  Reduction 
Measures  Package),  aiming  at  reducing  risks  in  the  financial  sector  while  promoting 
sustainable  financing  of  the  economic  activity.  The  proposal  is,  therefore,  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. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The proposal is based on Article 114 of the Treaty on the Functioning of the European Union 
(TFEU), the same legal basis as for the legislative acts that are being amended.  

• 

Subsidiarity (for non-exclusive competence)  

The  objectives  pursued  by  the  proposed  Regulation  aim  at  supplementing  and  amending 
already existing EU legislation (the CRR and the BRRD) and can therefore best be achieved 
at EU level rather than by different national initiatives. The ability of Member States to adopt 
national  measures  is  limited,  given  that  the  CRR  and  the  BRRD  already  regulate  those 
matters, and changes at national level would conflict with Union law currently in force.  

The  proposed  amendments  would  further  promote  a  uniform  application  of  prudential 
requirements,  the  convergence  of  supervisory  practices  and  ensure  a  level  playing  field 
throughout  the  single  market  for  banking  services.  These  objectives  cannot  be  sufficiently 
achieved  by  Member  States  alone.  If  the  Union  were  to  cease  regulating  those  aspects,  the 
internal market for banking services would become subject to different sets of rules, leading 
to fragmentation and undermining the recently build single rulebook in this area. 

• 

Proportionality 

This  Union  action  is  necessary  to  achieve  the  objective  of  improving  the  application  of  the 
existing  Union  rules  as  regards  ensuring  the  resolvability  of  banking  groups.  The  proposed 
amendments  do  not  go  beyond  addressing  selected  provisions  in  the  Union’s  prudential 
framework  for  institutions  that  target  exclusively  measures  aimed  at  ensuring  a  smooth 
functioning of the requirements for own funds and eligible liabilities. Moreover, the proposed 
amendments are limited to those issues, which cannot be addressed within the existing margin 
of discretion the current rules provide for. 

• 

Choice of the instrument 

The measures are proposed to be implemented by amending the CRR through a Regulation. 
The  proposed  measures  amend  the  existing  rules  concerning  the  application  of  the 
requirements  for  own  funds  and  eligible  liabilities  laid  down  in  the  CRR.  Therefore,  a 
regulation is an appropriate instrument for the proposal. 

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3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation  

This proposal is not accompanied by a separate impact assessment, as this proposal does not 
alter the fundamental aspects of the CRR but mainly aims at clarifying the legal relationship 
between two existing EU law instruments, namely the CRR and the BRRD, by incorporating 
directly  into  the  CRR  a  dedicated  treatment  for  the  indirect  subscription  of  instruments 
eligible for internal MREL. Such clarifications would ensure that the two highly interlinked 
frameworks  remain  largely  aligned.  This,  in  turn,  would  enable  institutions  to  continue  to 
calculate,  report,  and  disclose  one  set  of  total  risk  exposure  amount  and  total  exposure 
measure for the purpose of both the CRR and the BRRD, thereby avoiding an undue increase 
in complexity. 

Moreover, the impact of the measures which are being amended by this proposal has already 
been subject to analyses in the impact assessments undertaken for Regulation (EU) 2019/876 
and  Directive  (EU)  2019/879.  This  includes  the  possible  need  to  issue  additional  MREL 
eligible  instruments  to  comply  with  internal  MREL,  as  introduced  by  the  co-legislators 
through the revised BRRD. The proposal is broadly based on preparatory work carried out by 
the EBA, notably with regard to the development of the regulatory technical standards on the 
indirect  subscription  of  internal  MREL  eligible  instruments  within  resolution  groups.  The 
proposal  primarily  aims  at  addressing  unintended  consequences  related  to  the  existing 
TLAC/MREL framework resulting from the rules currently contained in the CRR. 

The  proposed  amendments  would  have  a  limited  impact  on  the  administrative  burden  for 
institutions  and  the  costs  for  them  to  adapt  their  internal  operations,  with  most  of  the  costs 
expected  to  be  offset  by  allowing  the  approach  of  indirect  subscription  of  internal  MREL 
eligible  instruments  within  resolution  groups  to  function  properly  and,  for  the  institutions 
concerned,  by  the  benefits  derived  in  terms  of  an  improved  recognition  of  third-country 
subsidiaries and by further specifying the eligibility of instruments issued in the context of the 
internal TLAC requirement. 

• 

Fundamental rights 

The Union is committed to high standards of protection of fundamental rights and is signatory 
to  a  broad  set  of  conventions  on  human  rights.  In  this  context,  the  proposal  is  not  likely  to 
have a direct impact on these rights, as listed in the main UN conventions on human rights, 
the Charter of Fundamental Rights of the European Union, which is an integral part of the EU 
Treaties and the European Convention on Human Rights (ECHR).  

4. 

BUDGETARY IMPLICATIONS 

The proposal does not have implications for the Union budget. 

5. 

• 

(1) 

OTHER ELEMENTS 

Detailed explanation of the specific provisions of the proposal 

Dedicated treatment for the indirect subscription of instruments eligible for internal 
MREL 

In  order  to  implement  the  political  agreement  reached  during  the  negotiations  of  Directive 
(EU) 2019/879, it is proposed to introduce the deduction regime, which was developed by the 
EBA in the context of the draft RTS under the BRRD, directly into the CRR. The proposed 
Regulation  thus  introduces,  in  Article  72e(5)  of  the  CRR,  a  requirement  that  intermediate 

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parents  along  the  chain  of  ownership  would  have  to  deduct  from  their  own  internal  MREL 
capacity the amount of their holdings of internal MREL eligible instruments, including own 
funds, issued by their subsidiaries belonging to the same resolution group.  

The  introduction  of  a  deduction  regime  is  necessary.  From  a  resolution  perspective,  the 
regime  ensures  an  adequate  upstreaming  of  losses  and  downstreaming  of  capital  between 
resolution  entities  and  their  ultimate  subsidiaries,  avoids  the  double  counting  of  the  loss-
absorbing capacity of the subsidiary for the purposes of compliance with internal MREL by 
the  intermediate  parent  and  provides  for  an  outcome  equivalent  to  that  of  a  full  direct 
subscription  by  the  resolution  entity  of  instruments  issued  by  their  ultimate  subsidiaries. 
Additionally, the deduction regime is also needed from a prudential perspective, as, without 
such  a  regime,  the  individual  solvency  ratios  of  intermediate  parents  would  not  reflect 
appropriately  and  prudently  their  actual  loss-absorbing  capacity,  as  those  ratios  would  also 
include  the  loss-absorbing  capacity  of  their  subsidiaries.  This  could  compromise  the  proper 
functioning of the chosen resolution strategy, as the intermediate parent could use up not only 
its own loss absorption capacity but also that of its subsidiary, before the intermediate parent 
or  the  subsidiary  are  no  longer  viable.  The  deduction  approach  ensures  that  intermediate 
parents report available own funds only to the extent that they relate to the risks linked to their 
own balance  sheet.  In addition,  the approach would  be conducive to  a timely application of 
maximum distributable amount restrictions  in accordance with Articles 141 and 141b of the 
CRD,  Article  16a  of  the  BRRD  and  of  the  determination  that  the  intermediate  parent  is  no 
longer viable. 

The deduction regime should apply to all intermediate parents who are institutions or entities 
referred to in Article 1(1), points (b) to (d), of the BRRD and who are required to comply with 
internal MREL as determined by the resolution authority, irrespective of whether they are part 
of G-SII groups. As such, the references to eligible liabilities items should also be understood 
as including the liabilities eligible to comply with internal MREL pursuant to Article 45f(2), 
point (a), of the BRRD. 

The deduction regime is strictly limited to intermediate parents in the context of the indirect 
subscriptions of internal MREL instruments. Therefore, Article 49(2) of the CRR only needs 
to  be  amended  with  regard  to  exposures  that  are  subject  to  the  new  treatment  set  out  in 
Article 72e(5)  of  the  CRR.  Moreover,  to  ensure  that  the  new  deduction  regime  remains 
proportionate,  institutions  will  be  able  to  choose  the  mix  of  instruments  (own  funds  versus 
eligible liabilities) with which the intermediate parent funds the acquisition of internal MREL 
instruments of its subsidiaries. This is achieved by applying the deductions first to the stock of 
eligible  liabilities  of  the  intermediate  parent.  Only  where  the  amount  to  be  deducted  would 
exceed  the  stock  of  eligible  liabilities  of  the  intermediate  parent,  the  remaining  deductions 
would  have  to  be  applied  to  its  stock  of  own  funds  for  prudential  purposes,  starting  with 
Tier 2  items  (Article  66,  point  (e),  of  the  CRR)31.  In  practical  terms,  this  means  that  the 
intermediate  parent  could  completely  avoid  any  own  funds  related  deductions  as  long  as  it 
issues sufficient MREL eligible liabilities to the resolution entity. 

In some exceptional cases, namely where internal MREL and internal TLAC is not applied on 
an  individual  basis  but  on  a  consolidated  basis32,  a  deduction  regime  may  be  excessive, 

31 

32 

In case the remaining deductions would also exceed the stock of the intermediate parent’s Tier 2 items, 
the exceeding amount would have to be deducted from Additional Tier 1 items (Article 56, point (e), of 
the  CRR).  If  needed,  any  remaining  amount  would  subsequently  be  deducted  from  the  intermediate 
parent’s Common Equity Tier 1 items (Article 36(1), point (j), of the CRR). 
With  regard  to  internal  MREL,  this  may  be  relevant  for  certain  Union  parent  undertakings  that  are 
subsidiaries  of  third-country  groups  (Article  45f(1),  third  subparagraph,  of  the  BRRD)  and  for 

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potentially  resulting  in  a  double  penalty  under  the  envisaged  full  holdings-based  deduction 
approach.  Indeed,  in  those situations,  the intermediate parent  should absorb the losses of its 
subsidiaries and therefore hold sufficient loss-absorbing and recapitalisation capacity to cover 
its own needs as well as the needs of the subsidiaries in the perimeter of consolidation. Those 
cases are therefore exempted from the deduction regime.33 

The  indirect  subscription  of  internal  MREL  eligible  instruments  should  ensure  that,  when  a 
subsidiary  reaches  the  point  of  non-viability,  losses  are  effectively  passed  on  to,  and  the 
subsidiary  concerned  is  recapitalised  by,  the  resolution  entity.  Thus,  those  losses  are  not 
supposed  to  be  absorbed  by  the  intermediate  parent,  which  becomes  a  mere  vehicle  to  pass 
through those losses to the resolution entity. Consequently, and to ensure that the outcome of 
the indirect  subscription  is  equivalent  to  that of a  full direct  subscription as  intended by the 
co-legislators under Article 45f(6) of the BRRD, the deduction regime is accompanied by the 
application of a 0% risk weight for exposures subject to that regime and by a corresponding 
exclusion  of  those  exposures  from  the  calculation  of  the  leverage  ratio  total  exposure 
measure. This is reflected in Articles 113(1), 151(1) and 429a(1) of the CRR. 

The  above-described  approach  enables  the  implementation  of  the  indirect  subscription  of 
internal MREL instruments in accordance with the conditions agreed to by the co-legislators 
during  the  negotiations  of  Directive  (EU)  2019/879  and  reflected  in  the  mandate  that  was 
given  to  the  EBA.  Furthermore,  that  approach  is  simple,  in  particular  when  compared  to  a 
scenario where the necessary deductions would be applied in the resolution framework only. 
By keeping the treatment set out in the two highly interlinked frameworks, the CRR and the 
BRRD, aligned, institutions can continue to calculate, report, and disclose one set of total risk 
exposure amount and total exposure measure for the purpose of both the CRR and the BRRD, 
thereby avoiding an undue increase in complexity. 

Since the dedicated treatment developed by the EBA in the context of the draft RTS under the 
BRRD  mandate  is  incorporated  directly  into  the  CRR,  the  RTS  is  not  needed  anymore. 
Consequently, Article 45f(6) of the BRRD is deleted. 

(2) 

Comparison  betweeen  the  theoretical  SPE  requirement  and  the  sum  of  the  actual 
MPE requirements 

Article  12a  of  the  CRR  provides  that  G-SII  groups  with  an  MPE  resolution  strategy  must 
calculate their TLAC  requirement referred to  in  Article 92a(1), point (a), of the CRR under 
the theoretical assumption that the group would be resolved under an SPE resolution strategy 
(theoretical  SPE  requirement).  That  theoretical  SPE  requirement  is  then  to  be  compared  by 
resolution authorities to the sum of the actual TLAC requirements of each resolution entity of 
that  group  under  an  MPE  resolution  strategy  (MPE  requirements).  However,  the  CRR 
provisions as regards the consequences of that comparison are inconsistent.  

More  precisely,  where  the  theoretical  SPE  requirement  is  lower  than  the  sum  of  the  actual 
MPE  requirements,  Article  92a(3)  of  the  CRR  currently  sets  out  that  resolution  authorities 
may  act  in  accordance  with  Articles  45d(4)  and  45h(2)  of  the  BRRD.  In  contrast,  the  last 
subparagraph of Article 12a of the CRR sets out that those authorities shall act in that case. In 
the  same  vein,  where  the  theoretical  SPE  requirement  is  higher  than  the  sum  of  the  actual 

33 

intermediate parents that are subject to a consolidated internal MREL target because the next subsidiary 
in the chain benefits from a waiver (Article 45f(4), point (b), of the BRRD). Moreover, internal TLAC 
may also be complied with on a consolidated basis (Article 11(3a) of the CRR). 
The deduction approach on which the EBA publicly consulted in 2020 did not envisage an exemption 
from  the  deduction  regime  where  internal  MREL  and  internal  TLAC  is  not  applied  on  an  individual 
basis but on a consolidated basis, as this aspect only emerged during the public consultation. 

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MPE requirements, the second subparagraph of Article 12a of the CRR sets out that resolution 
authorities may act, which seems to be in contrast to the last subparagraph of Article 45h(2) of 
the BRRD. That last subparagraph envisages that the sum of the actual MPE requirements34 
must never be lower than the theoretical SPE requirements35 and thus clarifies that in that case 
action by resolution authorities is compulsory, rather than optional. 

Against the above background, it is proposed to amend Article 12a of the CRR to clarify that, 
based  on  the  calculation  set  out  in  that  Article,  resolution  authorities  should  always  act  in 
accordance with Articles 45d(4) and 45h(2) of the BRRD. Article 92a(3) of the CRR can then 
be deleted. This removes the inconsistencies from the CRR, aligns the CRR provisions with 
the ones  set  out  in  the BRRD and with  the TLAC standard,  and ensures  that any additional 
MREL requirements determined by the resolution authority pursuant to Article 45d(1), point 
(b), of the BRRD are always taken into account. 

(3) 

Deductions from eligible liabilities items: non-risk-based requirements for own funds 
and eligible liabilities 

Article  72e  of  the  CRR  provides  a  deduction  regime  directly  applicable  to  G-SIIs  with  an 
MPE resolution strategy. This is in line with the TLAC standard, which aims at ensuring that 
for  G-SII  groups  with  more  than  one  resolution  entity,  the  loss-absorbing  capacity  of  each 
resolution  entity  is  computed  exclusive  of  any  exposures  to  other  resolution  entities  in  the 
same  group  that  correspond  to  TLAC  instruments.  The  rationale  of  this  provision  is  to 
minimise the risk of contagion within a G-SII group and to ensure that resolution entities have 
sufficient available loss-absorbing capacity in case of failure, which should not be diminished 
by  losses arising from  intragroup holdings  of TLAC instruments.  Without  those deductions, 
the failure of one resolution entity in the G-SII group would lead to losses in other resolution 
entities  of  that  group  and  consequently  to  a  reduction  in  the  loss-absorbing  and 
recapitalisation capacity of those resolution entities. 

The CRR also provides, in Article 72e(4), an exception to that general deduction regime. That 
exception specifies that the deduction of own funds and eligible liabilities items, issued by a 
subsidiary  and  held  by  its  parent,  can  be  reduced  at  parent  level  if  the  amount  of  that 
reduction  is  instead  deducted  at  the  level  of  the  subsidiary  from  its  loss  absorbing  and 
recapitalisation capacity. 

One  of  the  preconditions  to  reduce  the  deductions  at  parent  level,  and  instead  deduct  the 
amount of that reduction at the level of the subsidiary, is that the subsidiary in question is in 
surplus with regard to its requirement for own funds and eligible liabilities. That requirement 
is expressed as a risk-based and a non-risk based ratio, according to Article 92a(1) of the CRR 
and  Article 45(2)  of  the  BRRD.  However,  the  CRR  formula  to  calculate  the  surplus  of  the 
subsidiary  relies  on  the  risk-based  requirement  only.  This,  in  turn,  may  lead  to  an 
overestimation of the surplus for those subsidiaries for which the non-risk-based requirement 
for own funds and eligible liabilities is higher than the risk-based one. 

It  is  therefore  proposed  to  amend  the  formula  set  out  in  Article  72e(4)  of  the  CRR.  In  line 
with the TLAC standard, that formula would then take into account both the risk-based and 
non-risk-based requirements for own funds and eligible liabilities of the relevant subsidiary. 

34 

35 

That  is  the  TLAC  minimum  requirement  referred  to  in  Articles  92a  and  494  of  the  CRR  and  any 
additional MREL requirement determined by the resolution authority under Article 45d of the BRRD. 
That is, the TLAC minimum requirement that would be applicable to the parent undertaking of the G-
SII  group  and  the  theoretical  additional  MREL  requirement  calculated  by  the  resolution  authority 
pursuant to Article 45d(4), point (b), of the BRRD. 

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(4) 

Consideration of subsidiaries established outside of the Union 

Articles 12a and 72e(4) of the CRR do not explicitly cover subsidiaries that are located in a 
third  country.  It  may  thus  not  be  possible  for  EU  banking  groups  with  a  global  MPE 
resolution strategy to take subsidiaries that are established outside of the Union into account. 
This is relevant, for instance, when comparing the sum of the actual MPE requirements with 
the theoretical SPE requirement under Article 12a of the CRR. That comparison would have 
to be made between a theoretical SPE requirement consisting of the entire group and the sum 
of  the  MPE  requirements  determined  for  EU  resolution  entities  only.  In  the  same  vein,  the 
exception  to  the  general  deduction  regime  applicable  to  G-SIIs  with  an  MPE  resolution 
strategy set out in Article 72e(4) of the CRR could not be applied if the subsidiary concerned 
is located in a third country. 

In order to align the CRR treatment of third-country subsidiaries with the one outlined in the 
corresponding TLAC standard, which is applicable with respect to  entities established in all 
FSB jurisdictions, it is proposed to amend Articles 12a and 72e(4) of the CRR to clarify that 
both provisions also apply to subsidiaries established outside of the Union.  

The application of Article 72e(4) of the CRR needs to be limited to those cases where a third-
country  resolution  regime  is  applicable  to  the  subsidiaries  concerned.  Indeed,  without  an 
applicable  local  resolution  regime  and  the  existence  of  a  resolution  authority,  or  of  another 
authority exercising similar powers, there would be no credible legal means to ensure that the 
capital surplus, which would have virtually been transferred to the parent institution in the EU 
by  means  of  reduced  deductions  at  parent  level,  could  actually  be  transferred  in  case  the 
subsidiary  would  become  insolvent.  This  is  because,  without  a  local  resolution  regime  in 
place,  failed  institutions  would  be  subject  to  insolvency  procedures  in  accordance  with  the 
legislation of the third country.  Consequently, the parent  would have to  compete with  other 
creditors during the insolvency of the subsidiary for the repayment of the outstanding claims. 

(5) 

Clarifications  on  the  eligibility  of  debt  instruments  issued  in  the  context  of  the 
internal TLAC requirement 

Article 92b of the CRR lays down the internal TLAC requirement for material subsidiaries of 
non-EU G-SIIs that are not resolution entities. That requirement may be met with own funds 
and  with  eligible  liabilities  instruments,  as  specified  in  Article  92b(2).  While  the  eligibility 
criteria for eligible liabilities instruments are based on the assumption that those instruments 
are issued by a  resolution entity,36 entities that are subject to an internal TLAC  requirement 
are, by definition, not resolution entities.37 Therefore, debt instruments issued by those entities 
cannot meet all the eligibility criteria for eligible liabilities instruments. Consequently, and in 
contrast to Article 92b(2) of the CRR, those institutions may be required to meet their internal 
TLAC requirement with own funds only. 

In order to address this legal lacuna, a new subparagraph is added after the third subparagraph 
of  Article  72b(2)  of  the  CRR.  That  subparagraph  clarifies  that,  for  the  purposes  of  internal 
TLAC,  references  to  the  resolution  entity  have  to  be  read  as  references  to  the  entity  that  is 
subject  to  the  requirement  set  out  in  Article  92b  of  the  CRR.  This  enables  material 
subsidiaries of non-EU G-SIIs to issue, and thus to use, eligible liabilities instruments to meet 
their internal TLAC requirement, as was intended by the co-legislators. 

36 
37 

Article 72b(2), points (c), (k), (l) and (m), of the CRR. 
Article 92b(1) of the CRR. 

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2021/0343 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Regulation (EU) No 575/2013 and Directive 2014/59/EU as regards the 
prudential treatment of global systemically important institution groups with a multiple 
point of entry resolution strategy and a methodology for the indirect subscription of 
instruments eligible for meeting the minimum requirement for own funds and eligible 
liabilities 

(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 Bank38, 
Having regard to the opinion of the European Economic and Social Committee39,  

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

Directive (EU) 2019/879 of the European Parliament and of the Council40, Regulation 
(EU) 2019/877 of the European Parliament and of the Council41 and Regulation (EU) 
2019/876 of the  European Parliament and of the  Council42 amended the Union  bank 
resolution framework, through amendments to Directive 2014/59/EU of the European 
Parliament  and  of  the  Council43,  Regulation  (EU)  No  806/2014  of  the  European 

38 
39 
40 

41 

42 

43 

OJ C , , p. . 
OJ C , , p. . 
Directive  (EU)  2019/879  of  the  European  Parliament  and  of  the  Council  of  20  May  2019  amending 
Directive  2014/59/EU  as  regards  the  loss-absorbing  and  recapitalisation  capacity  of  credit  institutions 
and investment firms and Directive 98/26/EC (OJ L 150, 7.6.2019, p. 296). 
Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 amending 
Regulation  (EU)  No  806/2014  as  regards  the  loss-absorbing  and  recapitalisation  capacity  of  credit 
institutions and investment firms (OJ L 150, 7.6.2019, p. 226). 
Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending 
Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements 
for  own  funds  and  eligible  liabilities,  counterparty  credit  risk,  market  risk,  exposures  to  central 
counterparties,  exposures  to  collective  investment  undertakings,  large  exposures,  reporting  and 
disclosure requirements, and Regulation (EU) No 648/2012 (OJ L 150, 7.6.2019, p. 1). 
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  and  amending 
Council  Directive  82/891/EEC,  and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC, 
2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) 
No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190). 

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Parliament  and  of  the  Council44  and  Regulation  (EU)  No  575/2013  of  the  European 
Parliament and of the Council45. Those amendments were necessary to implement in 
the  Union  the  international  Total  Loss-absorbing  Capacity  (TLAC)  Term  Sheet  (the 
‘TLAC  standard’)46  for  global  systemically  important  banks  and  to  enhance  the 
application of the minimum requirement for own funds and eligible liabilities (MREL) 
for all banks. The revised Union bank resolution framework should better ensure that 
the  loss  absorption  and  recapitalisation  of  banks  occurs  through  private  means  when 
those banks become financially unviable and are, subsequently, placed in resolution. 

Article  12a  of  Regulation  (EU)  No  575/2013  provides  that  global  systemically 
important institution (G-SII) groups with a resolution strategy under which more than 
one  group  entity  might  be  resolved  (Multiple  Point  of  Entry  (MPE)  resolution 
strategy)  are  to  calculate  their  risk-based  requirement  for  own  funds  and  eligible 
liabilities under the theoretical assumption that only one entity of the group would be 
resolved,  with  the  losses  and  recapitalisation  needs  of  any  subsidiaries  of  that  group 
being  transferred  to  the  resolution  entity  (Single  Point  of  Entry  (SPE)  resolution 
strategy). In line with the TLAC standard, that calculation should take into account all 
third-country entities belonging to a G-SII that would be resolution entities were they 
established in the Union. 

According to Article 45h(2), third subparagraph, of Directive 2014/59/EU, and to the 
TLAC  standard,  the  sum  of  the  actual  requirements  for  own  funds  and  eligible 
liabilities  of  a  G-SII  group  with  an  MPE  resolution  strategy  must  not  be  lower  than 
that  group’s  theoretical  requirement  under  an  SPE  resolution  strategy.  Regulation 
(EU)  No  575/2013,  namely  Articles  12a  and  92a(3),  should  be  aligned  with  the 
corresponding  provisions  of  Directive  2014/59/EU  and  ensure  that  resolution 
authorities  always  act  in  accordance  with  that  Directive  and  consider  both  the 
requirements  for own funds and eligible liabilities laid down in  Regulation  (EU) No 
575/2013 as well as any additional requirement for own funds and eligible liabilities 
determined in accordance with Article 45d of Directive 2014/59/EU. This should not 
prevent  resolution  authorities  from  concluding  that  any  adjustment  to  minimise  or 
eliminate the difference between the sum of the actual requirements for own funds and 
eligible liabilities of a G-SII group with an MPE resolution strategy and that group’s 
theoretical  requirement  under  an  SPE  resolution  strategy,  when  the  former  is  higher 
than  the  latter,  would  be  inappropriate  or  inconsistent  with  the  G-SII’s  resolution 
strategy. 

Article  92b  of  Regulation  (EU)  No  575/2013  sets  out  that  the  requirement  for  own 
funds  and  eligible  liabilities  for  material  subsidiaries  of  non-EU  G-SIIs  that  are  not 
resolution entities may inter alia be met with eligible liabilities instruments. However, 
the  eligibility  criteria  for  eligible  liabilities  instruments  laid  down  in  Article  72b(2), 
points  (c),  (k),  (l)  and  (m),  of  Regulation  (EU)  No  575/2013  presuppose  the  issuing 

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). 
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). 
Financial  Stability  Board,  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.  

(2) 

(3) 

(4) 

44 

45 

46 

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(5) 

(6) 

(7) 

entity to be a resolution entity. It should be ensured that those material subsidiaries can 
issue debt instruments that meet all eligibility criteria, as originally intended. 

According  to  Article  72e(4),  first  subparagraph,  of  Regulation  (EU)  No  575/2013, 
resolution  authorities may  permit  a  G-SII with  an MPE resolution  strategy to  deduct 
certain holdings of own funds and eligible liabilities instruments of its subsidiaries that 
do  not  belong  to  the  same  resolution  group  by  deducting  a  lower,  adjusted  amount 
specified  by  the  resolution  authority.  Article  72e(4),  second  subparagraph,  of  that 
Regulation requires that in such cases, the difference between the adjusted amount and 
the original amount is deducted from the loss absorbing and recapitalisation capacity 
of  the  subsidiaries  concerned.  In  line  with  the  TLAC  standard,  that  approach  should 
take  into  account  the  risk-based  and  non-risk-based  requirements  for  own  funds  and 
eligible  liabilities  of  the  subsidiary  concerned.  Furthermore,  that  approach  should  be 
applicable  to  all  third-country  subsidiaries  belonging  to  that  G-SII,  as  long  as  those 
subsidiaries are subject to a local resolution regime that is equivalent to internationally 
agreed standards. 

To  operationalise  the  approach  of  indirect  subscription  of  internal  MREL  eligible 
instruments  within  resolution  groups  and  to  ensure  that  that  approach  is  prudentially 
sound, the European Banking Authority (EBA) was mandated under Article 45f(6) of 
Directive  2014/59/EU  to  develop  draft  regulatory  technical  standards  to  specify  a 
methodology  for  such  an  indirect  issuance  of  eligible  instruments.  However,  as 
highlighted by the EBA  in its letter to the Commission dated 25 January 2021, there 
were several inconsistencies between the requirements for the delegation laid down in 
Directive 2014/59/EU and the existing prudential rules laid down in Regulation (EU) 
No 575/2013, which did not allow the application of the prudential treatment needed 
for the mandate to be fulfilled as originally intended. More precisely, the EBA noted 
that Regulation (EU) No 575/2013 did not allow for the deduction of internal MREL 
eligible  instruments  and,  subsequently,  for  the  application  of  an  appropriate  risk 
weight in all the cases relevant for the mandate under Directive 2014/59/EU. Similar 
issues  were  identified  in  the  area  of  the  leverage  ratio  requirement  laid  down  in 
Regulation  (EU)  No  575/2013.  In  light  of  those  legal  constraints,  the  methodology 
developed  by  the  EBA  should  be  incorporated  directly  into  Regulation  (EU)  No 
575/2013.  Consequently, the mandate to  develop draft regulatory technical  standards 
set out in Article 45f(6) of Directive 2014/59/EU should be deleted. 

In  the  context  of  the  indirect  subscription  of  internal  MREL  eligible  instruments  by 
resolution  entities  pursuant  to  the  revised  Union  bank  resolution  framework, 
intermediate  parents  should  be  required  to  deduct  from  their  own  internal  MREL 
eligible resources the full holding of own funds and eligible liabilities issued by  their 
subsidiaries  belonging  to  the  same  resolution  group.  This  ensures  the  proper 
functioning  of  the  internal  loss-absorbing  and  recapitalisation  mechanisms  within  a 
group and avoids the double-counting of the internal MREL eligible resources of the 
subsidiary  for  the  purposes  of  compliance  by  the  intermediate  parent  with  its  own 
internal MREL. Additionally, without those deductions, the individual solvency ratios 
of intermediate parents would not reflect appropriately and prudently their actual loss-
absorbing capacity,  as  those ratios would also  include the loss-absorbing capacity  of 
their  subsidiaries.  This  could  compromise  the  proper  implementation  of  the  chosen 
resolution  strategy,  as  the  intermediate  parent  could  use  up  not  only  its  own  loss 
absorption capacity but also that of its subsidiary, before the intermediate parent or the 
subsidiary are no longer viable. The deductions should first be applied to the eligible 
liabilities items of the intermediate parents. In case the amount to be deducted would 

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(8) 

(9) 

exceed  the  amount  of  the  eligible  liabilities  items  of  the  intermediate  parents,  the 
remaining  amount  should  be  deducted  from  their  Tier  2  items.  To  ensure  that  the 
deduction  regime  remains  proportionate,  that  regime  should  not  be  applicable  in  the 
exceptional cases where internal MREL is applied on a consolidated basis only. 

The  indirect  subscription  of  internal  MREL  eligible  instruments  should  ensure  that, 
when a subsidiary  reaches the point of non-viability, losses are effectively passed on 
to, and the subsidiary concerned is recapitalised by, the resolution entity. Those losses 
should thus not be absorbed by the intermediate parent, which should become a mere 
vehicle  to  pass  through  those  losses  to  the  resolution  entity.  Consequently,  and  to 
ensure that the outcome of the indirect subscription is equivalent to that of a full direct 
subscription,  as  envisaged  under  the  mandate  set  out  in  Article  45f(6)  of  Directive 
2014/59/EU,  the  deducted  exposures  should  receive  a  0  %  risk  weight  for  the 
calculation of the total risk exposure amount and be excluded from the calculation of 
the total exposure measure. 

Since  the  objectives  of  this  Regulation,  namely  to  fully  harmonise  the  prudential 
treatment of the holdings by intermediate parents of internal MREL eligible resources 
of their subsidiaries and to revise in a targeted manner the requirements for own funds 
and  eligible  liabilities  for  G-SIIs  and  for  material  subsidiaries  of  non-EU  G-SIIs, 
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 
measures, 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. 

(10)  To ensure that institutions  have sufficient time to  implement  the  dedicated treatment 
for the indirect subscription of instruments eligible for internal MREL, including the 
new  deduction  regime,  the  provisions  laying  down  that  treatment  should  become 
applicable six months after the entry into force of this Regulation. 

(11)  Regulation (EU) No 575/2013 and Directive 2014/59/EU should therefore be amended 

accordingly, 

HAVE ADOPTED THIS REGULATION: 

Article 1 
Amendments to Regulation (EU) No 575/2013 

Regulation (EU) No 575/2013 is amended as follows: 

(1) 

in Article 4(1), the following point (130a) is inserted: 

‘(130a) 

‘relevant  third-country  authority’  means  a  third-country  authority  as 
defined in Article 2(1), point (90), of Directive 2014/59/EU;’; 

(2) 

Article 12a is replaced by the following: 

‘Article 12a 
Consolidated calculation for G-SIIs with multiple resolution entities 

Where at least two G-SII entities belonging to the same G-SII are resolution entities 
or third-country entities that would be resolution entities if they were established in 
the Union, the EU parent institution of that G-SII shall calculate the amount of own 
funds and eligible liabilities referred to in Article 92a(1), point (a). That calculation 

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shall  be  undertaken  on  the  basis  of  the  consolidated  situation  of  the  EU  parent 
institution as if it were the only resolution entity of the G-SII. 

Resolution authorities shall act in accordance with Article 45d(4) and Article 45h(2) 
of Directive 2014/59/EU.’; 

(3) 

in Article 49(2), the following subparagraph is added: 

‘This  paragraph  shall  not  apply  with  regard  to  the  deductions  set  out  in 
Article 72e(5).’; 

(4) 

in Article 72b(2), the following subparagraph is added: 

‘For the purposes of Article 92b, references to the resolution entity in points (c), (k), 
(l) and (m) of this paragraph shall also be understood as references to the institution 
that is a material subsidiary of the non-EU G-SII.’; 

(5) 

Article 72e is amended as follows: 

(a) 

paragraph 4 is replaced by the following: 

‘4.  Where  an  EU  parent  institution  or  a  parent  institution  in  a  Member 
State that is subject to Article 92a has direct, indirect or synthetic holdings of 
own  funds  instruments  or  eligible  liabilities  instruments  of  one  or  more 
subsidiaries  which  do  not  belong  to  the  same  resolution  group  as  that  parent 
institution,  the  resolution  authority  of  that  parent  institution,  after  duly 
considering  the  opinion  of  the  resolution  authorities  or  relevant  third-country 
authorities of any subsidiaries concerned, may permit the parent institution to 
deduct such holdings by deducting a lower amount specified by the resolution 
authority of that parent institution. That adjusted amount shall be at least equal 
to the amount (m) calculated as follows: 

mi = max{0; OPi + LPi – max{0; β · [Oi + Li – max{ri · aRWAi; wi ·aLREi}]}} 

where: 

i 

= the index denoting the subsidiary; 

= the amount of own funds instruments issued by subsidiary i and held 

OPi 
by the parent institution; 

=  the  amount  of  eligible  liabilities  instruments  issued  by  subsidiary  i 

LPi 
and held by the parent institution; 

β 
=  percentage  of  own  funds  instruments  and  eligible  liabilities 
instruments  issued  by  subsidiary  i  and  held  by  the  parent  undertaking 
calculated as follows: 

β =

(OP𝑖 + LP𝑖)
𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑎𝑙𝑙 𝑜𝑤𝑛 𝑓𝑢𝑛𝑑𝑠 𝑖𝑛𝑠𝑡𝑟𝑢𝑚𝑒𝑛𝑡𝑠 𝑎𝑛𝑑 𝑒𝑙𝑖𝑔𝑖𝑏𝑙𝑒 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑖𝑛𝑠𝑡𝑟𝑢𝑚𝑒𝑛𝑡𝑠 𝑖𝑠𝑠𝑢𝑒𝑑 𝑏𝑦 𝑠𝑢𝑏𝑠𝑖𝑑𝑖𝑎𝑟𝑦 𝑖

= the amount of own funds of subsidiary i, not taking into account the 

Oi 
deduction calculated in accordance with this paragraph; 

=  the  amount  of  eligible  liabilities  of  subsidiary  i,  not  taking  into 

Li 
account the deduction calculated in accordance with this paragraph; 

ri 
= the ratio applicable to subsidiary i at the level of its resolution group 
in  accordance  with  Article  92a(1),  point  (a),  of  this  Regulation  and  Article 
45c(3),  first  subparagraph,  point  (a),  of  Directive  2014/59/EU  or,  for  third-
country  subsidiaries,  an  equivalent  resolution  requirement  applicable  to 

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subsidiary  i  in  the  third  country  where  it  has  its  head  office,  insofar  as  that 
requirement  is  met  with  instruments  that  would  be  considered  own  funds  or 
eligible liabilities under this Regulation; 

aRWAi =  the  total  risk  exposure  amount  of  the  G-SII  entity  i  calculated  in 
accordance  with  Article  92(3),  taking  into  account  the  adjustments  set  out  in 
Article 12a; 

wi 
= the ratio applicable to subsidiary i at the level of its resolution group 
in accordance with Article 92a(1), point (b), of this Regulation and of Article 
45c(3),  first  subparagraph,  point  (b),  of  Directive  2014/59/EU  or,  for  third-
country  subsidiaries,  an  equivalent  resolution  requirement  applicable  to 
subsidiary  i  in  the  third  country  where  it  has  its  head  office,  insofar  as  that 
requirement  is  met  with  instruments  that  would  be  considered  own  funds  or 
eligible liabilities under this Regulation; 

aLREi  =  the  total  exposure  measure  of  the  G-SII  entity  i  calculated  in 
accordance with Article 429(4). 

Where  the  parent  institution  is  allowed  to  deduct  the  adjusted  amount  in 
accordance with  the first subparagraph, the difference between the  amount  of 
holdings of own funds instruments and eligible liabilities instruments referred 
to in the first subparagraph and that adjusted amount shall be deducted by the 
subsidiary.’; 

(b) 

the following paragraph 5 is added: 

‘5. 
Institutions  and  entities  required  to  comply  with  Article  45c  of 
Directive  2014/59/EU  that  are  not  themselves  resolution  entities  shall  deduct 
from eligible liabilities items their holdings of own funds and eligible liabilities 
that meet the conditions of Article 45f(2) of that Directive of their subsidiaries 
that belong to the same resolution group.  

The deduction shall not apply to institutions and entities that are not themselves 
resolution  entities  where  they  are  required  to  comply  with  the  requirement 
referred to in Articles 45c and 45d of Directive 2014/59/EU on a consolidated 
basis. 

For  the  purposes  of  this  paragraph,  the  reference  to  eligible  liabilities  items 
shall  also  be  understood  as  a  reference  to  eligible  liabilities  referred  to  in 
Article 45f(2), point (a), of Directive 2014/59/EU.’; 

(6) 

(7) 

in Article 92a, paragraph 3 is deleted; 

in Article 113, paragraph 1 is replaced by the following: 

‘1.  To calculate risk-weighted exposure amounts, risk weights shall be applied to 
all exposures, unless deducted from own funds or subject to the treatment set out in 
Article  72e(5),  first  subparagraph,  in  accordance  with  the  provisions  of  Section  2. 
The  application  of  risk  weights  shall  be  based  on  the  exposure  class  to  which  the 
exposure is assigned and, to the extent specified in Section 2, its credit quality. Credit 
quality  may  be  determined  by  reference  to  the  credit  assessments  of  ECAIs  or  the 
credit assessments of export credit agencies in accordance with Section 3.’; 

(8) 

in Article 151, paragraph 1 is replaced by the following: 

‘1.  The risk-weighted exposure amounts for credit risk for exposures belonging to 
one  of  the  exposure  classes  referred  to  in  Article  147(2),  points  (a)  to  (e)  and 

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point (g), shall, unless deducted from own funds or subject to the treatment set out in 
Article 72e(5), first subparagraph, be calculated in accordance with Sub-section 2.’; 

(9) 

in Article 429a(1), the following point (q) is added: 

the  amounts  that  are  subject  to  the  treatment  set  out  in  Article  72e(5),  first 

‘(q) 
subparagraph.’. 

Article 2 
Amendment to Directive 2014/59/EU 

In Article 45f of Directive 2014/59/EU, paragraph 6 is deleted. 

Article 3 
Entry into force and application 

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

It shall apply from [OP please insert the date = date of entry into force]. 

However, Article 1, point (3), point (5)(b), and points (7), (8) and (9) and Article 2 shall apply 
from [OP please insert the date = 6 months after date of 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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