Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2014/59/EU and Regulation (EU) No 806/2014 as regards certain aspects of the minimum requirement for own funds and eligible liabilities
Date: 2023-04-18
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: aid for restructuring, aid to undertakings, company in difficulties, credit institution, economic stabilisation, financial aid, financial intervention, financial solvency, investment company, reserves

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   EUROPEAN COMMISSION  Strasbourg, 18.4.2023  COM(2023) 229 final 2023/0113 (COD)  Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2014/59/EU and Regulation (EU) No 806/2014 as regards certain aspects of 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 

• 
The  proposed  amendments  to  Directive  2014/59/EU1  (the  Bank  Recovery  and  Resolution 
Directive or BRRD) and to Regulation (EU) No 806/20142 (the Single Resolution Mechanism 
Regulation  or  SRMR)  are  part  of  the  crisis  management  and  deposit  insurance  legislative 
package that also includes additional amendments to those acts and to Directive 2014/49/EU3 
(the Deposit Guarantee Schemes Directive or DGSD). 

The EU crisis management framework is well-established, however, recent episodes of bank 
failures have shown that there is need for improvements. The aim of the CMDI reform is to 
build on the objectives of the crisis management framework and to ensure a more consistent 
approach  to  resolution,  so  that  any  bank  in  crisis  can  exit the  market  in  an  orderly  manner, 
while  preserving  financial  stability,  taxpayer  money  and  ensuring  depositor  confidence.  In 
particular, the existing resolution framework for smaller and medium-sized banks needs to be 
strengthened with respect to its design, implementation and, most importantly, incentives for 
its application, so that it can be more credibly applied to those banks. 

In  the  aftermath  of  the  global  financial  and  sovereign  debt  crises,  the  EU  took  decisive 
actions, in line with international calls for reform, to create a safer financial sector for the EU 
single  market.  This  included  providing  authorities  with  the  tools  and  powers  to  handle  the 
failure of any bank in an orderly manner while preserving financial stability, public finances 
and depositor protection. 

The  EU  framework  was  reformed  largely  based  on  global  standards  agreed  with  the  EU’s 
international partners. It consists of four main EU legislative texts adopted in 2013 and 2014 
acting  together  with  relevant  national  legislation:  a  regulation  and  a  directive  on  prudential 
requirements for and supervision of institutions (the Capital Requirements Regulation (CRR4) 
and the Capital Requirements Directive (CRD5)), the BRRD and the SRMR. 

The  2019  banking  package  revised  the  legislation  by  including  measures  delivering  on  the 
EU’s  commitments  made  in  international  fora6  to  take  further  steps  towards  completing  the 

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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  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)  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  2014/49/EU  of  the  European  Parliament  and  of  the  Council  of  16  April  2014  on  deposit 
guarantee schemes (OJ L 173, 12.6.2014, p. 149). 
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). 
Financial  Stability  Board  (2014  updated  version),  Key  Attributes  of  effective  resolution  regimes  for 
financial institutions. 

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Banking Union by providing credible risk reduction measures to mitigate threats to financial 
stability. The main revisions concerned (i) the implementation in the EU of the international 
‘Total  Loss-absorbing  Capacity  (TLAC)  Term  Sheet’,  published  by  the  Financial  Stability 
Board on 9 November 2015 (the ‘TLAC standard’)7, for global systemically important banks, 
referred  to  in  the  EU  legislation  as  global  systemically  important  institutions;  and  (ii)  the 
amendment of the minimum requirement for own funds and eligible liabilities (MREL) set out 
in BRRD and SRMR.  

The objective of these reforms was to ensure that the loss absorption and recapitalisation of 
banks,  when  those  banks  become  financially  unviable  and  are  subsequently  placed  in 
resolution, would occur through private means. The revision also clarified the application of 
MREL  at  the  level  of  subsidiaries  within  banking  groups  by  introducing  the  concept  of 
‘internal  MREL’  in  line  with  a  similar  concept  included  in  the  TLAC  standard.  These 
requirements aim to ensure that internal arrangements are in place between group entities to 
transfer  losses  from  group  entities  to  the  resolution  entity,  i.e.  typically  the  parent 
undertaking, without placing the group entities into formal resolution, which could potentially 
have  disruptive  effects  on  the  market.  To  implement  this  mechanism,  group  entities  are 
required,  based  on  the  decision  of  the  resolution  authorities,  to  issue  eligible  liabilities  that 
should be subscribed directly or indirectly by the resolution entity. 

The  EU  MREL  framework  was  further  amended  by  Regulation  (EU)  2022/2036  of  the 
European  Parliament  and  of  the  Council8,  which  established  methods  for  the  indirect 
subscription  of  instruments  eligible  for  meeting  the  internal  MREL.  On  the  basis  of  a 
technical assessment by the EBA pursuant to a mandate set out in Article 45f(6) BRRD, the 
regulation introduced a deduction mechanism for the indirect subscriptions of internal MREL 
through intermediate entities in a chain of ownership (i.e. between the ultimate subsidiary and 
the resolution entity) to ensure the effective application of internal loss transfers in the MREL 
framework. Under this  mechanism, referred to  as a full holdings-based  deduction approach, 
intermediate  entities  are  required  to  deduct  from  their  own  internal  MREL  capacity  the 
holdings  of  internal  MREL  eligible  instruments  issued  by  other  entities  that  are  part  of  the 
same  resolution  group.  The  text  also  specifies  that  intermediate  entities  complying  with 
internal  MREL  on  a  consolidated  basis  are  exempted  from  the  obligation  to  deduct  their 
holdings  of  instruments  issued  by  the  entities  included  in  the  consolidation.  This  approach 
was  preferred  to  a  requirement-based  deduction  approach  where  the  amount  of  deductions 
required of the intermediate entities would be limited by a cap corresponding to the level of 
the internal MREL of the issuing entity belonging to the same resolution group. 

Regulation (EU) 2022/2036 also mandated the Commission to review the implementation of 
the  deduction  approach  for  indirect  subscription  of  internal  MREL  eligible  resources  across 
the  different  types  of  banking  group  structures,  to  assess  any  potential  unintended 
consequences of the new deduction  mechanism and to  ensure proportionate treatment  and  a 
level playing field, particularly with regard to chains of ownership that include an operating 
company  between  a  parent  holding  company  and  its  subsidiaries  (‘holdco  structures’  in 
opposition  to  ‘opco  structures’,  where  the  parent  entity  is  not  a  holding  company).  The 

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Financial  Stability  Board  (2015),  Principles  on  Loss-absorbing  and  Recapitalisation  Capacity  of 
Globally Systemically Important Banks (G-SIBs) in Resolution, Total Loss-absorbing Capacity (TLAC) 
Term Sheet. 
Regulation  (EU)  2022/2036  of  the  European  Parliament  and  of  the  Council  of  19  October  2022 
amending Regulation (EU) No 575/2013 and Directive 2014/59/EU as regards the prudential treatment 
of  global  systemically  important  institutions  with  a  multiple-point-of-entry  resolution  strategy  and 
methods for the indirect subscription of instruments eligible for meeting the minimum requirement for 
own funds and eligible liabilities (OJ L 275, 25.10.2022, p. 1–10). 

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Commission  was  asked  to  assess:  (i)  the  possibility  of  allowing  compliance  with  internal 
MREL  on  a  consolidated  basis  in  additional  situations;  (ii)  the  treatment  of  entities  whose 
resolution plan provides that they are to be wound up under normal insolvency proceedings 
(‘liquidation  entities’);  and  (iii) the appropriateness  of limiting the deductions to  an amount 
equivalent to the internal MREL of the issuing entity. 

Based  on  an  analysis  of  the  deduction  mechanism  introduced  in  the  Regulation  and  a 
quantitative  impact  assessment  using  data  provided  by  the  Single  Resolution  Board  (SRB), 
the Commission found that targeted amendments to the BRRD and the SRMR with respect to 
the  scope  of  application  of  internal  MREL  requirements  and  the  treatment  of  liquidation 
entities are necessary and appropriate.  

The  proposed  amendments  will  contribute  to  the  resolvability  of  banks  by  improving  the 
functioning and proportionality of the deduction mechanism, and will ensure that it does not 
create level playing field issues between different banking group structures.  

Given that the corresponding provisions are already in force and will become applicable in the 
EU on 1 January 2024, the proposed amendments need to be made in a timely manner. The 
need for speedy adoption is further amplified by the fact that banking groups need clarity on 
the deduction mechanism to decide how best to preposition their internal MREL capacity in 
view of the general MREL compliance deadline, also set on 1 January 2024. 

• 

Consistency with existing policy provisions in the policy area 

The proposal puts forward amendments to the existing legislation, acting on a mandate for the 
Commission to assess the functioning of the deduction mechanism set out in Regulation (EU) 
2022/2036,  and  renders  it  fully  consistent  with  the  existing  policy  provisions  in  the  area  of 
bank crisis management.  

The  targeted  review  of  SRMR  SRMRSRMR  aims  to  improve  the  functioning  and 
proportionality of the deduction mechanism and ensures that it does not create level playing 
field issues between different banking group structures. 

• 

Consistency with other EU policies 

The proposal builds on the reforms carried out in the aftermath of the financial crisis that led 
to the creation of the Banking Union and the single rulebook for all EU banks. 

The  proposal  helps  strengthen  the  EU’s  financial  legislation  adopted  in  the  last  decade  to 
increase  the  resilience  of  the  financial  sector  and  ensure  an  orderly  management  of  bank 
failures.  The  aim  is  to  make  the  banking  system  more  robust  and  ultimately  promote  the 
sustainable  financing  of  economic  activity  in  the  EU.  It  is  fully  consistent  with  the  EU's 
fundamental goals of promoting financial stability, reducing recourse to taxpayers’ money in 
bank  resolution,  and  preserving  depositor  confidence.  These  objectives  are  conducive  to  a 
high level of competitiveness and consumer protection. 

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 proposal aims at supplementing and amending already existing EU legislation (the BRRD 
and  the  SRMR),  which  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 

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that the BRRD and  the  SRMR already regulate  those matters, and changes  at  national  level 
would conflict with EU law currently in force. 

The proposed amendments are in line with the mandate set out in Regulation (EU) 2022/2036 
requiring the Commission to review the application of the framework. These changes  would 
further  promote  the  uniform  application  of  prudential  requirements,  the  convergence  of 
practices among resolution authorities and a level playing field throughout the single market 
for  banking  services.  These  objectives  cannot  be  sufficiently  achieved  by  Member  States 
alone.  If  the  EU  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 built single rulebook in this area. 

• 

Proportionality 

EU action is  necessary to achieve the objective  of improving the application of the existing 
EU rules as regards ensuring the resolvability of banking groups and addressing level playing 
field  issues.  The  proposed  amendments  do  not  go  beyond  addressing  selected  provisions  in 
the  EU’s  prudential  framework  for  institutions  that  target  exclusively  measures  aimed  at 
ensuring the smooth transfer of losses and capital within resolution groups at the moment of 
resolution though appropriate rules on internal MREL eligible instruments in complex cases 
such as daisy chains. Moreover, the proposed amendments are limited to those issues, which 
cannot be addressed within the existing margin of discretion provided for by the current rules. 

• 

Choice of the instrument 

The  measures  would  be  implemented  by  amending  the  BRRD  and  the  SRMR  through  a 
Directive.  The  proposed  measures  refer  to  or  further  develop  already  existing  provisions  in 
those instruments related to the loss-absorbing and recapitalisation capacity of institutions and 
entities.  

A specific proposal on targeted amendments to the MREL framework is justified in view of 
the  urgency  of  harmonised  EU  rules  before  the  application  date  of  1  January  2024  of  the 
dedicated treatment in CRR for the indirect subscription of internal MREL eligible resources. 

In view of the limited number of the proposed amendments, to ensure a consistent discussion 
in the co-legislative process and the full alignment of the final amendments to the BRRD and 
the SRMR, the amendments to both acts are included in a single proposal.  

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EVALUATIONS, 

POST 

OF 

EX 

STAKEHOLDER 

Ex post evaluations/fitness checks of existing legislation 

This initiative acts upon the Commission mandate introduced by Regulation (EU) 2022/2036 
to review and assess the functioning of a deduction mechanism and adopt, where appropriate, 
a legislative proposal to address any identified shortcomings9. 

The review is based on an analysis that includes a quantitative impact assessment focusing on 
the  level  playing  field  between  different  types  of  banking  group  structures.  It  evaluated  the 
effects of the current rules and analysed possible amendments related to: (i) the possibility of 
allowing  entities  that  are  not  themselves  resolution  entities  to  comply  with  the  minimum 

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This chapter of the explanatory memorandum fulfils the obligation of the Commission to report to the 
Council and to the European Parliament on the outcome of the review conducted in compliance with the 
review clause introduced in Article 129 BRRD by Regulation (EU) 2022/2036.  

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requirement for own funds and eligible liabilities on a consolidated basis; (ii) the treatment, 
under the rules governing the minimum requirement for own funds and eligible liabilities, of 
entities whose resolution plan provides that they are to be wound up under normal insolvency 
proceedings; and (iii) the appropriateness of limiting the amount of deductions required under 
the existing rules. 

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Stakeholder consultations 

The  Commission  staff  consulted  Member  States  on  the  outcome  of  the  analysis,  the 
quantitative impact assessment of the deduction mechanism and the proposed amendments via 
the Commission Expert Group for Banking, Payments and Insurance. 

The  results  of  these  consultations  fed  into  the  preparation  of  this  proposal.  They  provided 
clear evidence of the need to update and complete the current rules in order to best achieve the 
objectives of the framework while ensuring proportionality and a level playing field. 

• 

Collection and use of expertise 

The Commission benefited from the support of the SRB through the provision of data, which 
was collected on an ad hoc basis through a voluntary exercise directly from banking groups 
that  are  subject  to  the  existing  rules.  This  data  was  shared  with  the  Commission  on  an 
aggregated and anonymised basis. The sample was made of ten intermediate entities, located 
in  six Member States,  that are subject  to  the deduction mechanism under the existing rules. 
The sample was evenly split among entities  forming part of holdco and opco structures and 
relied in most cases on data as of 31 December 2021.  

Member State 

Number of intermediate 
entities part of HoldCo 

Austria 
Belgium 
Croatia 
France 
Ireland 
Netherlands 
Total 

1 
1 

2 
1 
5 

Number of intermediate 
entities part of OpCo 
1 
1 

3 

5 

Source: Commission staff, based on data provided by the SRB, as of 31 December 2021. 

This quantitative evidence was used to assess how the deduction framework works under the 
existing  rules,  identify  potential  shortcomings  and  level  playing  field  issues  related  to  its 
implementation, and test possible amendments to address them. 

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Impact assessment 

The  proposal  has  been  subject  to  an  analysis  including  a  quantitative  impact  assessment 
taking  into  account  both  the  feedback  received  from  stakeholders  and  the  need  to  address 
various  considerations  specified  in  the  mandate  given  to  the  Commission  pursuant  to 
Regulation (EU) 2022/2036. 

Assessment of the deduction mechanism for internal MREL 

The  Commission  has  assessed  the  potential  existence  of  level-playing  field  issues  between 
different banking group structures under the current deduction mechanism.  

According  to  the  analysis,  the  exposures  of  intermediate  entities  that  would  be  subject  to  a 
deduction under a full holdings-based deduction approach correspond, in aggregate, to 24.1% 
of the total risk exposure amount (TREA) and 4.3% of the total exposure measure (TEM) of 
the  intermediate  entities.  However,  intermediate  entities  forming  part  of  holdco  structures 

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tend to be more affected, in aggregate, compared to intermediate entities forming part of opco 
structures: deductions would represent up to 28.1% versus 14.3% of the TREA, and up to 5% 
versus 2.7% of the TEM of the intermediate entities. These differences may be explained by 
the higher amounts of intragroup exposures at the level of the intermediate entities in the case 
of  holdcos,  translating  into  higher  relative  amounts  of  deductions  (Table  1).  This  is  also 
confirmed  when  considering  average  values  at  bank  level.  While  deductions  represent  on 
average 12.3% of the TREA of all intermediate entities under a full holdings-based approach, 
that level reaches 14.7% TREA for intermediate entities forming part of holdcos versus 7.5% 
TREA for those forming part of opcos (Table 2). 

However, this structural difference is not reflected when considering the solvency situation of 
the intermediate entities, as intermediate entities forming part of holdcos and opcos both face 
an  important  decrease  of  their  MREL  surplus  after  the  introduction  of  a  deduction 
mechanism.  In  particular,  one  intermediate  entity  forming  part  of  a  holdco  displays  a  2.6% 
TREA  shortfall  against  its  MREL  and  its  combined  buffer  requirement  (CBR)  with  a  full 
holdings-based  deduction  approach  and  four  other  intermediate  entities  keep  having  an 
average  MREL  surplus  of  5.2%  TREA,  while  they  were  all  in  surplus  (6.4%  TREA  on 
average)  without  deductions.  For  intermediate  entities  forming  part  of  opcos,  the  average 
MREL surplus against the MREL and CBR decreases from 5.3% to 1.7% TREA, while two 
entities which were already in shortfall without deductions see their average shortfall increase 
from 2.4% to 6.1% TREA (Table 3).  

The choice of the deduction approach (i.e. holdings-based versus requirement-based) changes 
the magnitude of the impact  but  not  the relative  higher amount of deduction  across the two 
types of structures.  

However, the effect of these changes will be different for intermediate entities forming part of 
holdcos as any shortfall directly affects the MREL capacity of the parent resolution entity (via 
additional  subordinated  issuances  to  the  market).  In  fact,  holdco  structures  may  only  fund 
those issuances through structurally subordinated debt given that typically they may not have 
other  sources  of  funding.  This  specific  characteristic  is  reinforced  by  the  fact  that  the 
operating bank below the holdco generally centralises the exposures to the rest of the group. 
On  the  contrary,  in  opco  structures,  the  resolution  entity  may  reallocate  other  sources  of 
funding to finance the internal MREL of its intermediate entities. 

In this context, the Commission considered that intermediate entities forming part of holdco 
structures might be affected to a different extent than other structures, due to the proportion of 
intragroup  exposures  (that  may  vary  on  a  bank-by-bank  basis)  and  the  consequences  of  a 
shortfall  at  the  level  of  the  intermediate  entity.  This  observation  could  warrant  the  need  to 
explore possible ways to make the current framework more proportionate.  

Three possible policy options have been assessed. 

(i) 

Allowing intermediate entities to comply with MREL on a consolidated basis 

The  current  rules  do  not  impose  a  deduction  at  the  level  of  the  intermediate  entity  when  it 
already  complies  with  internal  MREL  on  a  consolidated  basis,  in  relation  to  its  holdings  of 
instruments issued by entities in the consolidation perimeter. This is justified by the fact that 
consolidation raises the level of the requirement in order to capture the exposures (external to 
the  subgroup)  of  all  the  entities  within  the  consolidation  perimeter.  It  requires  intermediate 
entities  to  hold  sufficient  internal  MREL  capacity  to  ensure  that  its  losses,  as  well  as  the 
losses of the consolidated entities, can be upstreamed to the resolution entity in an effective 
way. 

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The  BRRD  only  provides  two  specific  cases  where  internal  MREL  can  be  met  by  a  non-
resolution entity on a consolidated basis: in the presence of internal MREL waivers (Article 
45f(4) BRRD) and in the case of Union parent undertakings of third-country groups (Article 
45f(1), 2nd subparagraph). 

However, a consolidated requirement may prove useful to capture certain banking structures’ 
specificities,  for  instance  where  an  intermediate  entity  naturally  centralises  intragroup 
exposures  and,  in  the  case  of  holdco  structures,  channels  internal  MREL  resources  pre-
positioned by the resolution entity. Setting internal MREL on an individual basis for certain 
intermediate  entities,  such  as  those  forming  part  of  holdco  structures  or  certain  opco 
structures, in the latter case where prudential requirements are determined on a consolidated 
basis,  may  artificially  create  gaps  between  the  requirements  of,  respectively,  the  resolution 
entity and the intermediate entity, the latter being subject to deductions. In this context, setting 
internal MREL on a consolidated basis at the level of the intermediate entity would remove 
the obligation for the intermediate entity to deduct exposures linked to entities forming part of 
its subgroup, because consolidation would have an effect similar to that of deductions. 

Based on the data analysed, consolidation increases significantly the exposure amounts of the 
intermediate  entities  on  the  basis  of  which  internal  MREL  is  calculated  (+23%  TREA  and 
+52% TEM in aggregate terms, Table 1).  

The  impact  on  MREL  and  solvency  is  not  clear-cut  across  the  board  and  seems  to  be 
influenced  by  bank-specific  considerations  that  may  make  consolidation  more  or  less 
advantageous  from  a  daisy  chain  perspective.  In  fact,  compared  to  the  status  quo  (no 
deductions),  surpluses  against  MREL  of  intermediate  entities  forming  part  of  holdcos  are 
decreasing by 25%-40% due to consolidation (from 9.4% to 7.3% TREA), while surpluses of 
intermediate entities forming part of opcos seem to decrease a lot more (from 7.5% to 2.7% 
TREA).  

For  holdco  structures,  applying  consolidation  has,  on  average,  a  lower  impact  on  MREL 
surpluses  than  the  deductions  under  the  full  holdings-based  approach,  but  remains  more 
penalising than deducting under a requirement-based approach. 

The  data  also  shows  that,  when  considering  the  difference  between  a  full  holdings-based 
deduction  approach  and  consolidation,  one  intermediate  entity  which  is  part  of  a  holdco 
structure has  a shortfall against its MREL and the  combined buffer  requirement (CBR), but 
this shortfall disappears  with  consolidation.  Additionally, the shortfall against MREL of the 
intermediate entities forming part of opcos that are already in shortfall is either increasing or 
decreasing depending on the cases (Table 3). 

Overall,  consolidation  could  be  beneficial  for  intermediate  entities  forming  part  of  holdco 
structures.  The  absence  of  clear  effects  on  opco  structures,  despite  a  general  reduction  of 
surpluses without a consistent impact on banks already in shortfall, may be explained by the 
organisation  of these groups, where consolidation  at  the level  of an intermediate entity may 
not  necessarily  be  relevant  in  all  cases.  Where  applied  indistinctly,  consolidation  may 
therefore have more significant negative effects on banks forming part of opco structures than 
the  deductions  under  the  full  holdings-based  approach.  However,  consolidation  may  be  an 
avenue  to  address  the  situation  of  holdco  structures  and  opco  structures  where  prudential 
requirements are already set on a consolidated basis at the level of the intermediate entity. 

(ii) 

Removing liquidation entities from the scope of the deduction mechanism 

Under  the  current  framework,  liquidation  entities  are  subject  to  an  internal  MREL 
requirement  and,  as  a  result,  are  also  captured  by  the  deduction  mechanism  when  part  of  a 
daisy  chain.  This  may  be  overly  prudent,  since  there  is  no  expectation  (provided  that  the 

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strategy  is  accurately  chosen)  of  a  write  down  or  conversion  of  the  instruments  of  the 
liquidation  entity  and  upstreaming  of  losses  to  the  resolution  entity,  via  the  intermediate 
entity,  in  case  of  failure.  Moreover,  the  impact  of  including  liquidation  entities  in  the  daisy 
chain deductions may be material for intermediate entities in groups with many subsidiaries 
earmarked  for  liquidation,  especially  given  the  holdings-based  deduction  approach,  which 
requires that the entirety of own funds and eligible liabilities of the ultimate subsidiary held 
by the intermediate entity must be deducted. 

Removing  liquidation  entities  from  the  scope  of  the  deductions  under  the  daisy  chain 
approach  would  be  more  proportionate  considering  that  there  is  no  need  to  down-stream 
resources to recapitalise the entity in case of failure. As a result, the exposures of intermediate 
entities  towards  liquidation  entities  would  not  have  to  be  deducted,  but  risk-weighted  in 
accordance with the applicable rules, requiring the intermediate entity to hold own funds and 
eligible liabilities to cover potential losses on these exposures, but to a lesser extent compared 
to a full deduction. In cases where the exposures to liquidation entities would be significant, 
this may affect the ability of the intermediate entities to transfer all losses up to the resolution 
entity.  However,  the  data  available  shows  that  the  proportion  of  exposures  to  liquidation 
entities is very low, especially in opco structures10 (0.3% of TREA in aggregate, Table 1, and 
0.6% TREA on average, Table 2), thereby minimising the identified risks. 

Overall,  the  data  indicates  that  exposures  of  intermediate  entities  to  liquidation  entities 
account on aggregate for 2% of the TREA and 0.3% of the TEM of the intermediate entities. 
However, these proportions differ when considering the type of group structure: up to 2.6% 
TREA  and  0.3%  TEM  for  holdco  structures  versus  0.3%  TREA  and  0.1%  TEM  for  opco 
structures (Table 1). 

The amount of exposures (TREA/TEM) under a holdings-based deduction approach without 
liquidation  entities  is  naturally  higher  than  under  a  holdings-based  approach  that  includes  a 
deduction  of  exposures  to  liquidation  entities,  but  remains  below  the  levels  reached  if  the 
deductions were capped under a requirement-based deduction approach.  

In fact, removing exposures to liquidation entities from the deductions has a positive effect on 
the  total  amount  of  deductions  by  the  intermediate  entities  across  the  board,  but  this  effect 
does not reach the same level as deductions under a requirement-based approach. For holdco 
structures, deductions under a full holdings-based approach would account for 14.7% TREA, 
reduced to 13.2% TREA if exposures to liquidation entities are excluded, but still above the 
11.1% TREA reached for deductions under a requirement-based approach. The  ranking  and 
proportions are similar for opcos (7.5%, 6.9% and 6% respectively). Overall, slightly less than 
half  the  distance  between  the  two  approaches  is  met  by  removing  exposures  to  liquidation 
entities. 

However, removing exposures to liquidation entities would have different impacts on the type 
of  instruments  affected  by  the  deductions  and  the  MREL  and  capital  positions  post-
deductions. 

The number of intermediate entities forming part of holdco structures subject to a deduction 
affecting items other than eligible liabilities (Tier 2, Additional Tier 1 (AT1), Common Equity 
Tier  1  (CET1))  decreases  when  excluding  liquidation  entities,  while  the  effects  seem  less 
material  for  opcos,  as  all  intermediate  entities  currently  deducting  from  a  category  of  own 

10 

Data  shows  that  the  proportion  is  slightly  higher  for  holdco  structures,  but  the  application  of 
consolidation would cancel out the need for a deduction and make this adjustment linked to liquidation 
entities irrelevant. 

EN 

8 

  EN 

                                                 
funds would  continue deducting  (in relatively similar amounts) from those same categories. 
This  is  also  explained  by  the  limited  proportion  of  exposures  to  liquidation  entities  for  this 
type of intermediate entity (Table 2). 

Considering  the  effects  on  the  MREL  and  capital  ratios,  the  removal  of  exposures  to 
liquidation  entities  improves the situation for a  number of intermediate  entities that were in 
shortfall  against  various  requirements  due  to  the  full  holdings-based  deduction  approach, 
removing or reducing these shortfalls in particular in one holdco and two opco structures11. In 
addition, the removal of exposures to liquidation entities sometimes leads to a lower shortfall 
compared to the requirement-based deduction approach12. However, the effect seems limited 
when  considering  the  surpluses:  these  are  higher  under  a  requirement-based  deduction 
approach than the full-holdings based approach with or without liquidation entities by around 
20-25%, but only against total MREL requirements, showing that the choice of the deduction 
approach does not really affect CET1, Tier 1 or overall capital requirement ratios (Table 3).  

In  this  context,  removing  liquidation  entities  from  the  scope  of  the  deduction  mechanism 
would improve the proportionality of the requirement, more correctly reflecting the impact of 
the  deductions  without  affecting  the  prudential  soundness  of  the  approach  and  without 
materially altering the balance achieved with the regulation. The impacts do not seem biased 
towards  one  particular  group  structure,  also  considering  the  different  proportions  these 
exposures represent in holdco and opco structures respectively.  

Such  amendment  could  therefore  be  applied  to  all  groups,  noting  that  it  would  become 
irrelevant should an intermediate entity comply with internal MREL on a consolidated basis 
(due to the absence of deductions in this case). 

(iii) 

Application  of  a  cap  on  the  level  of  deductions  (requirement-based  deduction 
approach) 

Internal  MREL  ensures  that  losses  at  the  level  of  a  subsidiary  in  a  resolution  group  can  be 
transferred adequately up to the resolution entity without placing the subsidiary in resolution. 
The  introduction  of  a  deduction  mechanism  aims  to  foster  this  internal  loss  absorbency  by 
ensuring that losses do not remain trapped at the level of an intermediate entity, putting at risk 
the execution of the group strategy.  

A  requirement-based  approach  may  weaken  the  group’s  resolvability,  as  a  cap  on  the 
deduction  corresponding  to  the  internal  MREL  requirement  (rather  than  the  capacity)  may 
prevent  the  intermediate  entities  from  passing  on  appropriately  all  losses  to  the  resolution 
entity,  creating  possible  bottlenecks  at  the  level  of  the  intermediate  entity  as  the  amount  of 
capital  and  eligible  liabilities  that  the  resolution  authority  would  be  writing  down  or 
converting  in  case  of  failure  of  a  subsidiary  would  not  be  capped  by  the  amount  of  the 
respective  internal  MREL  requirement.  It  would  thus  lead  to  a  less  prudentially  sound 
outcome. 

The  requirement-based  deduction  may  also  affect  the  comparability  between  direct  and 
indirect issuances of instruments by the subsidiary to the resolution entity, possibly creating 

11 

12 

In particular, two intermediate entities  had a shortfall against  their total MREL due to the deductions 
that  would  be  reduced  from  3.8%  to  2.1%  TREA  (-45%),  three  intermediate  entities  had  a  shortfall 
against their total MREL+CBR due to the deductions that would be reduced from 4.2% to 3.2% TREA 
(-24%)  and  one  intermediate  entity  had  a  shortfall  on  its  Tier  1  and  overall  capital  requirements  that 
would be reduced to 0. 
For  example,  where  the  holdings  of  internal  MREL  instruments  of  liquidation  entities  would  be 
deducted under  a requirement-based approach,  while they  would not  be deducted  under  this  scenario, 
hence resulting in a lower shortfall. 

EN 

9 

  EN 

                                                 
level  playing  field  issues  among  banks  depending  on  their  organisational  structure  and 
running counter to the initial goal pursued by the co-legislators of not preferring one form of 
issuance  over  another.  Finally,  the  requirement-based  deduction  approach  cannot  fully 
prevent the double counting of internal MREL capacity at the level of the intermediate entity. 

Preferred option 

Considering the outcome of the different  policy  options, the analysis concludes that the full 
holdings-based  deduction  approach  adopted  in  Regulation  (EU)  2022/2036  should  be 
preserved.  Amending  the  approach  by  introducing  limitations  to  the  amount  of  deductions 
corresponding to the internal MREL requirement of the issuing subsidiaries would result in a 
less  prudentially  sound  mechanism  and  reduce  the  effectiveness  and  the  efficiency  of  the 
deduction mechanism, creating risks of bottlenecks when upstreaming losses within a group. 
It  would  also  weaken  the  coherence  of  the  framework  as  such  change  would  represent  a 
significant  deviation  from  the  political  agreement  reached  by  the  co-legislators  in  2019,  as 
reflected in the mandate entrusted to the EBA in Article 45f(6) BRRD of ensuring that direct 
and indirect subscriptions of internal MREL should not lead to a different outcome.  

However, the assessment  also  concludes that it is  appropriate  and necessary to adjust at  the 
margin the mechanism to address the concerns raised regarding the impact of a full-holdings 
based  deduction  approach  on  certain  group  structures  in  a  way  that  would  increase 
proportionality and not endanger the transfer of losses and capital within a resolution group. 
In line with  the options assessed in  the impact  assessment, the amendments  that would best 
achieve these objectives and improve coherence with the resolution framework would consist 
of: (i) allowing certain intermediate entities, i.e. intermediate entities  forming part of holdco 
structures  and  opco  structures,  where  prudential  requirements  are  already  set  on  a 
consolidated  basis,  to  comply  with  internal  MREL  on  a  consolidated  basis  subject  to  the 
decision of the resolution  authority;  and  (ii)  removing issuances of liquidation entities from 
the scope of the deduction mechanism.  

Table 1: Exposure amounts 

Source: Commission staff, based on data provided by the SRB, as of 31 December 2021. 

EN 

10 

  EN 

MetricGroup structureFull holdings-based deductionRequirement-based deductionSub-consolidationHoldCo28.1%24.7%7.5%2.6%OpCo14.3%11.6%62.9%0.3%Total24.1%21.0%23.4%2.0%HoldCo5.0%4.1%42.3%0.3%OpCo2.7%2.2%74.0%0.1%Total4.3%3.5%52.1%0.3%TREA TEM Change of exposure amount (vs baseline)Exposures to liquidation entities in % (vs baseline) 
Table 2: Deductions 

Source: Commission staff, based on data provided by the SRB, as of 31 December 2021. 

Table 3: Impact on MREL and solvency situation 

Source: Commission staff, based on data provided by the SRB, as of 31 December 2021. 

Other considerations related to liquidation entities 

To ensure coherence with the rest of the framework, the removal of liquidation entities from 
the scope of the deduction mechanism for the indirect subscription of internal MREL must be 
considered in the broader context of the relevant BRRD and SRMR provisions applicable to 
these entities.  

Under  the  existing  rules  in  the  BRRD  and  the  SRMR,  resolution  authorities  are  required  to 
adopt MREL decisions for all institutions and entities within the scope of those acts, including 
liquidation entities. The calibration of the requirement is proportionate to account for the fact 
that  these  entities  would  be  wound  up  under  normal  insolvency  proceedings,  and  therefore, 
the  requirement  is  limited,  in  most  cases  and  subject  to  the  decision  of  the  resolution 
authority, to the own funds requirements of that entity (the loss absorption amount  – Article 
45c(2), second subparagraph, BRRD and Article 12d(2), second subparagraph, SRMR). The 
only exception to that situation would arise in cases where the resolution authority determines 
that MREL should exceed the loss absorption amount, in particular due to possible impact on 
financial  stability  and  risk  of  contagion  to  the  financial  system  (Article  45c(2),  third 
subparagraph, BRRD and Article 12d(2), third subparagraph, SRMR). 

The  current  determination  of  MREL  for  liquidation  entities  puts  a  significant  burden  on 
resolution  authorities  to  issue  MREL  decisions  on  a  regular  basis  due  to  the  link  with 
resolution  planning,  and  on  banks  to  ensure  monitoring  and  compliance  with  other  related 

EN 

11 

  EN 

Deductions (% TREA)CategoryMetricHoldcoOpCoTotalHoldcoOpCoTotalHoldcoOpCoTotalAverage14.7%7.5%12.3%11.1%6.0%9.5%13.2%6.9%11.2%# of banks551055105510Average0.9%1.7%1.1%1.2%1.5%1.4%1.8%1.7%1.7%# of banks246145145Average2.4%2.3%2.3%2.1%2.1%2.3%2.3%# of banks1454444Average1.1%5.2%3.7%0.3%3.9%3.7%0.3%5.2%5.0%# of banks246145134of which: deducted from CET1Total of which: deducted from T2of which: deducted from AT1Full holdings-based deductionRequirement-based deductionFull holdings-based deduction without liquidation entitiesSurpluses/Shortfalls (% TREA)RequirementMetricHoldcoOpCoTotalHoldcoOpCoTotalHoldcoOpCoTotalHoldcoOpCoTotalHoldcoOpCoTotalAverage Shortfall-0.3%-0.3%-3.8%-3.8%-2.5%-2.5%-2.1%-2.1%-6.1%-6.1%#of banks1122222211Average Surplus9.4%7.5%8.9%6.8%4.6%6.3%8.1%4.9%7.4%6.7%4.6%6.2%7.3%2.7%5.8%#of banks 549538538538538Average Shortfall-2.4%-2.4%-2.6%-6.1%-4.2%-1.5%-4.8%-2.9%-2.2%-4.5%-3.2%-3.4%-3.4%#of banks2212312312322Average Surplus6.4%5.3%6.1%5.2%1.7%4.2%6.7%1.9%5.4%5.2%1.7%4.2%4.2%0.8%3.5%#of banks 538437437437527Average Shortfall#of banksAverage Surplus10.4%13.2%11.2%15.4%12.3%14.4%15.3%12.7%14.5%14.9%12.6%14.2%10.3%8.5%9.9%#of banks 5510551055105510527Average Shortfall-1.4%-1.4%#of banks11Average Surplus10.7%12.9%11.4%15.9%11.6%14.5%16.2%11.1%14.6%15.8%11.0%14.3%10.4%7.7%9.8%#of banks 551054955105510527Average Shortfall-3.2%-3.2%-0.7%-0.7%#of banks1111Average Surplus8.2%9.8%8.7%14.1%7.3%12.0%14.3%7.5%12.2%14.0%6.9%11.8%8.4%5.5%7.8%#of banks 55105495495510527MREL + CBRCET1T1OCRFull holdings-based deductionRequirement-based deductionFull holdings-based deduction without liquidation entitiesSub-consolidationMRELBaseline 
 
requirements,  such  as  the  prior  permission  regime  for  the  call,  redemption,  repayment  or 
repurchase of eligible liabilities provided in Articles 77(2) and 78a CRR. However, in practice 
this  decision  changes  very  little  in  terms  of  the  structure  of  liabilities  used  to  comply  with 
MREL  because  the  liquidation  entity  already  needs  to  comply  with  its  own  funds 
requirements  by  using  own  funds  instruments  (as  long  as  the  entity  is  subject  to  prudential 
requirements on an individual basis). The lack of added value of these MREL decisions, when 
mirroring existing own funds requirements, appears to call for a change in the legislation that 
would remove the obligation for resolution authorities to set MREL for liquidation entities, in 
specific circumstances. 

Where  the  resolution  authority  considers  that  an  entity  forming  part  of  a  resolution  group 
qualifies  as  a  liquidation  entity,  the  removal  of  liquidation  entities  from  the  scope  of  the 
deduction mechanism for internal MREL would be indirectly achieved by the absence of an 
MREL requirement at the level of that entity (as it would not be able to be part of a scheme 
for  the  indirect  issuance  of  resources  used  towards  compliance  with  an  internal  MREL 
requirement), ensuring coherence between the proposals.  

Similar  reasoning  applies  to  the  application  of  the  prior  permission  regime  to  call,  redeem, 
repay or repurchase eligible liabilities, where the absence of an MREL requirement naturally 
removes liquidation entities from the scope of the prior permission regime (as the liquidation 
entity would not have eligible liabilities on its balance sheet, even if certain liabilities would 
comply with the eligibility requirements). 

Nevertheless,  for  those  liquidation  entities  the  MREL  of  which  has  been  set  at  a  level 
exceeding the loss absorption amount (i.e. the own funds requirements), the existing rules on 
adoption  of  MREL  decision,  prior  permission  to  call,  redeem,  repay  or  repurchase  eligible 
liabilities and inclusion in the daisy chain scope should continue to apply. 

• 

Regulatory fitness and simplification 

The review is targeting specific provisions related to operationalisation of the internal MREL 
framework,  with  particular  attention  paid  to  level  playing  field  issues  between  different 
banking  group  structures  and  the  reduction  of  administrative  burden  for  certain  entities  for 
which resolution authorities consider that they could be credibly wound up in insolvency in 
case of failure. 

The proposed reform is expected to bring about benefits with respect to the effectiveness of 
the framework, legal clarity and improved proportionality of the requirements.  

The reform is technology-neutral and does not impact digital readiness. 

• 

Fundamental rights 

The EU 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 complies with 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 EU budget. 

EN 

12 

  EN 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The  proposal  requires  Member  States  to  transpose  the  amendments  to  the  BRRD  in  their 
national  laws  within  six  months  from  the  entry  into  force  of  the  amending  Directive.  The 
amendments to SRMR should become applicable at the same time. 

The  changes  introduced  to  Article  45i(4)  should  reinforce  the  reporting  to  resolution 
authorities  by  liquidation  entities  whose  MREL  exceeds  the  amount  necessary  for  loss 
absorption,  and will  thus continue to  be subject  to an MREL decision,  covering  the  amount 
and composition of their MREL capacity. 

6. 

DETAILED  EXPLANATION  OF  THE  SPECIFIC  PROVISIONS  OF  THE 
PROPOSAL 

MREL for liquidation entities 

A  new  definition  is  added  in  Article  2(1),  point  (83aa),  BRRD  and  in  Article  3(1)(24aa) 
SRMR,  according  to  which  references  to  ‘liquidation  entities’  should  be  understood  as 
references  to  entities  whose  resolution  plan  provides  for  the  respective  winding  up  in  an 
orderly manner in accordance with the applicable national law in case of failure. 

To achieve a reduction in the regulatory burden while preserving the possibility for resolution 
authorities  to  still  determine  MREL  for  liquidation  entities  in  certain  exceptional  cases,  the 
second and third subparagraphs of Article 45c(2) are replaced with a new paragraph 2a, which 
sets  the  new  general  rule  that  resolution  authorities  should  not  determine  MREL  for 
liquidation  entities.  Similar  amendments  are  introduced  in  Article  12d  SRMR,  with  the 
deletion  of  the  second  and  third  subparagraphs  of  paragraph  2  and  the  insertion  of  a  new 
paragraph 2a. 

The possibility for the resolution  authority to determine  an MREL, i.e. to set  a requirement 
above  the  loss  absorption  amount,  is  preserved  where  necessary  for  protecting  financial 
stability or limiting potential contagion to the financial system, which are the existing criteria 
in the legislation currently in force.  

Where the resolution authority considers that an entity part of a resolution group qualifies as a 
liquidation  entity,  the  consolidation  carried  out  for  the  purposes  of  the  external  MREL 
applicable to the resolution entity heading that resolution group should include the liquidation 
entity, as has been the practice thus far.  

Application of prior permissions regime to liquidation entities 

Entities earmarked for liquidation are currently in the scope of the prior permission regime set 
out in Article 78a CRR, by virtue of the cross-references in Articles 45b(1) and 45f(2) BRRD, 
and Articles 12c(1) and 12g(1) SRMR, to the common eligibility criteria defined in Articles 
72a  to  72c  CRR.  However,  the  procedural  obligations  created  by  this  provision  are 
disproportionate for the majority of liquidation entities, as they are not expected to hold loss-
absorbing  capacity  above  their  own  funds  requirements.  In  such  a  scenario,  the  rationale 
behind  the  prior  permission  rules  –  empowering  the  resolution  authorities  to  monitor  those 
actions resulting in a reduction of the stock of eligible liabilities – is not present. Moreover, 
there  already  exists  a  separate  prior  permission  regime  for  early  redemption  of  own  funds 
instruments (Article 78 CRR) which will continue to apply to all institutions. 

In order to reduce the regulatory burden for liquidation entities that need to apply for the prior 
permission to reduce eligible liabilities instruments, and for the authorities that need to assess 

EN 

13 

  EN 

such applications,  Article 45c(2a) BRRD  and Article 12d(2a) SRMR explicitly provide that 
the prior permission regime under Articles 77(2) and 78a CRR should not apply to liquidation 
entities for which the resolution authority has not determined an MREL. This would anyway 
be the natural consequence of the removal of MREL decisions for those liquidation entities, as 
the absence of an MREL decision means that they no longer have eligible liabilities on their 
balance sheet, as they are no longer subject to an MREL requirement. 

For liquidation entities in respect of which an MREL decision exceeding the loss absorption 
amount  has  been  adopted  by  the  resolution  authority,  Articles  77(2)  and  78a  CRR  will 
continue to apply. 

Liquidation entities as part of daisy chain structures 

The analysis carried out under the  mandate for review introduced in Article 129 BRRD has 
concluded on the appropriateness of excluding liquidation entities from the scope of the daisy 
chains  rules,  more  specifically,  of  no  longer  requiring  own  funds  instruments  and  other 
liabilities  issued  by  liquidation  entities  without  an  MREL  decision  held  by  an  intermediate 
entity  to  be  deducted  by  the  latter.  This  would  apply  where  the  resolution  authority  has 
considered,  in  the  context  of  resolution  planning,  that  an  entity  part  of  a  resolution  group 
qualifies as a liquidation entity. 

In such a scenario, the liquidation entity is no longer required to comply with the MREL, and 
therefore  there  is  no  indirect  subscription  of  internal  MREL  eligible  resources  through  the 
chain  formed  by  the  resolution  entity,  the  intermediate  entity  and  the  liquidation  entity.  In 
case of failure, the resolution strategy does not envisage that the liquidation entity would be 
supported  by  the  resolution  entity,  which  means  that  the  upstreaming  of  losses  from  the 
liquidation entity to the resolution entity, via the intermediate entity, would not be expected, 
and nor would the down-streaming of capital in the opposite direction.  

Therefore, the new Article 45c(2a) BRRD and Article 12d(2a) SRMR explicitly provide that 
holdings  of  own  funds  instruments  or  liabilities issued  by  liquidation  entities  that  would  no 
longer  be  subject  to  an  MREL  decision  should  not  be  deducted  by  the  intermediate  parent 
under the daisy chain deduction rules. Consequently, intermediate entities holding own funds 
instruments  and  liabilities  issued  by  liquidation  entities  will  need  to  apply  risk  weights  to 
those exposures and to include them in their total exposure measure. As these exposures will 
be taken into account when calculating the total risk exposure amount and the total exposure 
measure of the intermediate entity, this ensures that the intermediate entity will be required to 
hold  a  certain  amount  of  internal  MREL  that  will  reflect  those  exposures  to  the  liquidation 
entities. 

However, liquidation  entities for which resolution  authorities exercise their discretion to  set 
MREL  at  an  amount  exceeding  the  own  funds  requirements  would  still  be  in  scope  of  the 
daisy chain deduction rules. 

Reporting for liquidation entities 

Under the current Article 45i(4), liquidation entities are not required to report their MREL to 
the  resolution  authority,  nor  to  disclose  it  publicly,  irrespective  of  the  calibration  of  their 
MREL. 

This  poses  an  issue  for  resolution  authorities  in  cases  where  they  need  to  assess  whether  a 
change of strategy would be deemed appropriate or whether the MREL calibration should be 
increased to a level exceeding the loss absorption amount. To address this problem, resolution 
authorities are currently asking such banks for simplified reporting, less complex and detailed 

EN 

14 

  EN 

than  required  in  accordance  with  Commission  Implementing  Regulation  (EU)  2021/76313 
under Article 45i BRRD.  

Therefore, Article 45i  is  amended to  introduce  a statutory reporting regime in  the legal  text 
for  liquidation  entities  for  which  an  MREL  decision  has  been  adopted  (i.e.  where  MREL 
exceeds the loss absorption amount).  

For liquidation entities where no MREL has been determined, the status quo is preserved and 
there are no dedicated MREL reporting or disclosure obligations. As reporting for resolution 
planning  purposes  remains  unchanged  and  thus  will  continue  to  be  applicable  to  all 
liquidation entities, resolution authorities would still be able to obtain the relevant information 
e.g.  for  the  purposes  of  deciding  whether  to  change  the  strategy  foreseen  for  the  entity 
concerned or the respective MREL calibration. 

Consolidated internal MREL 

The  analysis  carried  out  by  the  Commission  pursuant  to  the  review  clause  introduced  by 
Regulation  (EU)  2022/2036  has  concluded  on  the  appropriateness  of  allowing  certain 
intermediate  entities,  forming  part  of  either  holdco  or  to  opco  structures,  to  comply  with 
internal MREL on a consolidated basis.  

Beyond  the  benefits  to  the  proportionality  of  the  daisy  chain  deduction  rules  and  to  the 
minimisation of any level playing field differences between different types of banking group 
structures, the extension of the  possibility to  comply  with  internal  MREL on a consolidated 
basis is also deemed useful for the following reasons: 

 

 

 

It  facilitates  the  calibration  of  internal  MREL  for  those  non-resolution  entity 
subsidiaries  that  have  their  additional  own  funds  requirements  (Article  104a  CRD) 
and combined buffer requirement (Article 128, point (6), CRD) set on a consolidated 
basis only; 

It  clarifies  the  application  of  the  power  to  prohibit  certain  distributions  above  the 
Maximum  Distributable  Amount  related  to  MREL  (M-MDAs  –  Article  16a  BRRD 
and 10a SRMR) in  relation  to  those subsidiaries the combined buffer of  which has 
been set at a consolidated level; 

It ensures that the subsidiary has sufficient internal pre-positioned capacity so that, in 
case  of  failure,  it  is  able  to  absorb  its  losses  and  restore  compliance  with  its 
consolidated own funds requirements. 

Article  45f(1)  BRRD  and  Article  12g(1)  SRMR  are  thus  amended  to  give  the  resolution 
authority the discretionary power to set internal MREL on a consolidated basis to a subsidiary 
of  a  resolution  entity.  This  possibility  is  available  regardless  of  the  type  of  banking  group 
structure to which that intermediate entity belongs.  

This  possibility  is  subject  to  three  important  safeguards.  First,  for  holdco  structures,  the 
intermediate entity should be the only direct subsidiary institution or entity in the scope of the 
BRRD  or  the  SRMR,  as  relevant,  of  a  resolution  entity  which  is  a  Union  parent  financial 
holding company or a Union parent mixed financial holding company. This ensures that the 
possibility  is  available  only  to  those  holdco  structures  whose  intermediate  entity  centralises 

13 

Commission  Implementing  Regulation  (EU)  2021/763  of  23  April  2021  laying  down  implementing 
technical standards for the application of Regulation (EU) No 575/2013 of the European Parliament and 
of the Council and Directive 2014/59/EU of the European Parliament and of the Council with regard to 
the supervisory reporting and public disclosure of the minimum requirement for own funds and eligible 
liabilities (OJ L 168, 12.5.2021, p. 1–83). 

EN 

15 

  EN 

                                                 
intragroup exposures. Alternatively, for other types of banking group structures, the additional 
own funds requirement and the combined buffer requirement applicable to the subsidiary that 
is not a resolution entity must have been set by the competent authority on the same basis of 
consolidation. Second, the resolution entity and the intermediate entity should be established 
in  the  same  Member  State  and  be  part  of  the  same  resolution  group.  Third,  the  resolution 
authority must have concluded that compliance with internal MREL on a consolidated basis 
does  not  negatively  affect  in  a  significant  way  the  resolvability  of  the  resolution  group  to 
which the subsidiary belongs, nor the application of the write down and conversion powers to 
that subsidiary or to  other entities in  the same resolution  group. The latter condition  would, 
for example, allow the resolution authority not to set internal MREL on a consolidated basis 
in  those  situations  where  the  individual  requirements  applicable  to  the  subsidiary  would  be 
higher.  

The  setting  of  internal  MREL  on  a  consolidated  basis  removes  the  possibility  for  the 
resolution authority to set internal MREL on an individual basis for that same entity. This is 
consistent  with  the  changes  introduced  in  the  MREL  framework  by  the  BRRD  II  and  the 
SRMR II, which no longer allow for MREL to be set on multiple basis in relation to the same 
entity.  This  should  not  be  considered  as  a  waiver  benefitting  the  entity  concerned,  because 
compliance with MREL will continue to be required, though on a different basis. 

Importantly, the possibility that is now introduced in Article 45f(1) BRRD and Article 12g(1) 
SRMR  does  not  imply  the  granting  of  waivers  of  internal  MREL  to  the  subsidiaries  of  the 
entity  concerned.  Waivers  of  internal  MREL  should  only  be  possible  where  the  existing 
conditions in Article 45f(3) or (4) BRRD and Article 12h SRMR are met.  

In terms of the instruments that may be used by the subsidiary that is not a resolution entity to 
comply  with  its  consolidated  internal  MREL,  the  general  rules  on  compliance  with 
consolidated  requirements  and  the  eligibility  criteria  in  Article  45f  BRRD  and  Article  12g 
SRMR  apply.  Additionally,  a  new  paragraph  2a  is  introduced  in  Article  45f  BRRD  and  in 
Article  12g  SRMR  to  clarify  that,  where  the  subsidiaries  included  in  the  scope  of 
consolidation of any entity required to comply with consolidated internal MREL have issued 
eligible  liabilities  to  other  entities  of  the  same  resolution  group  but  outside  that  scope  of 
consolidation or to an existing shareholder not belonging to the same resolution group, those 
liabilities  shall  be  included  in  the  amount  of  own  funds  and  eligible  liabilities  of  the 
intermediate  entity,  up  to  certain  limits.  This  will  allow  direct  issuances  of  internal  MREL 
eligible resources between the ultimate subsidiary and the resolution entity to count towards 
compliance  of  the  consolidated  internal  MREL  of  the  intermediate  entity.  This  new  rule 
ensures alignment with the calculation of own funds on a consolidated basis and is similar to 
the rule provided in Article 45b(3) BRRD and 12c(3) SRMR applicable to the external MREL 
of resolution entities. Similarly, the limitations provided in these amendments ensure that the 
surplus  capacity  of  the  subsidiaries  of  those  intermediate  entities  cannot  be  used  towards 
compliance with the respective consolidated internal MREL. 

EN 

16 

  EN 

2023/0113 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 2014/59/EU and Regulation (EU) No 806/2014 as regards certain 
aspects of 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 Bank14,  
Having regard to the opinion of the European Economic and Social Committee15, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

14 
15 
16 

17 

18 

19 

Directive  (EU)  2019/879  of  the  European  Parliament  and  of  the  Council16  and 
Regulation (EU) 2019/877 of the European Parliament and of the Council17 amended 
the  minimum  requirement  for  own  funds  and  eligible  liabilities  (‘MREL’)  set  out  in 
Directive  2014/59/EU  of  the  European  Parliament  and  of  the  Council18  and  in 
Regulation (EU) No 806/2014 of the European Parliament and of the Council19, which 
applies  to  credit  institutions  and  investment  firms  (institutions)  established  in  the 
Union as well as to any other entity that falls under the scope of Directive 2014/59/EU 
or Regulation (EU) No 806/2014 (entities). Those amendments provided that internal 

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). 
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)  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). 

EN 

17 

  EN 

                                                 
(2) 

(3) 

MREL,  that  is,  MREL  applicable  to  institutions  and  entities  that  are  subsidiaries  of 
resolution  entities  but  are  not  themselves  resolution  entities,  may  be  met  by  those 
entities using instruments issued to and bought by the resolution entity either directly 
or indirectly through other entities in the same resolution group.  

The Union MREL framework was further amended by Regulation (EU) 2022/2036 of 
the  European  Parliament  and  of  the  Council20  which  introduced  specific  deduction 
rules  in  the  case  of  indirect  subscription  of  instruments  eligible  for  meeting  the 
internal MREL. That Regulation introduced in Directive 2014/59/EU the requirement 
for  the  Commission  to  review  the  impact  of  the  indirect  subscription  of  instruments 
eligible  for  meeting  the  MREL  on  the  level  playing  field  between  different  types  of 
banking group structures, including where banking groups have an operating company 
between the holding company identified as a resolution entity and its subsidiaries. The 
Commission  was  asked  to  assess  whether  entities  that  are  not  themselves  resolution 
entities  should  be  able  to  comply  with  the  MREL  on  a  consolidated  basis. 
Furthermore,  the  Commission  was  asked  to  evaluate  the  treatment,  under  the  rules 
governing the MREL, of entities whose resolution plan provides that those entities are 
to be wound up under normal insolvency proceedings (‘liquidation entities’). Finally, 
the Commission was asked to evaluate the appropriateness of limiting the amount of 
deductions required pursuant to Article 72e(5) of Regulation (EU) No 575/2013 of the 
European Parliament of the Council21. 

The review of the Commission found that it would be appropriate and proportionate to 
the objectives pursued by the internal MREL rules to allow resolution authorities to set 
the internal MREL on a consolidated basis for a range of entities that is wider than the 
range resulting from the application of Directive 2014/59/EU and Regulation (EU) No 
806/2014,  where  such  wider  range  covers  institutions  and  entities  that  are  not 
resolution  entities  themselves,  but  that  are  subsidiaries  of  resolution  entities  and 
control themselves subsidiaries subject to MREL (‘intermediate entities’). That would 
be  in  particular  the  case  for  those  banking  groups  that  are  headed  by  a  holding 
company.  In  such  cases,  the  intermediate  entities  naturally  centralise  intragroup 
exposures  and  channel  the  internal  MREL  eligible  resources  pre-positioned  by  the 
resolution  entity.  Due  to  that  structure,  such  intermediate  entities  would  be 
disproportionately  affected  by  the  deduction  rules.  The  Commission  also  concluded 
that  the  MREL  framework  would  be  more  proportionate  by  the  removal  of  the 
issuances of liquidation entities from the scope of the exposures that an intermediate 
entity  is  required  to  deduct  pursuant  to  the  deduction  mechanism  for  the  indirect 
subscription of internal MREL eligible resources. A liquidation entity will not have to 
be  supported  by  the  resolution  entity  in  case  of  failure,  thus  removing  the  need  to 
safeguard  any  loss  and  capital  transfer  mechanisms  within  resolution  groups,  which 
was the purpose of the deduction rules introduced by Regulation (EU) 2022/2036. By 
contrast, the remaining entities of the resolution group will need to be supported by the 
resolution entity in case of distress or failure. The necessary MREL resources should 

20 

21 

Regulation  (EU)  2022/2036  of  the  European  Parliament  and  of  the  Council  of  19  October  2022 
amending Regulation (EU) No 575/2013 and Directive 2014/59/EU as regards the prudential treatment 
of  global  systemically  important  institutions  with  a  multiple-point-of-entry  resolution  strategy  and 
methods for the indirect subscription of instruments eligible for meeting the minimum requirement for 
own funds and eligible liabilities (OJ L 275, 25.10.2022, 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). 

EN 

18 

  EN 

                                                 
(4) 

(5) 

therefore be present at all levels of the resolution group and their availability for loss 
absorption  and  recapitalisation  should  be  ensured  through  the  deduction  mechanism. 
Thus,  the  review  of  the  Commission  concluded  that  intermediate  entities  should 
continue  to  deduct  the  full  amount  of  their  holdings  of  internal  MREL  eligible 
resources issued by other non-liquidation entities in the same resolution group.  

Under  Article  45f  of  Directive  2014/59/EU  and  Article  12g  of  Regulation  (EU) 
No 806/2014,  institutions  and  entities  are  to  comply  with  the  internal  MREL  on  an 
individual basis. Compliance on  a consolidated  basis is  only allowed in  two specific 
cases:  for  Union  parent  undertakings  that  are  not  resolution  entities  and  are 
subsidiaries  of  third-country  entities,  and  for  parent  undertakings  of  institutions  or 
entities  waived  from  internal  MREL.  Pursuant  to  Article  72e(5)  of  Regulation  (EU) 
No 575/2013, where an intermediate entity complies with its MREL on a consolidated 
basis, that entity is not obliged to deduct holdings of internal MREL eligible resources 
of  other  entities  belonging  to  the  same  resolution  group  and  included  in  its 
consolidation  perimeter,  as  compliance  with  the  internal  MREL  on  a  consolidated 
basis  achieves  a  similar  effect.  The  review  carried  out  by  the  Commission  has 
demonstrated  that  intermediate  entities  of  banking  groups  headed  by  a  holding 
company  should  also  be  able  to  comply  with  the  internal  MREL  on  a  consolidated 
basis.  Furthermore,  the  review  demonstrated  that,  where  the  intermediate  entity  is 
subject  to  own  funds  requirements  or  to  a  combined  buffer  requirement  on  a 
consolidated basis,  compliance with  the internal  MREL on  an individual  basis could 
create  a  risk  that  the  internal  MREL  eligible  resources  pre-positioned  at  the  level  of 
the  intermediate  entity  are  not  sufficient  to  restore  compliance  with  the  applicable 
consolidated  own  funds  requirement  after  the  write  down  and  conversion  of  those 
internal  MREL  eligible  resources.  In  addition,  a  key  input  in  the  calculation  of  the 
MREL for the institution or entity concerned would  be missing where the additional 
own  funds  requirement  or  the  combined  buffer  requirement  were  set  at  a  different 
level  of  consolidation,  making  the  calculation  of  the  requirement  challenging. 
Similarly,  the  power  of  resolution  authorities  to  prohibit,  in  accordance  with  Article 
16a of Directive 2014/59/EU and Article 10a of Regulation (EU) No 806/2014, certain 
distributions above the maximum distributable amount related to the MREL in respect 
of the individual subsidiary becomes challenging to exercise where the key metric, the 
combined buffer requirement, is not set on the same basis as the internal MREL. For 
those  reasons,  the  possibility  to  comply  with  the  internal  MREL  on  a  consolidated 
basis should also be available to other types of banking group structures, whenever the 
intermediate  entity  is  subject  to  own  funds  requirements  or  to  a  combined  buffer 
requirement on a consolidated basis. 

To  ensure  that  the  possibility  to  comply  with  MREL  on  a  consolidated  basis  is 
available  only  in  the  relevant  cases  identified  in  the  review  of  the  Commission  and 
does not lead to a shortage of internal MREL eligible resources across the resolution 
group,  the  power  to  set  the  internal  MREL  on  a  consolidated  basis  for  intermediate 
entities  should  be  a  discretionary  power  of  the  resolution  authority  and  should  be 
subject  to  certain  conditions.  The  intermediate  entity  should  be  the  only  direct 
subsidiary,  that  is  an  institution  or  an  entity,  of  a  resolution  entity  which  is  a  parent 
Union  parent  financial  holding  company  or  a  Union  parent  mixed  financial  holding 
company, is established in the same Member State and is part of the same resolution 
group.  Alternatively,  the  intermediate  entity  concerned  should  comply  with  the 
additional  own  funds  requirement  or  with  the  combined  buffer  requirement  on  the 
basis  of  its  consolidated  situation.  In  both  cases,  however,  compliance  with  the 
internal MREL on a consolidated basis should not, in the assessment of the resolution 

EN 

19 

  EN 

(6) 

(7) 

authority,  negatively  affect  in  a  significant  way  the  resolvability  of  the  resolution 
group concerned, nor the application by the resolution authority of the power to write 
down or convert relevant capital instruments and eligible liabilities of the intermediate 
entity concerned or of other entities in its resolution group. 

Pursuant to Article 45f(2) of Directive 2014/59/EU and Article 12g(2) of Regulation 
(EU)  No  806/2014,  intermediate  entities  may  comply  with  the  consolidated  internal 
MREL using own funds and  eligible liabilities. To fully  deliver on the  possibility to 
comply with MREL on a consolidated basis, it is necessary to ensure that the eligible 
liabilities  of  intermediate  entities  are  computed  in  a  way  that  is  similar  to  the 
computation  of  own  funds.  The  eligibility  criteria  for  eligible  liabilities  that  may  be 
used  to  comply  with  internal  MREL  on  a  consolidated  basis  should  therefore  be 
aligned  with  the  rules  on  the  calculation  of  consolidated  own  funds  laid  down  in 
Regulation  (EU)  No  575/2013.  To  ensure  consistency  with  the  existing  rules  on  the 
external  MREL,  that  alignment  should  also  reflect  the  existing  rules  laid  down  in 
Article  45b(3)  of  Directive  2014/59/EU  and  Article  12d(3)  of  Regulation  (EU) 
No 806/2014 for the calculation of eligible liabilities that resolution entities may use to 
comply  with  their  consolidated  MREL.  In  particular,  it  is  necessary  to  ensure  that 
eligible  liabilities  issued  by  the  subsidiaries  of  the  entity  subject  to  consolidated 
internal MREL and held by other entities of the same resolution group but outside the 
scope of consolidation, including the resolution entity, or by existing shareholders not 
belonging  to  the  same  resolution  group,  count  towards  the  own  funds  and  eligible 
liabilities of the entity subject to consolidated internal MREL. 

For liquidation entities, the MREL is normally limited to the amount necessary for loss 
absorption,  which  corresponds  to  the  own  funds  requirements.  In  such  cases,  the 
MREL  does  not  entail  for  the  liquidation  entity  any  additional  requirement  directly 
related  to  the  resolution  framework.  That  means  that  a  liquidation  entity  can  fully 
comply  with  the  MREL  by  complying  with  the  own  funds  requirements  and  that  a 
dedicated  decision  of  the  resolution  authority  determining  the  MREL  does  not 
contribute  in  a  meaningful  way  to  the  resolvability  of  liquidation  entities.  Such  a 
decision  entails  many  procedural  obligations  for  resolution  authorities  and  for  the 
liquidation entities without a corresponding benefit in terms of improved resolvability. 
For that reason, resolution authorities should not set a MREL for liquidation entities. 

(8)  Where the resolution authority considers that an entity that is part of a resolution group 
qualifies as a liquidation entity, intermediate entities should not be required to deduct 
from their internal MREL capacity their holdings of own funds or other liabilities that 
would meet the conditions for compliance with the internal MREL and that are issued 
by  liquidation  entities.  In  such  a  case,  the  liquidation  entity  is  no  longer  required  to 
comply  with  the  MREL,  and  therefore  there  is  no  indirect  subscription  of  internal 
MREL  eligible  resources  through  the  chain  formed  by  the  resolution  entity,  the 
intermediate entity and the liquidation entity. In case of failure, the resolution strategy 
does  not  envisage  that  the  liquidation  entity  would  be  supported  by  the  resolution 
entity.  That  means  that  the  upstreaming  of  losses  from  the  liquidation  entity  to  the 
resolution entity, via the intermediate entity, would not be expected, and neither would 
the downstreaming of capital in the opposite direction. That adjustment to the scope of 
the  holdings  to  be  deducted  in  the  context  of  the  indirect  subscription  of  internal 
MREL  eligible  resources  would  thus  not  affect  the  prudential  soundness  of  the 
framework. 

(9) 

The  main  objective  of  the  permission  regime  for  the  reduction  of  eligible  liabilities 
instruments  laid  down  in  Articles  77(2)  and  78a  of  Regulation  (EU)  No  575/2013, 

EN 

20 

  EN 

which  is  also  applicable  to  institutions  and  entities  subject  to  the  MREL  and  to  the 
liabilities issued to comply with MREL, is to enable resolution authorities to monitor 
the actions that result in a reduction of the stock of eligible liabilities and to prohibit 
any  action  that  would  amount  to  a  reduction  beyond  a  level  which  resolution 
authorities deem adequate. Where the resolution authority has not adopted a decision 
determining  the  MREL  in  respect  of  an  institution  or  entity,  that  objective  is  not 
relevant.  Moreover,  institutions  or  entities  that  are  not  subject  to  a  decision 
determining  the  MREL  do  not  have  eligible  liabilities  on  their  balance  sheet. 
Institutions  or  entities  for  which  no  decisions  determining  the  MREL  have  been 
adopted  should  therefore  not  be  required  to  obtain  the  prior  permission  of  the 
resolution  authority  to  effect  the  call,  redemption,  repayment  or  repurchase  of 
liabilities that would meet the eligibility requirements for MREL.  

(10)  There are liquidation entities for which the MREL does exceed the amount of the own 
funds  requirements,  in  which  case  resolution  authorities  should  be  able  to  set  the 
MREL.  That  MREL  should  be  set  at  an  amount  exceeding  the  amount  for  loss 
absorption where the resolution authorities consider that such amount is necessary to 
protect  financial  stability  or  address  the  risk  of  contagion  to  the  financial  system.  In 
those situations, the liquidation entity should comply with the MREL and should not 
be exempted from the prior permission regime laid down in Articles 77(2) and 78a of 
Regulation  (EU)  No  575/2013.  Any  intermediate  entities  belonging  to  the  same 
resolution group as the liquidation entity concerned should continue to be required to 
deduct  from  their  internal  MREL  capacity  their  holdings  of  internal  MREL  eligible 
resources  issued  by  that  liquidation  entity.  In  addition,  since  liquidation  proceedings 
take  place  at  the  level  of  the  legal  entity,  liquidation  entities  still  subject  to  MREL 
should  comply  with  the  requirement  on  an  individual  basis  only.  Lastly,  certain 
eligibility  requirements  related  to  the  ownership  of  the  liability  concerned  are  not 
relevant,  as  there  is  no  need  to  ensure  the  transfer  of  losses  and  capital  from  the 
liquidation entity to a resolution entity, and should therefore not apply. 

(11)  Pursuant to Article 45i of Directive 2014/59/EU, institutions and entities are to report 
to  their  competent  and  resolution  authorities  the  levels  of  eligible  and  bail-inable 
liabilities and the composition  of those liabilities, and to  disclose that information  to 
the public, together with the level of their MREL, on a regular basis. For liquidation 
entities, no such reporting or disclosure is required. However, to ensure the transparent 
application of the MREL, those reporting and disclosure obligations should also apply 
to  liquidation  entities  for  which  the  resolution  authority  determines  that  the  MREL 
should be higher than the amount sufficient  to  absorb losses.  In accordance with  the 
principle  of  proportionality,  the  resolution  authority  should  ensure  that  those 
obligations  do  not  go  beyond  what  is  necessary  to  monitor  compliance  with  the 
MREL. 

(12)  Directive 2014/59/EU and Regulation (EU) No 806/2014 should therefore be amended 

accordingly. 

(13)  To ensure consistency, the national measures transposing the amendments to Directive 
2014/59/EU and the amendments to Regulation (EU) No 806/2014 should apply from 
the same date. 

(14)  Since  the  objectives  of  this  Directive,  namely  to  adjust  the  treatment  of  liquidation 
entities under the MREL framework and the possibilities to comply with the internal 
MREL on a consolidated basis, cannot be sufficiently achieved by the Member States 
but can rather, by amending rules that are already set at Union level, be better achieved 

EN 

21 

  EN 

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 the European Union. In accordance 
with the principle of proportionality as set out in that Article, this Directive does not 
go beyond what is necessary in order to achieve those objectives, 

HAVE ADOPTED THIS DIRECTIVE: 

Article 1 

Amendments to Directive 2014/59/EU 

Directive 2014/59/EU is amended as follows: 

(1) 

in Article 2(1), the following point (83aa) is inserted:  

‘(83aa) ‘liquidation entity’ means a legal person established in the Union in respect 
of  which  the  group  resolution  plan  or,  for  entities  that  are  not  part  of  a  group,  the 
resolution  plan,  provides  that  the  entity  is  to  be  wound  up  in  an  orderly  manner  in 
accordance with the applicable national law;’; 

(2) 

Article 45c is amended as follows: 

(a) 

in paragraph 2, the second and third subparagraphs are deleted; 

(b) 

the following paragraph 2a is inserted: 

‘2a.  Resolution  authorities  shall  not  determine  the  requirement  referred  to  in 
Article 45(1) for liquidation entities. 

By way of derogation from the first subparagraph, and where necessary for the 
objectives of protecting financial stability or limiting potential contagion to the 
financial  system,  resolution  authorities  may  exceptionally  determine  the 
requirement referred to in Article 45(1) for liquidation entities on an individual 
basis in the amount sufficient to absorb losses in accordance with paragraph 2, 
point  (a),  of  this  Article,  increased  to  the  amount  that  is  necessary  for  the 
achievement of those objectives. In those cases, liquidation entities shall meet 
the  requirement  referred  to  in  Article  45(1)  by  using  one  or  more  of  the 
following: 

(a) 

(b) 

own funds; 

liabilities  that  fulfil  the  eligibility  criteria  referred  to  in  Article  72a  of 
Regulation  (EU)  No  575/2013,  with  the  exception  of  Article  72b(2), 
points (b) and (d), of that Regulation; 

(c) 

the liabilities referred to in Article 45b(2). 

Articles  77(2)  and  78a  of  Regulation  (EU)  No  575/2013  shall  not  apply  to 
liquidation  entities  for  which  the  resolution  authority  has  not  determined  the 
requirement referred to in Article 45(1) of this Directive. 

Holdings  of  own  funds  instruments  or  liabilities issued  by  subsidiaries  which 
are  liquidation  entities  for  which  the  resolution  authority  has  not  determined 
the requirement referred to in Article 45(1) shall not be deducted under Article 
72e(5) of Regulation (EU) No 575/2013.’; 

(3) 

Article 45f is amended as follows: 

(a) 

in paragraph 1, the following fourth subparagraph is inserted: 

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‘By  way  of  derogation  from  the  first  and  second  subparagraphs,  resolution 
authorities may decide to determine the requirement laid down in Article 45c 
on a consolidated basis for a subsidiary as referred to in this paragraph where 
all of the following conditions are met: 

(a) 

the subsidiary meets one of the following conditions: 

(i) 

the subsidiary is held directly by the resolution entity and: 

- 

- 

- 

the  resolution  entity  is  a  Union  parent  financial  holding 
company  or  a  Union  parent  mixed  financial  holding 
company; 

both the subsidiary and the resolution entity are established in 
the  same  Member  State  and  are  part  of  the  same  resolution 
group; 

the  resolution  entity  does  not  hold  directly  any  subsidiary 
institution or entity as referred to  in  Article 1(1), points  (b), 
(c) or (d), other than the subsidiary concerned; 

(ii) 

the  subsidiary  is  subject  to  the  requirement  referred  to  in  Article 
104a  of  Directive  2013/36/EU  or 
the  combined  buffer 
requirement on a consolidated basis; 

to 

(b) 

compliance  with  the  requirement  laid  down  in  Article  45c  on  a 
consolidated  basis  does  not  negatively  affect  in  a  significant  way  the 
resolvability of the resolution group, or the write down or conversion, in 
accordance  with  Article  59,  of  relevant  capital  instruments  and  eligible 
liabilities of the subsidiary concerned or of other entities in the resolution 
group.’; 

(b) 

the following paragraph 2a is inserted: 

‘2a.  Where  an  entity  as  referred  to  in  paragraph  1  complies  with  the 
requirement referred to in Article 45(1) on a consolidated basis, the amount of 
own  funds  and  eligible  liabilities  of  that  entity  shall  include  the  following 
liabilities issued in accordance with paragraph 2, point (a), of this Article by a 
subsidiary established in the Union included in the consolidation of that entity: 

(a) 

liabilities issued to and bought by the resolution entity, either directly, or 
indirectly through other entities in the same resolution group that are not 
included  in  the  consolidation  of  the  entity  complying  with  the 
requirement referred to in Article 45(1) on a consolidated basis; 

(b) 

liabilities  issued  to  an  existing  shareholder  that  is  not  part  of  the  same 
resolution group. 

The liabilities referred to in the first subparagraph, points (a) and (b), shall not 
exceed  the  amount  determined  by  subtracting  from  the  amount  of  the 
requirement referred to in Article 45(1) applicable to the subsidiary included in 
the consolidation the sum of all of the following: 

(a) 

the  liabilities  issued  to  and  bought  by  the  entity  complying  with  the 
requirement  referred  to  in  Article  45(1)  on  a  consolidated  basis,  either 
directly, or indirectly through other entities in the same resolution group 
that are included in the consolidation of that entity; 

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(b) 

the amount of own funds that are issued in accordance with paragraph 2, 
point (b), of this Article.’; 

(4) 

in Article 45i, paragraph 4 is replaced by the following: 

‘4.  Paragraphs  1  and  3  shall  not  apply  to  liquidation  entities  unless  the  resolution 
authority has determined the requirement referred to in Article 45(1) for such entity 
in accordance with Article 45c(2a), second subparagraph. In that case, the resolution 
authority  shall  determine  the  content  and  frequency  of  the  reporting  and  disclosure 
obligations  referred  to  in  paragraphs  5  and  6  of  this  Article  for  that  entity.  The 
resolution authority shall communicate those reporting and disclosure obligations to 
the liquidation entity concerned. Those reporting and disclosure obligations shall not 
go beyond what is necessary to monitor compliance with the requirement determined 
pursuant to Article 45c(2a), second subparagraph.’; 

Article 2 

Amendments to Regulation (EU) No 806/2014 

Regulation (EU) No 806/2014 is amended as follows: 

(5) 

in Article 3(1), the following point (24aa) is inserted: 

‘(24aa)  ‘liquidation  entity’  means  a  legal  person  established  in  a  participating 
Member State in  respect of which the group resolution  plan or, for entities that are 
not part of a group, the resolution plan, provides that the entity is to be wound up in 
an orderly manner in accordance with the applicable national law;’; 

(6) 

Article 12d is amended as follows: 

(a) 

in paragraph 2, the second and third subparagraphs are deleted; 

(b) 

the following paragraph 2a is inserted: 

‘2a. The Board shall not determine the requirement referred to in Article 12a(1) 
for liquidation entities.  

By way of derogation from the first subparagraph, and where necessary for the 
objectives of protecting financial stability or limiting potential contagion to the 
financial  system,  the  Board  may  exceptionally  determine  the  requirement 
referred to in Article 12a(1) for liquidation entities on an individual basis in the 
amount sufficient to absorb losses in accordance with paragraph 2, point (a), of 
this  Article,  increased  to  the  amount  that  is  necessary  for  the  achievement  of 
those objectives. In those cases, liquidation entities shall meet the requirement 
referred to in Article 12a(1) by using one or more of the following: 

(a) 

(b) 

own funds; 

liabilities  that  fulfil  the  eligibility  criteria  referred  to  in  Article  72a  of 
Regulation  (EU)  No  575/2013,  with  the  exception  of  Article  72b(2), 
points (b) and (d), of that Regulation; 

(c) 

the liabilities referred to in Article 12c(2). 

Articles  77(2)  and  78a  of  Regulation  (EU)  No  575/2013  shall  not  apply  to 
liquidation  entities  for  which  the  resolution  authority  has  not  determined  the 
requirement referred to in Article 12a(1) of this Regulation. 

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Holdings  of  own  funds  instruments  or  liabilities issued  by  subsidiaries  which 
are  liquidation  entities  for  which  the  resolution  authority  has  not  determined 
the  requirement  referred  to  in  Article  12a(1)  shall  not  be  deducted  under 
Article 72e(5) of Regulation (EU) No 575/2013.’; 

(7) 

Article 12g is amended as follows: 

(a) 

in paragraph 1, the following fourth subparagraph is inserted: 

‘By way of derogation from the first and second subparagraphs, the Board may 
decide to determine the requirement laid down in Article 12d on a consolidated 
basis for a subsidiary as referred to in this paragraph where all of the following 
conditions are met: 

(a) 

the subsidiary meets one of the following conditions: 

(i) 

the subsidiary is held directly by the resolution entity and: 

- 

- 

- 

the  resolution  entity  is  a  Union  parent  financial  holding 
company  or  a  Union  parent  mixed  financial  holding 
company; 

both the subsidiary and the resolution entity are established in 
the same participating Member State and are part of the same 
resolution group; 

the resolution entity does not hold directly any subsidiary  as 
referred to in Article 2 other than the subsidiary concerned; 

(ii) 

the  subsidiary  is  subject  to  the  requirement  referred  to  in  Article 
104a  of  Directive  2013/36/EU  or 
the  combined  buffer 
requirement on a consolidated basis; 

to 

(b) 

compliance  with  the  requirement  laid  down  in  Article  12d  on  a 
consolidated  basis  does  not  negatively  affect  in  a  significant  way  the 
resolvability of the resolution group, or the write down or conversion, in 
accordance  with  Article  21,  of  relevant  capital  instruments  and  eligible 
liabilities of the institution or subsidiary concerned or of other entities in 
the resolution group.’; 

(b) 

the following paragraph 2a is inserted: 

‘2a.  Where  an  entity  as  referred  to  in  paragraph  1  complies  with  the 
requirement referred to in Article 12a(1) on a consolidated basis, the amount of 
own  funds  and  eligible  liabilities  of  that  entity  shall  include  the  following 
liabilities issued in accordance with paragraph 2, point (a), of this Article by a 
subsidiary established in the Union included in the consolidation of that entity: 

(a) 

liabilities issued to and bought by the resolution entity, either directly, or 
indirectly through other entities in the same resolution group that are not 
included  in  the  consolidation  of  the  entity  complying  with  the 
requirement referred to in Article 12a(1) on a consolidated basis; 

(b) 

liabilities  issued  to  an  existing  shareholder  that  is  not  part  of  the  same 
resolution group. 

The liabilities referred to in the first subparagraph, points (a) and (b), shall not 
exceed  the  amount  determined  by  subtracting  from  the  amount  of  the 

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requirement referred to in Article 45(1) applicable to the subsidiary included in 
the consolidated the sum of all of the following: 

(a) 

the  liabilities  issued  to  and  bought  by  the  entity  complying  with  the 
requirement  referred  to  in  Article  12a(1)  on  a  consolidated  basis  either 
directly, or indirectly through other entities in the same resolution group 
that are included in consolidation the consolidation of that entity; 

(b) 

the amount of own funds that are issued in accordance with paragraph 2, 
point (b), of this Article.’. 

Article 3 

Transposition 

Member States shall adopt and publish, by … [OP please insert the date = 6 months after the 
date  of  entry  into  force  of  this  amending  Directive]  at  the  latest,  the  laws,  regulations  and 
administrative  provisions  necessary  to  comply  with  Article  1.  They  shall  forthwith 
communicate to the Commission the text of those provisions.  

Member States shall apply those provisions from … [OP please insert the date = 1 day after 
the transposition date of this amending Directive]. 

When Member States adopt those provisions, they shall contain a reference to this Directive 
or be accompanied by such a reference on the occasion of their official publication. Member 
States shall determine how such reference is to be made. 

Member  States  shall  communicate  to  the  Commission  the  text  of  the  main  provisions  of 
national law which they adopt in the field covered by Article 1. 

Article 4 

Entry into force and application 

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

Article 2 shall apply from … [OP please insert the date = 1 day after the transposition date of 
this amending Directive]. 

Article 2 shall be binding in its entirety and directly applicable in all Member States. 

Article 5 

Addressees 

This Directive is addressed to the Member States. 

Done at Strasbourg, 

For the European Parliament 
The President 

For the Council 
The President 

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