Article 1 Subject matter
This Regulation establishes uniform rules and a uniform procedure for the resolution of the entities referred to in Article 2 that are established in the participating Member States referred to in Article 4. Those uniform rules and that uniform procedure shall be applied by the Single Resolution Board established in accordance with Article 42 (the ‘Board’), together with the Council and the Commission and the national resolution authorities within the framework of the single resolution mechanism (‘SRM’) established by this Regulation. The SRM shall be supported by a single resolution fund (‘the Fund’). The use of the Fund shall be contingent upon the entry into force of an agreement among the participating Member States (‘the Agreement’) on transferring the funds raised at national level towards the Fund as well as on a progressive merger of the different funds raised at national level to be allocated to national compartments of the Fund.
Article 2 Scope
This Regulation shall apply to the following entities: (a) credit institutions established in a participating Member State; (b) parent undertakings, including financial holding companies and mixed financial holding companies, established in a participating Member State, where they are subject to consolidated supervision carried out by the ECB in accordance with Article 4(1)(g) of Regulation (EU) No 1024/2013; (c) investment firms and financial institutions established in a participating Member State, where they are covered by the consolidated supervision of the parent undertaking carried out by the ECB in accordance with Article 4(1)(g) of Regulation (EU) No 1024/2013.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 2 Scope):
This Regulation shall apply to the following entities: (a) credit institutions established in a participating Member State; (c) investment firms and financial institutions established in a participating Member State, where they are covered by the consolidated supervision of the parent undertaking carried out by the ECB in accordance with Article 4(1)(g) of Regulation (EU) No 1024/2013.
Article 3 Definitions
1. For the purposes of this Regulation the following definitions apply: (1) ‘national competent authority’ means any national competent authority as defined in Article 2(2) of Regulation (EU) No 1024/2013; (2) ‘competent authority’ means a competent authority as defined in Article 4(2)(i) of Regulation (EU) No 1093/2010; (3) ‘national resolution authority’ means an authority designated by a participating Member State in accordance with Article 3 of Directive 2014/59/EU; (4) ‘relevant national resolution authority’ means the national resolution authority of a participating Member State in which an entity or a group's entity is established; (5) ‘conditions for resolution’ means the conditions referred to in Article 18(1); (6) ‘resolution plan’ means a plan drawn up in accordance with Article 8 or 9; (7) ‘group resolution plan’ means a plan for group resolution drawn up in accordance with Articles 8 and 9; (8) ‘resolution objectives’ means the objectives referred to in Article 14; (9) ‘resolution tool’ means a resolution tool referred to in Article 22(2); (10) ‘resolution action’ means the decision to place an entity referred to in Article 2 under resolution pursuant to Article 18, the application of a resolution tool or the exercise of one or more resolution powers; (11) ‘covered deposits’ means deposits as defined in Article 2(1)(5) of Directive 2014/49/EU; (12) ‘eligible deposits’ means eligible deposits as defined in Article 2(1)(4) of Directive 2014/49/EU; (13) ‘institution’ means a credit institution, or an investment firm covered by consolidated supervision in accordance with Article 2(c); (14) ‘institution under resolution’ means an entity referred to in Article 2 in respect of which a resolution action is taken; (15) ‘financial institution’ means a financial institution as defined in Article 4(1)(26) of Regulation (EU) No 575/2013; (16) ‘financial holding company’ means a financial holding company as defined in Article 4(1)(20) of Regulation (EU) No 575/2013; (17) ‘mixed financial holding company’ means a mixed financial holding company as defined in point (21) of Article 4(1) of Regulation (EU) No 575/2013; (18) ‘Union parent financial holding company’ means an EU parent financial holding company as defined in point (31) of Article 4(1) of Regulation (EU) No 575/2013; (19) ‘Union parent institution’ means an EU parent institution as defined in point (29) of Article 4(1) of Regulation (EU) No 575/2013; (20) ‘parent undertaking’ means a parent undertaking as defined in Article 4(1)(15)(a) of Regulation (EU) No 575/2013; (21) ‘subsidiary’ means a subsidiary as defined in Article 4(1)(16) of Regulation (EU) No 575/2013; (22) ‘branch’ means a branch as defined in Article 4(1)(17) of Regulation (EU) No 575/2013; (23) ‘group’ means a parent undertaking and its subsidiaries that are entities as referred to in Article 2; (24) ‘cross-border group’ means a group that has entities as referred to in Article 2 established in more than one participating Member State; (25) ‘consolidated basis’ means the basis of the consolidated situation as defined in Article 4(1)(47) of Regulation (EU) No 575/2013; (26) ‘consolidating supervisor’ means consolidating supervisor as defined in Article 4(1)(41) of Regulation (EU) No 575/2013; (27) ‘group-level resolution authority’ means the resolution authority in the participating Member State in which the institution or parent undertaking subject to consolidated supervision at the highest level of consolidation within participating Member States in accordance with Article 111 of Directive 2013/36/EU is established; (28) ‘institutional protection scheme’ or ‘IPS’ means an arrangement that meets the requirements laid down in Article 113(7) of Regulation (EU) No 575/2013; (29) ‘extraordinary public financial support’ means State aid within the meaning of Article 107(1) TFEU or any other public financial support at supra-national level, which, if provided at national level, would constitute State aid, that is provided in order to preserve or restore the viability, liquidity or solvency of an entity referred to in Article 2 of this Regulation or of a group of which such an entity forms part; (30) ‘sale of business tool’ means the mechanism for effecting a transfer by a resolution authority of instruments of ownership issued by an institution under resolution, or assets, rights or liabilities of an institution under resolution, to a purchaser that is not a bridge institution, in accordance with Article 24; (31) ‘bridge institution tool’ means the mechanism for transferring instruments of ownership issued by an institution under resolution, or assets, rights or liabilities of an institution under resolution, to a bridge institution, in accordance with Article 25; (32) ‘asset separation tool’ means the mechanism for effecting a transfer of assets, rights or liabilities of an institution under resolution to an asset management vehicle in accordance with Article 26; (33) ‘bail-in tool’ means the mechanism for effecting the exercise of the write-down and conversion powers in relation to liabilities of an institution under resolution in accordance with Article 27; (34) ‘available financial means’ means the cash, deposits, assets and irrevocable payment commitments available to the Fund for the purposes listed under Article 76(1); (35) ‘target level’ means the amount of available financial means to be reached under Article 69(1); (36) ‘Agreement’ means the agreement on the transfer and mutualisation of contributions to the Fund; (37) ‘transitional period’ means the period from the date of application of this Regulation as determined under Article 99(2) and (6) until the Fund reaches the target level or 1 January 2024, whichever is earlier; (38) ‘financial instrument’ means financial instrument as defined in point (50) of Article 4(1) of Regulation (EU) No 575/2013; (39) ‘debt instruments’ means bonds and other forms of transferable debt, instruments creating or acknowledging a debt, and instruments giving rights to acquire debt instruments; (40) ‘own funds’ means own funds as defined in Article 4(1)(118) of Regulation (EU) No 575/2013; (41) ‘own funds requirements’ means the requirements laid down in Articles 92 to 98 of Regulation (EU) No 575/2013; (42) ‘winding up’ means the realisation of assets of an entity referred to in Article 2; (43) ‘derivative’ means a derivative as defined in Article 2(5) of Regulation (EU) No 648/2012; (44) ‘write-down and conversion powers’ means the powers referred to in Article 21; (45) ‘Common Equity Tier 1 instruments’ means capital instruments that meet the conditions laid down in Article 28(1) to (4), Article 29(1) to (5) or Article 31(1) of Regulation (EU) No 575/2013; (46) ‘Additional Tier 1 instruments’ means capital instruments that meet the conditions laid down in Article 52(1) of Regulation (EU) No 575/2013; (47) ‘Tier 2 instruments’ means capital instruments or subordinated loans that meet the conditions laid down in Article 63 of Regulation (EU) No 575/2013; (48) ‘aggregate amount’ means the aggregate amount by which the resolution authority has assessed that eligible liabilities are to be written down or converted, in accordance with Article 27(13); (49) ‘eligible liabilities’ means the liabilities and capital instruments that do not qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments of an entity referred to in Article 2 that are not excluded from the scope of the bail-in tool pursuant to Article 27(3); (50) ‘deposit guarantee scheme’ means a deposit guarantee scheme introduced and officially recognised by a Member State pursuant to Article 4 of Directive 2014/49/EU; (51) ‘relevant capital instruments’ means Additional Tier 1 instruments and Tier 2 instruments; (52) ‘covered bond’ means an instrument as referred to in Article 52(4) of Directive 2009/65/EC of the European Parliament and of the Council ( 13 ) ; (53) ‘depositor’ means a depositor as defined in Article 2(1)(6) of Directive 2014/49/EU; (54) ‘investor’ means an investor within the meaning of Article 1(4) of Directive 97/9/EC of the European Parliament and of the Council ( 14 ) . 2. In the absence of a relevant definition in paragraph 1 of this Article, the definitions referred to in Article 2 of Directive 2014/59/EU apply. In the absence of a relevant definition in paragraph 1 of this Article or in Article 2 of Directive 2014/59/EU, the definitions referred to in Article 3 of Directive 2013/36/EU apply.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 3 Definitions):
For the purposes of this Regulation the following definitions apply: ‘national competent authority’ means any national competent authority as defined in Article 2(2) of Regulation (EU) No 1024/2013; (3) ‘national resolution authority’ means an authority designated by a participating Member State in accordance with Article 3 of Directive 2014/59/EU; (4) ‘relevant national resolution authority’ means the national resolution authority of a participating Member State in which an entity or a group's entity is established; (5) ‘conditions for resolution’ means the conditions referred to in Article 18(1); (6) ‘resolution plan’ means a plan drawn up in accordance with Article 8 or 9; (7) ‘group resolution plan’ means a plan for group resolution drawn up in accordance with Articles 8 and 9; (8) ‘resolution objectives’ means the objectives referred to in Article 14; (9) ‘resolution tool’ means a resolution tool referred to in Article 22(2); (10) ‘resolution action’ means the decision to place an entity referred to in Article 2 under resolution pursuant to Article 18, the application of a resolution tool or the exercise of one or more resolution powers; ‘covered deposits’ means deposits as defined in Article 2(1)(5) of Directive 2014/49/EU; ‘eligible deposits’ means eligible deposits as defined in Article 2(1)(4) of Directive 2014/49/EU; (13) ‘institution’ means a credit institution, or an investment firm covered by consolidated supervision in accordance with Article 2(c); (14) ‘institution under resolution’ means an entity referred to in Article 2 in respect of which a resolution action is taken; (23) ‘group’ means a parent undertaking and its subsidiaries that are entities as referred to in Article 2; (24) ‘cross-border group’ means a group that has entities as referred to in Article 2 established in more than one participating Member State; (24a) ‘resolution entity’ means a legal person established in a participating Member State, which, in accordance with Article 8, is identified by the Board as an entity in respect of which the resolution plan provides for resolution action; ‘resolution group’ means: a resolution entity, together with its subsidiaries that are not: (i) resolution entities themselves; (ii) subsidiaries of other resolution entities; or (iii) entities established in a third country that are not included in the resolution group under the resolution plan, and their subsidiaries; or (b) credit institutions that are permanently affiliated to a central body, and the central body itself when at least one of those credit institutions or the central body is a resolution entity, and their respective subsidiaries; (27) ‘group-level resolution authority’ means the resolution authority in the participating Member State in which the institution or parent undertaking subject to consolidated supervision at the highest level of consolidation within participating Member States in accordance with Article 111 of Directive 2013/36/EU is established; ‘institutional protection scheme’ or ‘IPS’ means an arrangement that meets the requirements laid down in Article 113(7) of Regulation (EU) No 575/2013; (29) ‘extraordinary public financial support’ means State aid within the meaning of Article 107(1) TFEU or any other public financial support at supra-national level, which, if provided at national level, would constitute State aid, that is provided in order to preserve or restore the viability, liquidity or solvency of an entity referred to in Article 2 of this Regulation or of a group of which such an entity forms part; (30) ‘sale of business tool’ means the mechanism for effecting a transfer by a resolution authority of instruments of ownership issued by an institution under resolution, or assets, rights or liabilities of an institution under resolution, to a purchaser that is not a bridge institution, in accordance with Article 24; (31) ‘bridge institution tool’ means the mechanism for transferring instruments of ownership issued by an institution under resolution, or assets, rights or liabilities of an institution under resolution, to a bridge institution, in accordance with Article 25; (32) ‘asset separation tool’ means the mechanism for effecting a transfer of assets, rights or liabilities of an institution under resolution to an asset management vehicle in accordance with Article 26; (33) ‘bail-in tool’ means the mechanism for effecting the exercise of the write-down and conversion powers in relation to liabilities of an institution under resolution in accordance with Article 27; (34) ‘available financial means’ means the cash, deposits, assets and irrevocable payment commitments available to the Fund for the purposes listed under Article 76(1); (35) ‘target level’ means the amount of available financial means to be reached under Article 69(1); (36) ‘Agreement’ means the agreement on the transfer and mutualisation of contributions to the Fund; ‘transitional period’ means the period from the date of application of this Regulation as determined under Article 99(2) and (6) until the Fund reaches the target level or 1 January 2024, whichever is earlier; (39) ‘debt instruments’ means bonds and other forms of transferable debt, instruments creating or acknowledging a debt, and instruments giving rights to acquire debt instruments; (41) ‘own funds requirements’ means the requirements laid down in Articles 92 to 98 of Regulation (EU) No 575/2013; (42) ‘winding up’ means the realisation of assets of an entity referred to in Article 2; ‘derivative’ means a derivative as defined in Article 2(5) of Regulation (EU) No 648/2012; (44) ‘write-down and conversion powers’ means the powers referred to in Article 21; (45a) ‘Common Equity Tier 1 capital’ means Common Equity Tier 1 capital as calculated in accordance with Article 50 of Regulation (EU) No 575/2013; ‘Additional Tier 1 instruments’ means capital instruments that meet the conditions laid down in Article 52(1) of Regulation (EU) No 575/2013; (47) ‘Tier 2 instruments’ means capital instruments or subordinated loans that meet the conditions laid down in Article 63 of Regulation (EU) No 575/2013; (48) ‘aggregate amount’ means the aggregate amount by which the resolution authority has assessed that bail-inable liabilities are to be written down or converted, in accordance with Article 27(13); (49) ‘bail-inable liabilities’ means the liabilities and capital instruments that do not qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments of an entity referred to in Article 2 and that are not excluded from the scope of the bail-in tool pursuant to Article 27(3); (50) ‘deposit guarantee scheme’ means a deposit guarantee scheme introduced and officially recognised by a Member State pursuant to Article 4 of Directive 2014/49/EU; (51) ‘relevant capital instruments’ means Additional Tier 1 instruments and Tier 2 instruments; (52) ‘covered bond’ means an instrument as referred to in Article 52(4) of Directive 2009/65/EC of the European Parliament and of the Council ( 1 ); ‘depositor’ means a depositor as defined in Article 2(1)(6) of Directive 2014/49/EU; (54) ‘investor’ means an investor within the meaning of Article 1(4) of Directive 97/9/EC of the European Parliament and of the Council ( 2 ); (55) ‘combined buffer requirement’ means combined buffer requirement as defined in point (6) of Article 128 of Directive 2013/36/EU. 2. In the absence of a relevant definition in paragraph 1 of this Article, the definitions referred to in Article 2 of Directive 2014/59/EU apply. In the absence of a relevant definition in paragraph 1 of this Article or in Article 2 of Directive 2014/59/EU, the definitions referred to in Article 3 of Directive 2013/36/EU apply.
Article 4 Participating Member States
1. Participating Member States within the meaning of Article 2 of Regulation (EU) No 1024/2013 shall be considered to be participating Member States for the purposes of this Regulation. 2. Where close cooperation between a Member State and the ECB is suspended or terminated in accordance with Article 7 of Regulation (EU) No 1024/2013, entities established in that Member State shall cease to be covered by this Regulation from the date of application of the decision to suspend or terminate close cooperation. 3. In the event that the close cooperation with the ECB of a Member State whose currency is not the euro is terminated in accordance with Article 7 of Regulation (EU) No 1024/2013, the Board shall decide within three months after the date of adoption of the decision to terminate close cooperation, in agreement with that Member State, on the modalities for the recoupment of contributions that the Member State concerned has transferred to the Fund and any conditions applicable. Recoupments shall include the part of the compartment corresponding to the Member State concerned not subject to mutualisation. If during the transitional period, as laid down in the Agreement, recoupments of the non-mutualised part are not sufficient to permit the funding of the establishment by the Member State concerned of its national financial arrangement in accordance with Directive 2014/59/EU, recoupments shall also include the totality or a part of the part of the compartment corresponding to that Member State subject to mutualisation in accordance with the Agreement or otherwise, after the transitional period, the totality or a part of the contributions transferred by the Member State concerned during the close cooperation, in an amount sufficient to permit the funding of that national financial arrangement. When assessing the amount of financial means to be recouped from the mutualised part or otherwise, after the transitional period, from the Fund, the following additional criteria shall be taken into account: (a) the manner in which termination of close cooperation with the ECB has taken place, whether voluntarily, in accordance with Article 7(6) of Regulation (EU) No 1024/2013, or not; (b) the existence of ongoing resolution actions on the date of termination; (c) the economic cycle of the Member State concerned by the termination. Recoupments shall be distributed during a limited period commensurate to the duration of the close cooperation. The relevant Member State's share of the financial means from the Fund used for resolution actions during the period of close cooperation shall be deducted from those recoupments. 4. This Regulation shall continue to apply to resolution proceedings which are ongoing on the date of application of a decision as referred to in paragraph 2.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (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/EU 3 (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. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s 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 ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s 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 Council 8 , 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 , t he 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 transfer s 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 tha t 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 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. 
Revised version (Article 4 Participating Member States):
1. Participating Member States within the meaning of Article 2 of Regulation (EU) No 1024/2013 shall be considered to be participating Member States for the purposes of this Regulation. 2. Where close cooperation between a Member State and the ECB is suspended or terminated in accordance with Article 7 of Regulation (EU) No 1024/2013, entities established in that Member State shall cease to be covered by this Regulation from the date of application of the decision to suspend or terminate close cooperation. 3. In the event that the close cooperation with the ECB of a Member State whose currency is not the euro is terminated in accordance with Article 7 of Regulation (EU) No 1024/2013, the Board shall decide within three months after the date of adoption of the decision to terminate close cooperation, in agreement with that Member State, on the modalities for the recoupment of contributions that the Member State concerned has transferred to the Fund and any conditions applicable. Recoupments shall include the part of the compartment corresponding to the Member State concerned not subject to mutualisation. If during the transitional period, as laid down in the Agreement, recoupments of the non-mutualised part are not sufficient to permit the funding of the establishment by the Member State concerned of its national financial arrangement in accordance with Directive 2014/59/EU, recoupments shall also include the totality or a part of the part of the compartment corresponding to that Member State subject to mutualisation in accordance with the Agreement or otherwise, after the transitional period, the totality or a part of the contributions transferred by the Member State concerned during the close cooperation, in an amount sufficient to permit the funding of that national financial arrangement. When assessing the amount of financial means to be recouped from the mutualised part or otherwise, after the transitional period, from the Fund, the following additional criteria shall be taken into account: (b) the existence of ongoing resolution actions on the date of termination; (c) the economic cycle of the Member State concerned by the termination. Recoupments shall be distributed during a limited period commensurate to the duration of the close cooperation. The relevant Member State's share of the financial means from the Fund used for resolution actions during the period of close cooperation shall be deducted from those recoupments. 4. This Regulation shall continue to apply to resolution proceedings which are ongoing on the date of application of a decision as referred to in paragraph 2.
Article 5 Relation to Directive 2014/59/EU and applicable national law
1. Where, pursuant to this Regulation, the Board performs tasks and exercises powers, which, pursuant to Directive 2014/59/EU are to be performed or exercised by the national resolution authority, the Board shall, for the application of this Regulation and of Directive 2014/59/EU, be considered to be the relevant national resolution authority or, in the event of cross-border group resolution, the relevant group-level resolution authority. 2. The Board, the Council and the Commission and, where relevant, the national resolution authorities, shall take decisions subject to and in compliance with the relevant Union law and in particular any legislative and non-legislative acts, including those referred to in Articles 290 and 291 TFEU. The Board, the Council and the Commission shall be subject to binding regulatory and implementing technical standards developed by EBA and adopted by the Commission in accordance with Articles 10 to 15 of Regulation (EU) No 1093/2010 and to any guidelines and recommendations issued by EBA under Article 16 of that Regulation. They shall make every effort to comply with any guidelines and recommendations of EBA which relate to tasks of a kind to be performed by those bodies. Where they do not comply or do not intend to comply with such guidelines or recommendations EBA shall be informed thereof in accordance with Article 16(3) of that Regulation. The Board, the Council and the Commission shall cooperate with EBA in the application of Articles 25 and 30 of that Regulation. The Board shall also be subject to any decisions of EBA in accordance with Article 19 of Regulation (EU) No 1093/2010 where Directive 2014/59/EU provides for such decisions.
Article 6 General principles
1. No action, proposal or policy of the Board, the Council, the Commission or a national resolution authority shall discriminate against entities, deposit holders, investors or other creditors established in the Union on grounds of their nationality or place of business. 2. Every action, proposal or policy of the Board, the Council, the Commission, or of a national resolution authority in the framework of the SRM shall be undertaken with full regard and duty of care for the unity and integrity of the internal market. 3. When making decisions or taking action which may have an impact in more than one Member State, and in particular when taking decisions concerning groups established in two or more Member States, due consideration shall be given to the resolution objectives referred to in Article 14 and all of the following factors: (a) the interests of the Member States where a group operates and in particular the impact of any decision or action or inaction on the financial stability, fiscal resources, the economy, the financing arrangements, the deposit guarantee scheme or the investor compensation scheme of any of those Member States and on the Fund; (b) the objective of balancing the interests of the various Member States involved and of avoiding unfairly prejudicing or unfairly protecting the interests of a Member State; (c) the need to minimise a negative impact for any part of a group of which an entity referred to in Article 2, which is subject to a resolution, is a member. 4. When making decisions or taking actions, in particular regarding entities or groups established both in a participating Member State and in a non-participating Member State, possible negative effects on non-participating Member States, including on entities established in those Member States, shall be taken into consideration. 5. The Board, the Council and the Commission shall balance the factors referred to in paragraph 3 with the resolution objectives referred to in Article 14 as appropriate to the nature and circumstances of each case and shall comply with the decisions made by the Commission under Article 107 TFEU and Article 19 of this Regulation. 6. Decisions or actions of the Board, the Council or the Commission shall neither require Member States to provide extraordinary public financial support nor impinge on the budgetary sovereignty and fiscal responsibilities of the Member States. 7. Where the Board takes a decision that is addressed to a national resolution authority, the national resolution authority shall have the right to specify further the measures to be taken. Such specifications shall comply with the decision of the Board in question.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (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/EU 3 (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. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s 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 ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s 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 Council 8 , 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 , t he 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 transfer s 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 tha t 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 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. 
Revised version (Article 6 General principles):
1. No action, proposal or policy of the Board, the Council, the Commission or a national resolution authority shall discriminate against entities, deposit holders, investors or other creditors established in the Union on grounds of their nationality or place of business. 2. Every action, proposal or policy of the Board, the Council, the Commission, or of a national resolution authority in the framework of the SRM shall be undertaken with full regard and duty of care for the unity and integrity of the internal market. 4. When making decisions or taking actions, in particular regarding entities or groups established both in a participating Member State and in a non-participating Member State, possible negative effects on non-participating Member States, including on entities established in those Member States, shall be taken into consideration. 5. The Board, the Council and the Commission shall balance the factors referred to in paragraph 3 with the resolution objectives referred to in Article 14 as appropriate to the nature and circumstances of each case and shall comply with the decisions made by the Commission under Article 107 TFEU and Article 19 of this Regulation. 6. Decisions or actions of the Board, the Council or the Commission shall neither require Member States to provide extraordinary public financial support nor impinge on the budgetary sovereignty and fiscal responsibilities of the Member States. 7. Where the Board takes a decision that is addressed to a national resolution authority, the national resolution authority shall have the right to specify further the measures to be taken. Such specifications shall comply with the decision of the Board in question.
Article 7 Division of tasks within the SRM
1. The Board shall be responsible for the effective and consistent functioning of the SRM. 2. Subject to the provisions referred to in Article 31(1), the Board shall be responsible for drawing up the resolution plans and adopting all decisions relating to resolution for: (a) the entities referred to in Article 2 that are not part of a group and for groups: (i) which are considered to be significant in accordance with Article 6(4) of Regulation (EU) No 1024/2013; or (ii) in relation to which the ECB has decided in accordance with Article 6(5)(b) of Regulation (EU) No 1024/2013 to exercise directly all of the relevant powers; and (b) other cross-border groups. 3. In relation to entities and groups other than those referred to in paragraph 2, without prejudice to the responsibilities of the Board for the tasks conferred on it by this Regulation, the national resolution authorities shall perform, and be responsible for, the following tasks: (a) adopting resolution plans and carrying out an assessment of resolvability in accordance with Articles 8 and 10 and with the procedure laid down in Article 9; (b) adopting measures during early intervention in accordance with Article 13(3); (c) applying simplified obligations or waiving the obligation to draft a resolution plan, in accordance with Article 11; (d) setting the level of minimum requirement for own funds and eligible liabilities, in accordance with Article 12; (e) adopting resolution decisions and applying resolution tools referred to in this Regulation, in accordance with the relevant procedures and safeguards, provided that the resolution action does not require any use of the Fund and is financed exclusively by the tools referred to in Articles 21 and 24 to 27 and/or by the deposit guarantee scheme, in accordance with Article 79, and with the procedure laid down in Article 31; (f) writing down or converting relevant capital instruments pursuant to Article 21, in accordance with the procedure laid down in Article 31. If the resolution action requires the use of the Fund, the Board shall adopt the resolution scheme. When adopting a resolution decision, the national resolution authorities shall take into account and follow the resolution plan as referred to in Article 9, unless they assess, taking into account the circumstances of the case, that the resolution objectives will be achieved more effectively by taking actions which are not provided for in the resolution plan. When performing the tasks referred to in this paragraph, the national resolution authorities shall apply the relevant provisions of this Regulation. Any references to the Board in Article 5(2), Article 6(5), Article 8(6), (8), (12) and (13), Article 10(1) to (10), Articles 11 to 14, Article 15(1), (2) and (3), Article 16, the first subparagraph of Article 18(1), Article 18(2) and (6), Article 20, Article 21(1) to (7), the second subparagraph of Article 21(8), Article 21(9) and (10), Article 22(1), (3) and (6), Articles 23 and 24, Article 25(3), Article 27(1) to (15), the second sentence of the second subparagraph, the third subparagraph, and the first, third and fourth sentences of the fourth subparagraph of Article 27(16), and Article 32 shall be read as references to the national resolution authorities with regard to groups and entities referred to in the first subparagraph of this paragraph. For that purpose the national resolution authorities shall exercise the powers conferred on them under national law transposing Directive 2014/59/EU in accordance with the conditions laid down in national law. The national resolution authorities shall inform the Board of the measures referred to in this paragraph that are to be taken and shall closely coordinate with the Board when taking those measures. The national resolution authorities shall submit to the Board the resolution plans referred to in Article 9, as well as any updates, accompanied by a reasoned assessment of the resolvability of the entity or group concerned in accordance with Article 10. 4. Where necessary to ensure the consistent application of high resolution standards under this Regulation, the Board may: (a) further to the notification by a national resolution authority of a measure under paragraph 3 of this Article pursuant to Article 31(1), within the appropriate timeframe having regard to the urgency of the circumstances, issue a warning to the relevant national resolution authority where the Board considers that the draft decision with regard to any entity or group referred to in paragraph 3 of this Article does not comply with this Regulation or with its general instructions referred to in Article 31(1)(a); (b) at any time decide, in particular if its warning referred to in point (a) is not being appropriately addressed, on its own initiative, after consulting the national resolution authority concerned, or upon request from the national resolution authority concerned, to exercise directly all of the relevant powers under this Regulation also with regard to any entity or group referred to in paragraph 3 of this Article. 5. Notwithstanding paragraph 3 of this Article, participating Member States may decide that the Board exercise all of the relevant powers and responsibilities conferred on it by this Regulation in relation to entities and to groups, other than those referred to in paragraph 2, established in their territory. If so, paragraphs 3 and 4 of this Article, Article 9, Article 12(2), and Article 31(1) shall not apply. Member States that intend to make use of this option shall notify the Board and the Commission accordingly. The notification shall take effect from the day of its publication in the Official Journal of the European Union .
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 7 Division of tasks within the SRM):
1. The Board shall be responsible for the effective and consistent functioning of the SRM. 2. Subject to the provisions referred to in Article 31(1), the Board shall be responsible for drawing up the resolution plans and adopting all decisions relating to resolution for: the entities referred to in Article 2 that are not part of a group and for groups: which are considered to be significant in accordance with Article 6(4) of Regulation (EU) No 1024/2013; or (b) other cross-border groups. In relation to entities and groups other than those referred to in paragraph 2, without prejudice to the responsibilities of the Board for the tasks conferred on it by this Regulation, the national resolution authorities shall perform, and be responsible for, the following tasks: (a) adopting resolution plans and carrying out an assessment of resolvability in accordance with Articles 8 and 10 and with the procedure laid down in Article 9; (b) adopting measures during early intervention in accordance with Article 13(3); (c) applying simplified obligations or waiving the obligation to draft a resolution plan, in accordance with Article 11; (d) setting the level of minimum requirement for own funds and eligible liabilities, in accordance with Articles 12 to 12k; (e) adopting resolution decisions and applying resolution tools referred to in this Regulation, in accordance with the relevant procedures and safeguards, provided that the resolution action does not require any use of the Fund and is financed exclusively by the tools referred to in Articles 21 and 24 to 27 and/or by the deposit guarantee scheme, in accordance with Article 79, and with the procedure laid down in Article 31; (f) writing down or converting relevant capital instruments pursuant to Article 21, in accordance with the procedure laid down in Article 31. If the resolution action requires the use of the Fund, the Board shall adopt the resolution scheme. When adopting a resolution decision, the national resolution authorities shall take into account and follow the resolution plan as referred to in Article 9, unless they assess, taking into account the circumstances of the case, that the resolution objectives will be achieved more effectively by taking actions which are not provided for in the resolution plan. The national resolution authorities shall inform the Board of the measures referred to in this paragraph that are to be taken and shall closely coordinate with the Board when taking those measures. The national resolution authorities shall submit to the Board the resolution plans referred to in Article 9, as well as any updates, accompanied by a reasoned assessment of the resolvability of the entity or group concerned in accordance with Article 10. 4. Where necessary to ensure the consistent application of high resolution standards under this Regulation, the Board may: (b) at any time decide, in particular if its warning referred to in point (a) is not being appropriately addressed, on its own initiative, after consulting the national resolution authority concerned, or upon request from the national resolution authority concerned, to exercise directly all of the relevant powers under this Regulation also with regard to any entity or group referred to in paragraph 3 of this Article. 5. Notwithstanding paragraph 3 of this Article, participating Member States may decide that the Board exercise all of the relevant powers and responsibilities conferred on it by this Regulation in relation to entities and to groups, other than those referred to in paragraph 2, established in their territory. If so, paragraphs 3 and 4 of this Article, Article 9, Article 12(2), and Article 31(1) shall not apply. Member States that intend to make use of this option shall notify the Board and the Commission accordingly. The notification shall take effect from the day of its publication in the Official Journal of the European Union .
Article 8 Resolution plans drawn up by the Board
1. The Board shall draw up and adopt resolution plans for the entities and groups referred to in Article 7(2), and for the entities and groups referred to in Article 7(4)(b) and (5) where the conditions for the application of those paragraphs are met. 2. The Board shall draw up the resolution plans, after consulting the ECB or the relevant national competent authorities and the national resolution authorities, including the group-level resolution authority, of the participating Member States in which the entities are established, and the resolution authorities of non-participating Member States in which significant branches are located insofar as relevant to the significant branch. To that end, the Board may require the national resolution authorities to prepare and submit to the Board draft resolution plans and the group-level resolution authority to prepare and submit to the Board a draft group resolution plan. 3. In order to ensure effective and consistent application of this Article, the Board shall issue guidelines and address instructions to the national resolution authorities for the preparation of draft resolution plans and draft group resolution plans relating to specific entities or groups. 4. For the purposes of paragraph 1 of this Article, the national resolution authorities shall submit to the Board all information necessary to draw up and implement the resolution plans, as obtained by them in accordance with Article 11 and Article 13(1) of Directive 2014/59/EU, without prejudice to Chapter 5 of this Title. 5. The resolution plan shall set out options for applying the resolution tools and exercising resolution powers referred to in this Regulation to the entities and groups referred to in paragraph 1. 6. The resolution plan shall provide for the resolution actions which the Board may take where an entity or a group referred to in paragraph 1 meets the conditions for resolution. The information referred to in paragraph 9 shall be disclosed to the entity concerned. When drawing up and updating the resolution plan, the Board shall identify any material impediments to resolvability and, where necessary and proportionate, outline relevant actions for how those impediments could be addressed, in accordance with Article 10. The resolution plan shall take into consideration relevant scenarios including that the event of failure may be idiosyncratic or may occur at a time of broader financial instability or system wide events. The resolution plan shall not assume any of the following: (a) any extraordinary public financial support besides the use of the Fund established in accordance with Article 67; (b) any central bank emergency liquidity assistance; or (c) any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms. 7. The resolution plan shall include an analysis of how and when an institution may apply, in the conditions addressed by the plan, for the use of central bank facilities and shall identify those assets which would be expected to qualify as collateral. 8. The Board may require institutions to assist it in the drawing up and updating of the plans. 9. The resolution plan for each entity shall include, quantified where appropriate and possible: (a) a summary of the key elements of the plan; (b) a summary of the material changes to the institution that have occurred after the latest resolution information was filed; (c) a demonstration of how critical functions and core business lines could be legally and economically separated, to the extent necessary, from other functions so as to ensure continuity upon the failure of the institution; (d) an estimation of the timeframe for executing each material aspect of the plan; (e) a detailed description of the assessment of resolvability carried out in accordance with Article 10; (f) a description of any measures required pursuant to Article 10(7) to address or remove impediments to resolvability identified as a result of the assessment carried out in accordance with Article 10; (g) a description of the processes for determining the value and marketability of the critical functions, core business lines and assets of the institution; (h) a detailed description of the arrangements for ensuring that the information required pursuant to Article 11 of Directive 2014/59/EU is up to date and at the disposal of the resolution authorities at all times; (i) an explanation as to how the resolution options could be financed without the assumption of any of the following: (i) any extraordinary public financial support besides the use of the Fund established in accordance with Article 67; (ii) any central bank emergency liquidity assistance; or (iii) any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms; (j) a detailed description of the different resolution strategies that could be applied according to the different possible scenarios and the applicable timescales; (k) a description of critical interdependencies; (l) a description of options for preserving access to payments and clearing services and other infrastructures and an assessment of the portability of client positions; (m) an analysis of the impact of the plan on the employees of the institution, including an assessment of any associated costs, and a description of envisaged procedures to consult staff during the resolution process, taking into account national systems for dialogue with social partners, where applicable; (n) a plan for communicating with the media and the public; (o) the minimum requirement for own funds and eligible liabilities required pursuant to Article 12 and a deadline to reach that level, where applicable; (p) where applicable, the minimum requirement for own funds and contractual bail-in instruments pursuant to Article 12, and a deadline to reach that level, where applicable; (q) a description of essential operations and systems for maintaining the continuous functioning of the institution's operational processes; (r) where applicable, any opinion expressed by the institution in relation to the resolution plan. 10. Group resolution plans shall include a plan for the resolution of the group, headed by the Union parent undertaking established in a participating Member State, as a whole, either through resolution at the level of the Union parent undertaking or through break up and resolution of the subsidiaries. The group resolution plan shall identify measures for the resolution of: (a) the Union parent undertaking; (b) the subsidiaries that are part of the group and that are established in the Union; (c) the entities referred to in Article 2(b); and (d) subject to Article 33, the subsidiaries that are part of the group and that are established outside the Union. 11. The group resolution plan shall: (a) set out the resolution actions to be taken in relation to group entities, both through resolution actions in respect of the entities referred to in Article 2(b) and subsidiary institutions and through coordinated resolution actions in respect of subsidiary institutions, in the scenarios provided for in paragraph 6; (b) examine the extent to which the resolution tools and powers could be applied and exercised in a coordinated way to group entities established in the Union, including measures to facilitate the purchase by a third party of the group as a whole, or separate business lines or activities that are delivered by a number of group entities, or particular group entities, and identify any potential impediments to a coordinated resolution; (c) include a detailed description of the assessment of resolvability carried out in accordance with Article 10; (d) where a group includes entities incorporated in third countries, identify appropriate arrangements for cooperation and coordination with the relevant authorities of those third countries and the implications for resolution within the Union; (e) identify measures, including the legal and economic separation of particular functions or business lines, that are necessary to facilitate group resolution where the conditions for resolution are met; (f) identify how the group resolution actions could be financed and, where the Fund and the financing arrangements from non-participating Member States established in accordance with Article 100 of Directive 2014/59/EU would be required, set out principles for sharing responsibility for that financing between sources of funding in different participating and non-participating Member States. The plan shall not assume any of the following: (i) any extraordinary public financial support besides the use of the Fund established in accordance with Article 67 of this Regulation and the financing arrangements from non-participating Member States established in accordance with Article 100 of Directive 2014/59/EU; (ii) any central bank emergency liquidity assistance; or (iii) any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms. Those principles shall be set out on the basis of equitable and balanced criteria and shall take into account in particular Article 107(5) of Directive 2014/59/EU and the impact on financial stability in all Member States concerned. The group resolution plan shall not have a disproportionate impact on any Member State. 12. The Board shall determine the date by which the first resolution plans shall be drawn up. Resolution plans and group resolution plans shall be reviewed, and where appropriate updated, at least annually and after any material changes to the legal or organisational structure or to the business or the financial position of the entity or, in the case of group resolution plans, of the group including any group entity that could have a material effect on the effectiveness of the plan or that otherwise necessitates a revision of the resolution plan. For the purpose of the revision or update of the resolution plans referred to in the first subparagraph, the institutions, the ECB or the national competent authorities shall promptly communicate to the Board any change that necessitates such revision or update. 13. The Board shall transmit the resolution plans and any changes thereto to the ECB or to the relevant national competent authorities.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 8 Resolution plans drawn up by the Board):
1. The Board shall draw up and adopt resolution plans for the entities and groups referred to in Article 7(2), and for the entities and groups referred to in Article 7(4)(b) and (5) where the conditions for the application of those paragraphs are met. 2. The Board shall draw up the resolution plans, after consulting the ECB or the relevant national competent authorities and the national resolution authorities, including the group-level resolution authority, of the participating Member States in which the entities are established, and the resolution authorities of non-participating Member States in which significant branches are located insofar as relevant to the significant branch. To that end, the Board may require the national resolution authorities to prepare and submit to the Board draft resolution plans and the group-level resolution authority to prepare and submit to the Board a draft group resolution plan. 3. In order to ensure effective and consistent application of this Article, the Board shall issue guidelines and address instructions to the national resolution authorities for the preparation of draft resolution plans and draft group resolution plans relating to specific entities or groups. 4. For the purposes of paragraph 1 of this Article, the national resolution authorities shall submit to the Board all information necessary to draw up and implement the resolution plans, as obtained by them in accordance with Article 11 and Article 13(1) of Directive 2014/59/EU, without prejudice to Chapter 5 of this Title. 5. The resolution plan shall set out options for applying the resolution tools and exercising resolution powers referred to in this Regulation to the entities referred to in paragraph 1. 6. The resolution plan shall provide for the resolution actions which the Board may take where an entity referred to in paragraph 1 meets the conditions for resolution. The information referred to in point (a) of paragraph 9 shall be disclosed to the entity concerned. When drawing up and updating the resolution plan, the Board shall identify any material impediments to resolvability and, where necessary and proportionate, outline relevant actions for how those impediments could be addressed, in accordance with Article 10. The resolution plan shall take into consideration relevant scenarios including that the event of failure may be idiosyncratic or may occur at a time of broader financial instability or system wide events. The resolution plan shall not assume any of the following: (a) any extraordinary public financial support besides the use of the Fund established in accordance with Article 67; (b) any central bank emergency liquidity assistance; or (c) any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms. 7. The resolution plan shall include an analysis of how and when an institution may apply, in the conditions addressed by the plan, for the use of central bank facilities and shall identify those assets which would be expected to qualify as collateral. 8. The Board may require institutions to assist it in the drawing up and updating of the plans. The resolution plan for each entity shall include, quantified where appropriate and possible: (a) a summary of the key elements of the plan; (b) a summary of the material changes to the institution that have occurred after the latest resolution information was filed; (c) a demonstration of how critical functions and core business lines could be legally and economically separated, to the extent necessary, from other functions so as to ensure continuity upon the failure of the institution; (d) an estimation of the timeframe for executing each material aspect of the plan; (e) a detailed description of the assessment of resolvability carried out in accordance with Article 10; (f) a description of any measures required pursuant to Article 10(7) to address or remove impediments to resolvability identified as a result of the assessment carried out in accordance with Article 10; (g) a description of the processes for determining the value and marketability of the critical functions, core business lines and assets of the institution; (h) a detailed description of the arrangements for ensuring that the information required pursuant to Article 11 of Directive 2014/59/EU is up to date and at the disposal of the resolution authorities at all times; an explanation as to how the resolution options could be financed without the assumption of any of the following: (j) a detailed description of the different resolution strategies that could be applied according to the different possible scenarios and the applicable timescales; (k) a description of critical interdependencies; (l) a description of options for preserving access to payments and clearing services and other infrastructures and an assessment of the portability of client positions; (m) an analysis of the impact of the plan on the employees of the institution, including an assessment of any associated costs, and a description of envisaged procedures to consult staff during the resolution process, taking into account national systems for dialogue with social partners, where applicable; (n) a plan for communicating with the media and the public; (o) the requirements referred to in Article 12f and 12g and a deadline to reach that level, in accordance with Article 12k; (q) a description of essential operations and systems for maintaining the continuous functioning of the institution's operational processes; (r) where applicable, any opinion expressed by the institution in relation to the resolution plan. 10. Group resolution plans shall include a plan for the resolution of the group referred to in paragraph 1, headed by the Union parent undertaking established in a participating Member State, and shall identify measures to be taken in respect of: (a) the Union parent undertaking; (b) the subsidiaries that are part of the group and that are established in the Union; (c) the entities referred to in point (b) of Article 2; and (d) subject to Article 33, the subsidiaries that are part of the group and that are established outside the Union. In accordance with the measures referred to in the first subparagraph, the resolution plan shall identify for each group the resolution entities and the resolution groups. The group resolution plan shall: (a) set out the resolution actions that are to be taken for resolution entities in the scenarios referred to in paragraph 6 and the implications of those resolution actions in respect of other group entities, the parent undertaking and subsidiary institutions referred to in paragraph 1; where a group referred to in paragraph 1 comprises more than one resolution group, set out the resolution actions that are to be taken for the resolution entities of each resolution group and the implications of those actions on both of the following: (i) other group entities that belong to the same resolution group; (ii) other resolution groups; where a group referred to in paragraph 1 comprises more than one resolution group, set out the resolution actions that are to be taken for the resolution entities of each resolution group and the implications of those actions on both of the following: (i) other group entities that belong to the same resolution group; (ii) other resolution groups; (b) examine the extent to which the resolution tools could be applied, and the resolution powers exercised, with respect to resolution entities established in the Union in a coordinated manner, including measures to facilitate the purchase by a third party of the group as a whole, of separate business lines or activities that are provided by a number of group entities, or of particular group entities or resolution groups, and identify any potential impediments to a coordinated resolution; (c) include a detailed description of the assessment of resolvability carried out in accordance with Article 10; (d) where a group includes entities incorporated in third countries, identify appropriate arrangements for cooperation and coordination with the relevant authorities of those third countries and the implications for resolution within the Union; (e) identify measures, including the legal and economic separation of particular functions or business lines, that are necessary to facilitate group resolution where the conditions for resolution are met; identify how the group resolution actions could be financed and, where the Fund and the financing arrangements from non-participating Member States established in accordance with Article 100 of Directive 2014/59/EU would be required, set out principles for sharing responsibility for that financing between sources of funding in different participating and non-participating Member States. The plan shall not assume any of the following: (i) any extraordinary public financial support besides the use of the Fund established in accordance with Article 67 of this Regulation and the financing arrangements from non-participating Member States established in accordance with Article 100 of Directive 2014/59/EU; (ii) any central bank emergency liquidity assistance; or (iii) any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms. Those principles shall be set out on the basis of equitable and balanced criteria and shall take into account in particular Article 107(5) of Directive 2014/59/EU and the impact on financial stability in all Member States concerned. The group resolution plan shall not have a disproportionate impact on any Member State. 12. The Board shall determine the date by which the first resolution plans shall be drawn up. Resolution plans and group resolution plans shall be reviewed, and where appropriate updated, at least annually and after any material changes to the legal or organisational structure or to the business or the financial position of the entity or, in the case of group resolution plans, of the group including any group entity that could have a material effect on the effectiveness of the plan or that otherwise necessitates a revision of the resolution plan. For the purpose of the revision or update of the resolution plans referred to in the first subparagraph, the institutions, the ECB or the national competent authorities shall promptly communicate to the Board any change that necessitates such revision or update. The review referred to in the first subparagraph of this paragraph shall be carried out after the implementation of resolution actions or the exercise of powers referred to in Article 21. When setting the deadlines referred to in points (o) and (p) of paragraph 9 of this Article, in the circumstances referred to in the third subparagraph of this paragraph, the Board shall take into account the deadline for complying with the requirement referred to in Article 104b of Directive 2013/36/EU. 13. The Board shall transmit the resolution plans and any changes thereto to the ECB or to the relevant national competent authorities.
Article 9 Resolution plans drawn up by national resolution authorities
1. The national resolution authorities shall draw up and adopt resolution plans for the entities and for the groups, other than those referred to in Article 7(2), (4)(b) and (5), in accordance with Article 8(5) to (13). 2. The national resolution authorities shall prepare resolution plans, after consulting the relevant national competent authorities and the national resolution authorities of the participating and non-participating Member States, in which significant branches are located, insofar as relevant to the significant branch.
Article 10 Assessment of resolvability
1. When drafting and updating resolution plans in accordance with Article 8, the Board, after consulting the competent authorities, including the ECB, and the resolution authorities of non-participating Member States in which significant branches are located insofar as relevant to the significant branch, shall conduct an assessment of the extent to which institutions and groups are resolvable without the assumption of any of the following: (a) any extraordinary public financial support besides the use of the Fund established in accordance with Article 67; (b) any central bank emergency liquidity assistance; or (c) any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms. 2. The ECB or the relevant national competent authority shall provide the Board with a recovery plan or group recovery plan. The Board shall examine the recovery plan with a view to identifying any actions in the recovery plan which may adversely impact the resolvability of the institution or group and make recommendations to the ECB or the national competent authority on those matters. 3. When drafting a resolution plan, the Board shall assess the extent to which such an entity is resolvable in accordance with this Regulation. An entity shall be deemed to be resolvable if it is feasible and credible for the Board to either liquidate it under normal insolvency proceedings or to resolve it by applying to it resolution tools and exercising resolution powers while avoiding, to the maximum extent possible, any significant adverse consequences for financial systems, including circumstances of broader financial instability or system wide events, of the Member State in which the entity is situated, or other Member States, or the Union and with a view to ensuring the continuity of critical functions carried out by the entity. The Board shall notify EBA in a timely manner where an institution is deemed not to be resolvable. 4. A group shall be deemed to be resolvable if it is feasible and credible for the Board to either liquidate group entities under normal insolvency proceedings or to resolve them by applying resolution tools and exercising resolution powers in relation to group entities while avoiding, to the maximum extent possible, any significant adverse consequences for financial systems, including circumstances of broader financial instability or system wide events, of the Member States in which group entities are established, or other Member States or the Union and with a view to ensuring the continuity of critical functions carried out by those group entities, where they can be easily separated in a timely manner or by other means. The Board shall notify EBA in a timely manner where a group is deemed not to be resolvable. 5. For the purposes of paragraphs 3, 4 and 10, significant adverse consequences for the financial system or threat to financial stability refers to a situation where the financial system is actually or potentially exposed to a disruption that may give rise to financial distress liable to jeopardise the orderly functioning, efficiency and integrity of the internal market or the economy or the financial system of one or more Member States. In determining the significant adverse consequences the Board shall take into account the relevant warnings and recommendations of the ESRB and the relevant criteria developed by EBA in considering the identification and measurement of systemic risk. 6. For the purpose of the assessment referred to in this Article, the Board shall examine the matters specified in Section C of the Annex to Directive 2014/59/EU. 7. If, pursuant to an assessment of resolvability for an entity or a group carried out in accordance with paragraph 3 or 4, the Board, after consulting the competent authorities, including the ECB, determines that there are substantive impediments to the resolvability of that entity or group, the Board shall prepare a report, in cooperation with the competent authorities, addressed to the institution or the parent undertaking analysing the substantive impediments to the effective application of resolution tools and the exercise of resolution powers. That report shall consider the impact on the institution's business model and recommend any proportionate and targeted measures that, in the Board's view, are necessary or appropriate to remove those impediments in accordance with paragraph 10. 8. The report shall also be notified to the competent authorities and to the resolution authorities of non-participating Member States in which significant branches of institutions which are not part of a group are located. It shall be supported by reasons for the assessment or determination in question and shall indicate how that assessment or determination complies with the requirement for proportionate application laid down in Article 6. 9. Within four months from the date of receipt of the report, the entity or the parent undertaking shall propose to the Board possible measures to address or remove the substantive impediments identified in the report. The Board shall communicate any measure proposed by the entity or parent undertaking to the competent authorities, to EBA and, where significant branches of institutions that are not part of a group are located in non-participating Member States, to the resolution authorities of those Member States. 10. The Board, after consulting the competent authorities, shall assess whether the measures referred to in paragraph 9 effectively address or remove the substantive impediments in question. If the measures proposed by the entity or parent undertaking concerned do not effectively reduce or remove the impediments to resolvability, the Board shall take a decision, after consulting the competent authorities and, where appropriate, the designated macro-prudential authority, indicating that the measures proposed do not effectively reduce or remove the impediments to resolvability, and instructing the national resolution authorities to require the institution, the parent undertaking, or any subsidiary of the group concerned, to take any of the measures listed in paragraph 11. In identifying alternative measures, the Board shall demonstrate how the measures proposed by the institution would not be able to remove the impediments to resolvability and how the alternative measures proposed are proportionate in removing them. The Board shall take into account the threat to financial stability of those impediments to resolvability and the effect of the measures on the business of the institution, its stability and its ability to contribute to the economy, on the internal market for financial services and on the financial stability in other Member States and the Union as a whole. The Board shall also take into account the need to avoid any impact on the institution or the group concerned which would go beyond what is necessary to remove the impediment to resolvability or would be disproportionate. 11. For the purpose of paragraph 10, the Board, where applicable, shall instruct the national resolution authorities to take any of the following measures: (a) to require the entity to revise any intragroup financing agreements or review the absence thereof, or draw up service agreements (whether intra-group or with third parties) to cover the provision of critical functions; (b) to require the entity to limit its maximum individual and aggregate exposures; (c) to impose specific or regular additional information requirements relevant for resolution purposes; (d) to require the entity to divest specific assets; (e) to require the entity to limit or cease specific existing or proposed activities; (f) to restrict or prevent the development of new or existing business lines or sale of new or existing products; (g) to require changes to legal or operational structures of the entity or any group entity, either directly or indirectly under their control, so as to reduce complexity in order to ensure that critical functions may be legally and operationally separated from other functions through the application of the resolution tools; (h) to require an entity to set up a parent financial holding company in a Member State or a Union parent financial holding company; (i) to require an entity to issue eligible liabilities to meet the requirements of Article 12; (j) to require an entity to take other steps to meet the requirements referred to in Article 12, including in particular to attempt to renegotiate any eligible liability, Additional Tier 1 instrument or Tier 2 instrument it has issued, with a view to ensuring that any decision of the Board to write down or convert that liability or instrument would be effected under the law of the jurisdiction governing that liability or instrument. Where applicable, the national resolution authorities shall directly take the measures referred to in points (a) to (j) of the first subparagraph. 12. The national resolution authorities shall implement the instructions of the Board in accordance with Article 29. 13. A decision made pursuant to paragraphs 10 and 11 shall meet the following requirements: (a) it shall be supported by reasons for the assessment or determination in question; (b) it shall indicate how that assessment or determination complies with the requirement for proportionate application laid down in paragraph 10.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 10 Assessment of resolvability):
When drafting and updating resolution plans in accordance with Article 8, the Board, after consulting the competent authorities, including the ECB, and the resolution authorities of non-participating Member States in which significant branches are located insofar as relevant to the significant branch, shall conduct an assessment of the extent to which institutions and groups are resolvable without the assumption of any of the following: (a) any extraordinary public financial support besides the use of the Fund established in accordance with Article 67; (b) any central bank emergency liquidity assistance; or (c) any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms. 2. The ECB or the relevant national competent authority shall provide the Board with a recovery plan or group recovery plan. The Board shall examine the recovery plan with a view to identifying any actions in the recovery plan which may adversely impact the resolvability of the institution or group and make recommendations to the ECB or the national competent authority on those matters. 3. When drafting a resolution plan, the Board shall assess the extent to which such an entity is resolvable in accordance with this Regulation. An entity shall be deemed to be resolvable if it is feasible and credible for the Board to either liquidate it under normal insolvency proceedings or to resolve it by applying to it resolution tools and exercising resolution powers while avoiding, to the maximum extent possible, any significant adverse consequences for financial systems, including circumstances of broader financial instability or system wide events, of the Member State in which the entity is situated, or other Member States, or the Union and with a view to ensuring the continuity of critical functions carried out by the entity. The Board shall notify EBA in a timely manner where an institution is deemed not to be resolvable. 4. A group shall be deemed to be resolvable if it is feasible and credible for the Board either to wind up group entities under normal insolvency proceedings or to resolve them by applying resolution tools to, and exercising resolution powers with respect to, resolution entities of that group while avoiding, to the maximum extent possible, any significant adverse consequences for the financial systems of the Member States in which group entities are located or of other Member States or the Union, including broader financial instability or system wide events, with a view to ensuring the continuity of critical functions carried out by those group entities, where they can be easily separated in a timely manner, or by other means. The Board shall notify EBA in a timely manner where a group is deemed not to be resolvable. Where a group is composed of more than one resolution group, the Board shall assess the resolvability of each resolution group in accordance with this Article. The assessment referred to in the first subparagraph shall be performed in addition to the assessment of the resolvability of the entire group. 5. For the purposes of paragraphs 3, 4 and 10, significant adverse consequences for the financial system or threat to financial stability refers to a situation where the financial system is actually or potentially exposed to a disruption that may give rise to financial distress liable to jeopardise the orderly functioning, efficiency and integrity of the internal market or the economy or the financial system of one or more Member States. In determining the significant adverse consequences the Board shall take into account the relevant warnings and recommendations of the ESRB and the relevant criteria developed by EBA in considering the identification and measurement of systemic risk. 6. For the purpose of the assessment referred to in this Article, the Board shall examine the matters specified in Section C of the Annex to Directive 2014/59/EU. 7. If, pursuant to an assessment of resolvability for an entity or a group carried out in accordance with paragraph 3 or 4, the Board, after consulting the competent authorities, including the ECB, determines that there are substantive impediments to the resolvability of that entity or group, the Board shall prepare a report, in cooperation with the competent authorities, addressed to the institution or the parent undertaking analysing the substantive impediments to the effective application of resolution tools and the exercise of resolution powers. That report shall consider the impact on the institution's business model and recommend any proportionate and targeted measures that, in the Board's view, are necessary or appropriate to remove those impediments in accordance with paragraph 10. 8. The report shall also be notified to the competent authorities and to the resolution authorities of non-participating Member States in which significant branches of institutions which are not part of a group are located. It shall be supported by reasons for the assessment or determination in question and shall indicate how that assessment or determination complies with the requirement for proportionate application laid down in Article 6. 9. Within four months from the date of receipt of the report, the entity or the parent undertaking shall propose to the Board possible measures to address or remove the substantive impediments identified in the report. The Board shall communicate any measure proposed by the entity or parent undertaking to the competent authorities, to EBA and, where significant branches of institutions that are not part of a group are located in non-participating Member States, to the resolution authorities of those Member States. Within two weeks of the date of receipt of a report made in accordance with paragraph 7 of this Article, the entity shall propose to the Board possible measures and a timeline for their implementation to ensure that the entity or the parent undertaking complies with Article 12f or 12g, and the combined buffer requirement, where a substantive impediment to resolvability is due to either of the following situations: (ii) the entity does not meet the requirements referred to in Articles 92a and 494 of Regulation (EU) No 575/2013 or the requirements referred to in Articles 12d and 12e of this Regulation. When proposing the timeline for the implementation of measures referred to in the second subparagraph, the entity shall take into account the reasons for the substantive impediment. The Board, after consulting the competent authorities, including the ECB, shall assess whether those measures effectively address or remove the substantive impediment in question. 10. The Board, after consulting the competent authorities, shall assess whether the measures referred to in paragraph 9 effectively address or remove the substantive impediments in question. If the measures proposed by the entity or parent undertaking concerned do not effectively reduce or remove the impediments to resolvability, the Board shall take a decision, after consulting the competent authorities and, where appropriate, the designated macro-prudential authority, indicating that the measures proposed do not effectively reduce or remove the impediments to resolvability, and instructing the national resolution authorities to require the institution, the parent undertaking, or any subsidiary of the group concerned, to take any of the measures listed in paragraph 11. In identifying alternative measures, the Board shall demonstrate how the measures proposed by the institution would not be able to remove the impediments to resolvability and how the alternative measures proposed are proportionate in removing them. The Board shall take into account the threat to financial stability of those impediments to resolvability and the effect of the measures on the business of the institution, its stability and its ability to contribute to the economy, on the internal market for financial services and on the financial stability in other Member States and the Union as a whole. The Board shall also take into account the need to avoid any impact on the institution or the group concerned which would go beyond what is necessary to remove the impediment to resolvability or would be disproportionate. For the purpose of paragraph 10, the Board, where applicable, shall instruct the national resolution authorities to take any of the following measures: (a) to require the entity to revise any intragroup financing agreements or review the absence thereof, or draw up service agreements (whether intra-group or with third parties) to cover the provision of critical functions; (b) to require the entity to limit its maximum individual and aggregate exposures; (c) to impose specific or regular additional information requirements relevant for resolution purposes; (d) to require the entity to divest specific assets; (e) to require the entity to limit or cease specific existing or proposed activities; (f) to restrict or prevent the development of new or existing business lines or sale of new or existing products; (g) to require changes to legal or operational structures of the entity or any group entity, either directly or indirectly under their control, so as to reduce complexity in order to ensure that critical functions may be legally and operationally separated from other functions through the application of the resolution tools; (h) to require an entity to set up a parent financial holding company in a Member State or a Union parent financial holding company; (i) to require an entity to issue eligible liabilities to meet the requirements of Articles 12f and 12g ; (j) to require an entity to take other steps to meet the requirements referred to in Articles 12f and 12g , including in particular to attempt to renegotiate any eligible liability, Additional Tier 1 instrument or Tier 2 instrument it has issued, with a view to ensuring that any decision of the Board to write down or convert that liability or instrument would be effected under the law of the jurisdiction governing that liability or instrument. for the purpose of ensuring ongoing compliance with Article 12f or 12g, to require an entity to change the maturity profile of: (i) own funds instruments, after having obtained the agreement of the competent authorities, including the ECB, and eligible liabilities referred to in Article 12c and point (a) of Article 12g(2). Where applicable, the national resolution authorities shall directly take the measures referred to in points (a) to (j) of the first subparagraph. 12. The national resolution authorities shall implement the instructions of the Board in accordance with Article 29. 13. A decision made pursuant to paragraphs 10 and 11 shall meet the following requirements: (a) it shall be supported by reasons for the assessment or determination in question; (b) it shall indicate how that assessment or determination complies with the requirement for proportionate application laid down in paragraph 10. A decision made pursuant to paragraphs 10 and 11 shall meet the following requirements: (a) it shall be supported by reasons for the assessment or determination in question; (b) it shall indicate how that assessment or determination complies with the requirement for proportionate application laid down in paragraph 10.
Article 11 Simplified obligations for certain institutions
1. The Board, on its own initiative after consulting a national resolution authority or upon proposal by a national resolution authority, may apply simplified obligations in relation to the drafting of resolution plans referred to in Article 8 or may waive the obligation of drafting those plans in accordance with paragraphs 3 to 9 of this Article. 2. National resolution authorities may propose to the Board to apply simplified obligations to institutions or groups pursuant to paragraphs 3 and 4 or to waive the obligation of drafting resolution plans pursuant to paragraph 7. That proposal shall be reasoned and shall be supported by all of the relevant documentation. 3. On receiving a proposal to apply simplified obligations pursuant to paragraph 2 of this Article, or when acting on its own initiative, the Board shall conduct an assessment of the institution or group concerned and shall apply simplified obligations, if the failure of the institution or group is not likely to have significant adverse consequences for the financial system or be a threat to financial stability within the meaning of Article 10(5). For those purposes, the Board shall take into account: (a) the nature of the institution's or group's business, its shareholding structure, its legal form, its risk profile, size and legal status, its interconnectedness to other institutions or to the financial system in general, the scope and complexity of its activities; (b) its membership of an IPS or other cooperative mutual solidarity systems as referred to in Article 113(7) of Regulation (EU) No 575/2013; (c) any exercise of investment services or activities as defined in Article 4(1)(2) of Directive 2014/65/EU of the European Parliament and of the Council ( 15 ) ; and (d) whether its failure and subsequent winding up under normal insolvency proceedings would be likely to have a significant negative effect on financial markets, on other institutions, on funding conditions, or on the wider economy. The Board shall make the assessment referred to in the first subparagraph after consulting, where appropriate, the national macroprudential authority and, where appropriate, the ESRB. 4. When applying simplified obligations, the Board shall determine: (a) the contents and details of resolution plans provided for in Article 8; (b) the date by which the first resolution plans are to be drawn up and the frequency for updating resolution plans which may be lower than that provided for in Article 8(12); (c) the contents and details of the information required from institutions as provided for in Article 8(9) of this Regulation and in Section B of the Annex to Directive 2014/59/EU; (d) the level of detail for the assessment of resolvability provided for in Article 10 of this Regulation, and in Section C of the Annex to Directive 2014/59/EU. 5. The application of simplified obligations shall not in itself affect the Board's power to take any resolution action. 6. Where simplified obligations are applied, the Board shall impose full, unsimplified obligations at any time if any of the circumstances that justified them no longer exist. 7. Without prejudice to Articles 9 and 31, on receiving a proposal to waive the obligation of drafting resolution plans pursuant to paragraph 2 of this Article, or when acting on its own initiative, the Board shall, pursuant to paragraph 3 of this Article, waive the application of the obligation of drafting resolution plans to institutions affiliated to a central body and wholly or partially exempt from prudential requirements in national law in accordance with Article 10 of Regulation (EU) No 575/2013. Where a waiver is granted in accordance with the first subparagraph, the obligation of drafting the resolution plan shall apply on a consolidated basis to the central body and institutions affiliated to it within the meaning of Article 10 of Regulation (EU) No 575/2013. For that purpose, any reference in this Chapter to a group shall include a central body and institutions affiliated to it within the meaning of Article 10 of Regulation (EU) No 575/2013 and their subsidiaries, and any reference to parent undertakings or institutions that are subject to consolidated supervision pursuant to Article 111 of Directive 2013/36/EU shall include the central body. 8. Institutions that are subject to direct supervision by the ECB pursuant to Article 6(4) of Regulation (EU) No 1024/2013 or that constitute a significant share in the financial system of a participating Member State shall be the subject of individual resolution plans. For the purposes of this paragraph, the operations of an institution shall be considered to constitute a significant share of that participating Member State's financial system where: (a) the total value of its assets exceeds EUR 30 000 000 000; or (b) the ratio of its total assets over the GDP of the Member State of establishment exceeds 20 %, unless the total value of its assets is below EUR 5 000 000 000. 9. Where the national resolution authority which has proposed the application of simplified obligations or the grant of a waiver in accordance with paragraph 2 considers that the decision to apply simplified obligations or to grant the waiver must be withdrawn, it shall submit a proposal to the Board to that end. In that case, the Board shall take a decision on the proposed withdrawal taking full account of the justification for withdrawal put forward by the national resolution authority in the light of the factors or circumstances referred to in paragraph 3 or in paragraphs 7 and 8. 10. The Board shall inform EBA of its application of this Article.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (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/EU 3 (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. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s 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 ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s 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 Council 8 , 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 , t he 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 transfer s 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 tha t 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 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. 
Revised version (Article 11 Simplified obligations for certain institutions):
1. The Board, on its own initiative after consulting a national resolution authority or upon proposal by a national resolution authority, may apply simplified obligations in relation to the drafting of resolution plans referred to in Article 8 or may waive the obligation of drafting those plans in accordance with paragraphs 3 to 9 of this Article. 2. National resolution authorities may propose to the Board to apply simplified obligations to institutions or groups pursuant to paragraphs 3 and 4 or to waive the obligation of drafting resolution plans pursuant to paragraph 7. That proposal shall be reasoned and shall be supported by all of the relevant documentation. 3. On receiving a proposal to apply simplified obligations pursuant to paragraph 2 of this Article, or when acting on its own initiative, the Board shall conduct an assessment of the institution or group concerned and shall apply simplified obligations, if the failure of the institution or group is not likely to have significant adverse consequences for the financial system or be a threat to financial stability within the meaning of Article 10(5). For those purposes, the Board shall take into account: (a) the nature of the institution's or group's business, its shareholding structure, its legal form, its risk profile, size and legal status, its interconnectedness to other institutions or to the financial system in general, the scope and complexity of its activities; (d) whether its failure and subsequent winding up under normal insolvency proceedings would be likely to have a significant negative effect on financial markets, on other institutions, on funding conditions, or on the wider economy. The Board shall make the assessment referred to in the first subparagraph after consulting, where appropriate, the national macroprudential authority and, where appropriate, the ESRB. 5. The application of simplified obligations shall not in itself affect the Board's power to take any resolution action. 6. Where simplified obligations are applied, the Board shall impose full, unsimplified obligations at any time if any of the circumstances that justified them no longer exist. 7. Without prejudice to Articles 9 and 31, on receiving a proposal to waive the obligation of drafting resolution plans pursuant to paragraph 2 of this Article, or when acting on its own initiative, the Board shall, pursuant to paragraph 3 of this Article, waive the application of the obligation of drafting resolution plans to institutions affiliated to a central body and wholly or partially exempt from prudential requirements in national law in accordance with Article 10 of Regulation (EU) No 575/2013. Where a waiver is granted in accordance with the first subparagraph, the obligation of drafting the resolution plan shall apply on a consolidated basis to the central body and institutions affiliated to it within the meaning of Article 10 of Regulation (EU) No 575/2013. For that purpose, any reference in this Chapter to a group shall include a central body and institutions affiliated to it within the meaning of Article 10 of Regulation (EU) No 575/2013 and their subsidiaries, and any reference to parent undertakings or institutions that are subject to consolidated supervision pursuant to Article 111 of Directive 2013/36/EU shall include the central body. 8. Institutions that are subject to direct supervision by the ECB pursuant to Article 6(4) of Regulation (EU) No 1024/2013 or that constitute a significant share in the financial system of a participating Member State shall be the subject of individual resolution plans. For the purposes of this paragraph, the operations of an institution shall be considered to constitute a significant share of that participating Member State's financial system where: (a) the total value of its assets exceeds EUR 30 000 000 000 ; or (b) the ratio of its total assets over the GDP of the Member State of establishment exceeds 20 %, unless the total value of its assets is below EUR 5 000 000 000 . 9. Where the national resolution authority which has proposed the application of simplified obligations or the grant of a waiver in accordance with paragraph 2 considers that the decision to apply simplified obligations or to grant the waiver must be withdrawn, it shall submit a proposal to the Board to that end. In that case, the Board shall take a decision on the proposed withdrawal taking full account of the justification for withdrawal put forward by the national resolution authority in the light of the factors or circumstances referred to in paragraph 3 or in paragraphs 7 and 8. 10. The Board shall inform EBA of its application of this Article.
Article 12 Minimum requirement for own funds and eligible liabilities
1. The Board shall, after consulting competent authorities, including the ECB, determine the minimum requirement for own funds and eligible liabilities as referred to in paragraph 4, subject to write-down and conversion powers, which the entities and groups referred to in Article 7(2), and the entities and groups referred to in Article 7(4)(b) and (5) where the conditions for the application of these paragraphs are met, are required to meet at all times. 2. When drafting resolution plans in accordance with Article 9, national resolution authorities shall, after consulting competent authorities, determine the minimum requirement for own funds and eligible liabilities, as referred to in paragraph 4, subject to write-down and conversion powers, which the entities referred to in Article 7(3) are required to meet at all times. In that regard the procedure established in Article 31 shall apply. 3. In order to ensure effective and consistent application of this Article, the Board shall issue guidelines and address instructions to national resolution authorities relating to specific entities or groups. 4. The minimum requirement for own funds and eligible liabilities shall be calculated as the amount of own funds and eligible liabilities expressed as a percentage of the total liabilities and own funds of the institution. For the purpose of the first subparagraph derivative liabilities shall be included in the total liabilities on the basis that full recognition is given to counterparty netting rights. 5. Notwithstanding paragraph 1, the Board shall exempt mortgage credit institutions financed by covered bonds which, according to national law, are not allowed to receive deposits, from the obligation to meet, at all times, a minimum requirement for own funds and eligible liabilities, as: (a) those institutions will be wound up through national insolvency procedures, or other type of procedures implemented in accordance with Article 38, 40 or 42 of Directive 2014/59/EU, provided for those institutions; and (b) such national insolvency procedures, or other type of procedures, will ensure that creditors of those institutions, including holders of covered bonds where relevant, will bear losses in a way that meets the resolution objectives. 6. The minimum requirement for own funds and eligible liabilities referred to in paragraph 4 shall not exceed the amount of own funds and eligible liabilities sufficient to ensure that, if the bail-in tool were to be applied, the losses of an institution or a parent undertaking as referred to in Article 2, as well as of the ultimate parent undertaking of that institution or parent undertaking and any institution or financial institution included in the consolidated accounts of that ultimate parent undertaking, could be absorbed, and the Common Equity Tier 1 ratio of those entities could be restored to a level necessary to enable them to continue to comply with the conditions for authorisation and to continue to carry out the activities for which they are authorised under Directive 2013/36/EU or equivalent legislation and to sustain sufficient market confidence in the institution or parent undertaking referred to in Article 2 and the ultimate parent undertaking of that institution or parent undertaking and any institution or financial institution included in the consolidated accounts of that ultimate parent undertaking. Where the resolution plan anticipates that certain classes of eligible liabilities might be excluded from bail-in under Article 27(5), or that certain classes of eligible liabilities might be transferred to a recipient in full under a partial transfer, the minimum requirement for own funds and eligible liabilities referred to in paragraph 4 shall not exceed the amount of own funds and eligible liabilities necessary to ensure that the institution or parent undertaking referred to in Article 2 has sufficient other eligible liabilities to ensure that losses of the institution or the parent undertaking referred to in Article 2 as well as of the ultimate parent undertaking of that institution or parent undertaking and any institution or financial institution included in the consolidated accounts of that ultimate parent undertaking could be absorbed and the Common Equity Tier 1 ratio of those entities could be restored to a level necessary to enable them to continue to comply with the conditions for authorisation and to carry out the activities for which they are authorised under Directive 2013/36/EU or equivalent legislation and to sustain sufficient market confidence in the institution or parent undertaking and the ultimate parent undertaking of that institution or parent undertaking and any institution or financial institution included in the consolidated accounts of that ultimate parent undertaking. The minimum requirement for own funds and eligible liabilities referred to in paragraph 4 shall not be inferior to the total amount of any own funds requirements and buffer requirements under Regulation (EU) No 575/2013 and Directive 2013/36/EU. 7. Within the limits laid down in paragraph 6 of this Article, in order to ensure that an entity referred to in Article 2 can be resolved by the application of the resolution tools including, where appropriate, the bail-in tool, in a way that meets the resolution objectives, the determination referred to in paragraph 1 of this Article shall be made on the basis of the following criteria: (a) the size, the business model, the funding model and the risk profile of the institution and parent undertaking referred to in Article 2; (b) the extent to which the deposit guarantee scheme could contribute to the financing of resolution in accordance with Article 79; (c) the extent to which the failure of the institution and parent undertaking referred to in Article 2 would have significant adverse consequences for the financial system or would be a threat to financial stability within the meaning of Article 10(5), including, due to its interconnectedness with other institutions or with the rest of the financial system through contagion to other institutions. 8. The determination shall specify the minimum requirement for own funds and eligible liabilities that the institutions are to comply with on an individual basis, and that parent undertakings are to comply with on a consolidated basis. The minimum aggregate amount requirement for own funds and eligible liabilities at consolidated level of a Union parent undertaking established in a participating Member State shall be determined by the Board, after consulting the consolidating supervisor, on the basis of the criteria laid down in paragraph 7, and of whether the third-country subsidiaries of the group are to be resolved separately in accordance with the resolution plan. 9. The Board shall set the minimum requirement for own funds and eligible liabilities to be applied to the group's subsidiaries on an individual basis. Those minimum requirements for own funds and eligible liabilities shall be set at a level appropriate for the subsidiary having regard to: (a) the criteria listed in paragraph 7, in particular the size, business model and risk profile of the subsidiary, including its own funds; and (b) the consolidated requirement that has been set for the group. 10. The Board may decide to waive the minimum requirement for own funds and eligible liabilities on an individual basis to a parent institution provided that the conditions laid down in points (a) and (b) of Article 45(11) of Directive 2014/59/EU are met. The Board may decide to waive the minimum requirement for own funds and eligible liabilities on an individual basis to a subsidiary provided that the conditions laid down in points (a), (b) and (c) of Article 45(12) of Directive 2014/59/EU are met. 11. The Board, on its own initiative after consulting the national resolution authority or upon proposal by a national resolution authority, may decide that the minimum requirement for own funds and eligible liabilities as referred to in paragraph 1 is partially met on a consolidated or on an individual basis through contractual bail-in instruments, in full compliance with the criteria laid down in the first and second subparagraphs of paragraph 5 and in paragraph 7. 12. To qualify as a contractual bail-in instrument under paragraph 11, the Board must be satisfied that the instrument: (a) contains a contractual term providing that, where the Board decides that the bail-in tool be applied to that institution, the instrument shall be written down or converted to the extent required before other eligible liabilities are written down or converted; and (b) is subject to a binding subordination agreement, undertaking or provision under which in the event of normal insolvency proceedings, it ranks below other eligible liabilities and cannot be repaid until other eligible liabilities outstanding at the time have been settled. 13. The Board shall make any determination referred to in paragraph 1 of this Article, and, where relevant, in paragraph 11 of this Article, in parallel with the development and maintenance of the resolution plans pursuant to Article 8. 14. The Board shall address its determination to the national resolution authorities. The national resolution authorities shall implement the instructions of the Board in accordance with Article 29. The Board shall require that the national resolution authorities verify and ensure that institutions and parent undertakings maintain the minimum requirement for own funds and eligible liabilities laid down in paragraph 1 of this Article. 15. The Board shall inform the ECB and EBA of the minimum requirement for own funds and eligible liabilities that it has determined for each institution and parent undertaking under paragraph 1 and, where relevant, the requirements laid down in paragraph 11. 16. Eligible liabilities, including subordinated debt instruments and subordinated loans that do not qualify as Additional Tier 1 instruments or Tier 2 instruments, shall be included in the amount of own funds and eligible liabilities referred to in paragraph 1 only if they satisfy the following conditions: (a) the instrument is issued and fully paid up; (b) the liability is not owed to, secured by or guaranteed by the institution itself; (c) the purchase of the instrument was not funded either directly or indirectly by the institution; (d) the liability has a remaining maturity of at least one year; (e) the liability does not arise from a derivative; (f) the liability does not arise from a deposit which benefits from preference in the national insolvency hierarchy in accordance with Article 108 of Directive 2014/59/EU. For the purpose of point (d) of the first subparagraph, where a liability confers upon its owner a right to early reimbursement, the maturity of that liability shall be the first date where such right arises. 17. Where a liability is governed by the law of a jurisdiction outside the Union, the Board may instruct national resolution authorities to require the institution to demonstrate that any decision of the Board to write down or convert that liability would be effected under the law of that jurisdiction, having regard to the terms of the contract governing the liability, international agreements on the recognition of resolution proceedings and other relevant matters. If the Board is not satisfied that any decision would be effected under the law of that jurisdiction, the liability shall not be counted towards the minimum requirement for own funds and eligible liabilities. 18. If the Commission submits a legislative proposal pursuant to Article 45(18) of Directive 2014/59/EU, it shall, if appropriate, submit a legislative proposal amending this Regulation in the same way.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal T he proposed amendments to Regulation (EU) 806/2014 (the Single Resolution Mechanism Regulation or SRMR) are part of a legislative package that includes also amendments to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR), to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD). Over the past years the EU implemented a substantial reform of the financial services regulatory framework to enhance the resilience of financial institutions in the EU, largely based on global standards agreed with the EU’s international partners. In particular, the reform package included Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or CRD), on prudential requirements for and supervision of institutions, Directive 2014/59/EU (the Bank Recovery and Resolution Directive or BRRD), on recovery and resolution of institutions and Regulation (EU) No 806/2014 on the Single Resolution Mechanism (SRM). These measures were taken in response to the financial crisis that unfolded in 2007-2008.The absence of adequate crisis management and resolution frameworks forced governments around the world to rescue banks following the financial crisis. The subsequent impact on public finances as well as the undesirable incentive of socialising the costs of bank failure have underscored that a different approach is needed to manage bank crises and protect financial stability. Within the Union and in line with the significant steps that have been agreed and taken at international level, Directive 2014/59/EU (Bank Recovery and Resolution Directive (BRRD) 1 and Regulation (EU) No 806/2014 (Single Resolution Mechanism Regulation (SRMR) 2 have established a robust bank resolution framework to effectively manage bank crises and reduce their negative impact on financial stability and public finances. A cornerstone of the new resolution framework is the “bail-in” which consists of writing down debt or converting debt claims or other liabilities into equity according to a pre-defined hierarchy. The tool can be used to absorb losses of and internally recapitalise an institution that is failing or likely to fail, so that its viability is restored. Therefore, shareholders and other creditors will have to bear the burden of an institution's failure instead of taxpayers. In contrast to other jurisdictions, the Union bank recovery and resolution framework has already mandated resolution authorities to set for each credit institution or investment firm ('institution') a minimum requirement for own funds and eligible liabilities (MREL), which consist of highly bail-inable liabilities to be used to absorb losses and recapitalise institutions in case of failures. The delegated legislation concerning the practical implementation of this requirement has been adopted recently by the Commission 3 . At the global level, the Financial Stability Board (FSB) has published on 9 November 2015 the Total Loss-absorbing Capacity (TLAC) Term Sheet ('the TLAC standard') that was adopted a week later at the G20 summit in Turkey 4 . The TLAC standard requires global systemically important banks (G-SIBs), referred to as global systemically important institutions (G-SIIs) in the Union legislation, to hold a sufficient amount of highly loss absorbing (bail-inable) liabilities to ensure smooth and fast absorption of losses and recapitalisation in resolution. In its Communication of 24 November 2015 5 , the Commission committed to bring forward a legislative proposal by the end of this year so that the TLAC standard can be implemented by the agreed deadline of 2019. In addition, the Commission committed to review the existing MREL rules with the view to provide full consistency with the internationally agreed TLAC standard by considering the findings of a report that the European Banking Authority (EBA) is required to provide to the Commission under Article 45(19) of the BRRD. An interim version of that report has already been published by the EBA on 19 July 2016 6 and the final report is expected to be submitted in the course of December 2016. While the general BRRD and SRMR frameworks remain valid and sound, the main objective of this proposal is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules by avoiding duplication by applying two parallel requirements. Although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The scope of application of MREL covers not only G-SIIs, but the entire Union banking industry. Differently from the TLAC standard, which contains a harmonised minimum level, the level of MREL is determined by resolution authorities on the basis of a case-by-case institution specific assessment. Finally, the minimum TLAC requirement should be met in principle with subordinated debt instruments, while for the purposes of MREL, subordination of debt instruments could be required by resolution authorities on a case-by-case basis to the extent it is needed to ensure that in a given case bailed in creditors are not treated worse than in a hypothetical insolvency scenario (which is a scenario that is counterfactual to resolution). In order to achieve a simple and transparent framework providing legal certainty and consistency, the Commission is proposing to integrate the TLAC standard into the existing MREL rules and ensure that both requirements are met with largely similar instruments. This approach requires introducing limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any future requirements for G-SIIs. In particular, further appropriate technical amendments to the existing rules on MREL are needed to align them with the TLAC standard as regards inter alia the denominators used for measuring loss-absorbing capacity, the interaction with capital buffer requirements, disclosure of risks to investors and their application in relation to different resolution strategies. While implementing the TLAC standard for G-SIIs, the Commission's approach will not materially affect the burden of institutions which are not G-SIIs to comply with the provisions on MREL. Operationally, the harmonised minimum level of the TLAC standard will be introduced in the Union through amendments to the Capital Requirements Regulation and Directive (CRR and CRD) 7 while the institution-specific add-on for G-SIIs and the institution specific MREL for non-G-SIIs will be dealt with through targeted amendments to the BRRD and SRMR. As such, this proposal is part of a wider review package of the Union financial legislation aiming at reducing risks in the financial sector (CRR/CRD review) and making it more resilient. This proposal covers specifically the targeted amendments to the SRMR related to the implementation of the TLAC standard in the Union. This proposal will apply to the Single Resolution Board (SRB) and national authorities of the Member States participating in the Single Resolution Mechanism (SRM) when they set and implement the requirements on loss absorbing and recapitalisation capacity of financial firms established in the Banking Union.
Revised version (Article 12 Minimum requirement for own funds and eligible liabilities):
1. The Board, after consulting the competent authorities, including the ECB, shall determine the requirements for own funds and eligible liabilities as referred to in Articles 12a to 12i, subject to write-down and conversion powers, which are to be met at all times by the entities and groups referred to in Article 7(2) and by the entities and groups referred to in point (b) of Article 7(4) and in Article 7(5) when the conditions for the application of these paragraphs are met. 2. Entities that are referred to in paragraph 1, including entities that are part of groups, shall report the information in accordance with Article 45i(1), (2) and (4) of Directive 2014/59/EU to the national resolution authority of the participating Member State in which they are established. The national resolution authority shall transmit the information referred to in the first subparagraph to the Board without undue delay. 3. When drafting resolution plans in accordance with Article 9, after consulting the competent authorities, national resolution authorities shall determine the requirements for own funds and eligible liabilities, as referred to in Articles 12a to 12i, subject to write-down and conversion powers, which are to be met at all times by the entities referred to in Article 7(3). In that regard the procedure established in Article 31 shall apply. 4. The Board shall make any determination referred to in paragraph 1 of this Article in parallel with the development and maintenance of the resolution plans pursuant to Article 8. 5. The Board shall address its determination to the national resolution authorities. The national resolution authorities shall implement the instructions of the Board in accordance with Article 29. The Board shall require that the national resolution authorities verify and ensure that entities and groups maintain the requirements for own funds and eligible liabilities laid down in paragraph 1 of this Article. 6. The Board shall inform the ECB and EBA of the requirements for own funds and eligible liabilities that it has determined for each entity and group under paragraph 1. 7. In order to ensure the effective and consistent application of this Article, the Board shall issue guidelines, and address instructions, to national resolution authorities relating to specific entities or groups.
Article 13 Early intervention
1. The ECB or national competent authorities shall inform the Board of any measure that they require an institution or group to take or that they take themselves pursuant to Article 16 of Regulation (EU) No 1024/2013, to Article 27(1) or Article 28 or 29 of Directive 2014/59/EU, or to Article 104 of Directive 2013/36/EU. The Board shall notify the Commission of any information which it has received pursuant to the first subparagraph. 2. From the date of receipt of the information referred to in paragraph 1, and without prejudice to the powers of the ECB and national competent authorities in accordance with other Union law, the Board may prepare for the resolution of the institution or group concerned. For the purposes of the first subparagraph, the ECB or the relevant national competent authority shall closely monitor, in cooperation with the Board, the conditions of the institution or the parent undertaking and their compliance with any early intervention measure that was required of them. The ECB or the relevant national competent authority shall provide the Board with all of the information necessary in order to update the resolution plan and prepare for the possible resolution of the institution and for valuation of the assets and liabilities of the institution in accordance with Article 20(1) to (15). 3. The Board shall have the power to require the institution, or the parent undertaking, to contact potential purchasers in order to prepare for the resolution of the institution, subject to the criteria specified in Article 39(2) of Directive 2014/59/EU and the requirements of professional secrecy laid down in Article 88 of this Regulation. The Board shall also have the power to require the relevant national resolution authority to draft a preliminary resolution scheme for the institution or group concerned. The Board shall inform the ECB, the relevant national competent authorities and the relevant national resolution authorities of any action it takes pursuant to this paragraph. 4. If the ECB or the national competent authorities intend to impose on an institution or a group any additional measure under Article 16 of Regulation (EU) No 1024/2013, under Article 27(1), 28 or 29 of Directive 2014/59/EU or under Article 104 of Directive 2013/36/EU, before the entity or group has fully complied with the first measure notified to the Board, they shall inform the Board before imposing such additional measure on the institution or group concerned. 5. The ECB or the national competent authority, the Board and the relevant national resolution authorities shall ensure that the additional measure referred to in paragraph 4 and any action of the Board aimed at preparing for resolution under paragraph 2 are consistent.
Article 14 Resolution objectives
1. When acting under the resolution procedure referred to in Article 18, the Board, the Council, the Commission, and, where relevant, the national resolution authorities, in respect of their respective responsibilities, shall take into account the resolution objectives, and choose the resolution tools and resolution powers which, in their view, best achieve the resolution objectives that are relevant in the circumstances of the case. 2. The resolution objectives referred to in paragraph 1 are the following: (a) to ensure the continuity of critical functions; (b) to avoid significant adverse effects on financial stability, in particular by preventing contagion, including to market infrastructures, and by maintaining market discipline; (c) to protect public funds by minimising reliance on extraordinary public financial support; (d) to protect depositors covered by Directive 2014/49/EU and investors covered by Directive 97/9/EC; (e) to protect client funds and client assets. When pursuing the objectives referred to in the first subparagraph, the Board, the Council, the Commission and, where relevant, the national resolution authorities, shall seek to minimise the cost of resolution and avoid destruction of value unless necessary to achieve the resolution objectives. 3. Subject to different provisions of this Regulation, the resolution objectives are of equal significance, and shall be balanced, as appropriate, to the nature and circumstances of each case.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (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/EU 3 (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. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s 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 ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s 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 Council 8 , 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 , t he 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 transfer s 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 tha t 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 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. 
Revised version (Article 14 Resolution objectives):
1. When acting under the resolution procedure referred to in Article 18, the Board, the Council, the Commission, and, where relevant, the national resolution authorities, in respect of their respective responsibilities, shall take into account the resolution objectives, and choose the resolution tools and resolution powers which, in their view, best achieve the resolution objectives that are relevant in the circumstances of the case. When pursuing the objectives referred to in the first subparagraph, the Board, the Council, the Commission and, where relevant, the national resolution authorities, shall seek to minimise the cost of resolution and avoid destruction of value unless necessary to achieve the resolution objectives. 3. Subject to different provisions of this Regulation, the resolution objectives are of equal significance, and shall be balanced, as appropriate, to the nature and circumstances of each case.
Article 15 General principles governing resolution
1. When acting under the resolution procedure referred to in Article 18, the Board, the Council, the Commission and, where relevant, the national resolution authorities, shall take all appropriate measures to ensure that the resolution action is taken in accordance with the following principles: (a) the shareholders of the institution under resolution bear first losses; (b) creditors of the institution under resolution bear losses after the shareholders in accordance with the order of priority of their claims pursuant to Article 17, save as expressly provided otherwise in this Regulation; (c) the management body and senior management of the institution under resolution are replaced, except in those cases where the retention of the management body and senior management, in whole or in part, as appropriate to the circumstances, is considered to be necessary for the achievement of the resolution objectives; (d) the management body and senior management of the institution under resolution shall provide all necessary assistance for the achievement of the resolution objectives; (e) natural and legal persons are made liable, subject to national law, under civil or criminal law, for their responsibility for the failure of the institution under resolution; (f) except where otherwise provided in this Regulation, creditors of the same class are treated in an equitable manner; (g) no creditor shall incur greater losses than would have been incurred if an entity referred to in Article 2 had been wound up under normal insolvency proceedings in accordance with the safeguards provided for in Article 29; (h) covered deposits are fully protected; and (i) resolution action is taken in accordance with the safeguards in this Regulation. 2. Where an institution is a group entity, without prejudice to Article 14, the Board, the Council and the Commission, when deciding on the application of resolution tools and the exercise of resolution powers, shall act in a way that minimises the impact on other group entities and on the group as a whole and minimises the adverse effect on financial stability in the Union and its Member States, in particular in the countries where the group operates. 3. Where the sale of business tool, the bridge institution tool or the asset separation tool is applied to an entity referred to in Article 2 of this Regulation, that entity shall be considered to be the subject of bankruptcy proceedings or analogous insolvency proceedings for the purposes of Article 5(1) of Council Directive 2001/23/EC ( 16 ) . 4. When deciding on the application of resolution tools and the exercise of resolution powers, the Board shall instruct national resolution authorities to inform and consult employee representatives where appropriate. This is without prejudice to provisions on the representation of employees in management bodies as provided for by national law or practice.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The proposed amendments to Directive 2014/59/EU 1 (the Bank Recovery and Resolution Directive or BRRD) and to Regulation (EU) No 806/2014 2 (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/EU 3 (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. T he EU framework was reformed largely based on global standards agreed with the EU’s international partners. I t consist s 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 ( CRR 4 ) and the Capital Requirements Directive ( CRD 5 ) ), the BRRD and the SRMR. The 2019 banking package revised the legislation by including measures delivering on the EU’s commitments made in international fora 6 to take further steps towards completing the Banking Union by providing credible risk reduction measures to mitigate threats to financial stability. T he main revision s 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 Council 8 , 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 , t he 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 transfer s 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 tha t 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 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. 
Revised version (Article 15 General principles governing resolution):
2. Where an institution is a group entity, without prejudice to Article 14, the Board, the Council and the Commission, when deciding on the application of resolution tools and the exercise of resolution powers, shall act in a way that minimises the impact on other group entities and on the group as a whole and minimises the adverse effect on financial stability in the Union and its Member States, in particular in the countries where the group operates. 3. Where the sale of business tool, the bridge institution tool or the asset separation tool is applied to an entity referred to in Article 2 of this Regulation, that entity shall be considered to be the subject of bankruptcy proceedings or analogous insolvency proceedings for the purposes of Article 5(1) of Council Directive 2001/23/EC ( 7 ). 4. When deciding on the application of resolution tools and the exercise of resolution powers, the Board shall instruct national resolution authorities to inform and consult employee representatives where appropriate. This is without prejudice to provisions on the representation of employees in management bodies as provided for by national law or practice.