Accordingly, the European Commission’s recent proposal, which introduces a new category of senior debt instruments, subordinate to deposits, is a step in the right direction. In any event, the most critical element of the MREL-setting policy is the determination of the minimum volume of eligible liabilities and own funds. Under the current regulations, within 6/10  the Banking Union, it is for the Single Resolution Board (SRB) to determine, case by case, this volume for all significant institutions (which are supervised directly by the SSM), as well as for non-significant institutions engaging in cross-border activity or whose supervision has been assumed by the SSM, following consultation with the prudential supervisor. For the moment, the SRB has publicly voiced its inclination for a stringent approach, ensuring an extensive availability of loss-absorbing instruments on bank balance sheets. Indeed, by way of indication, it has been advocated that the institution subject to resolution should have loss-absorbing capacity of a volume equivalent to its regulatory capital requirements (the so-called loss-absorption component) and the ability to restore immediately the minimum level required (or recapitalisation component). However, MREL requirements like those arising from the mechanistic formula indicated may entail very high needs in respect of the issuance of eligible instruments – such as subordinated debt or convertible bonds – for numerous banks, owing to the abovementioned reasons. Further, these issuance requirements would be concentrated in the same period of time for all the institutions concerned, hampering market take-up.

29.11.2016  The challenges of the European resolution framework Closing address of the Conference “Corporate governance and credit institutions’ crises”, Mercantile Law Department, UCM (Madrid) Fernando Restoy Deputy Governor  1 Introduction  Let me begin by thanking the organisers for the invitation to close this conference on corporate governance and credit institutions’ crises staged by the Law Faculty of the Madrid Complutense University. It is always a pleasure to return to the University where I was an undergraduate and a lecturer for several years, even if it is to a different Faculty from mine back then. The recent financial crisis, like others before it, has been marked by the use by national authorities of sizeable public funds assigned to preventing the bankruptcy of numerous credit institutions in situations of non-viability. To minimise systemic risk and prevent a serious deterioration in financial stability, substantial State aid in the form of capital was granted across the EU from 2008 to 2014. In countries such as Spain, Belgium and United Kingdom, the figures were around 5% of GDP, in Germany and the Netherlands between 2% and 3.5%, while in Greece and Ireland aid was in excess of 20% and 30% of GDP, respectively. Given the severity and high public cost of the financial crisis, the response by the international authorities has been most resolute. First, solvency requirements have been appreciably strengthened, which will increase the resilience of the financial system and, therefore, reduce the likelihood of similar crises in the future.