"Total Assets" versus "Risk Weighted Assets": Does it Matter for MREL Requirements?

04-07-2016

Using a comprehensive sample of European banks by business model, ownership structure and systemic footprint, we calculate MREL requirements based on three hypotheses: i) 18% of RWA; ii) 6.75% of LRE; iii) EBA- RTS. The maximum of i) and ii) TLAC prescription – reveals different requirements across business models/ownership structures not in favour of traditional banking. Variations are reduced somewhat with EBA RTS and an 8% floor. Shocking banks in respect of tail risk events suggests that currently envisaged MREL levels might be insufficient for a smooth resolution for banks.

Using a comprehensive sample of European banks by business model, ownership structure and systemic footprint, we calculate MREL requirements based on three hypotheses: i) 18% of RWA; ii) 6.75% of LRE; iii) EBA- RTS. The maximum of i) and ii) TLAC prescription – reveals different requirements across business models/ownership structures not in favour of traditional banking. Variations are reduced somewhat with EBA RTS and an 8% floor. Shocking banks in respect of tail risk events suggests that currently envisaged MREL levels might be insufficient for a smooth resolution for banks.

Ulkopuolinen laatija

Rym Ayadi and Giovanni Ferri