In accordance with the BRRD and the Act on the Bank Guarantee Fund, the Deposit Guarantee Scheme and Resolution (the “BFG Act”), banks will be obliged to meet the minimum requirement for own funds and eligible liabilities (MREL), which is equivalent to the total loss absorption capacity (TLAC) requirement imposed on global systemically important institutions.

Both requirements address the need to ensure an adequate level of eligible liabilities (liabilities that can be converted to equity or written down) at times of financial difficulties, and consequently, facilitate resolution without the need to use public funds.

In July 2017 the Bank Guarantee Fund (BFG) published a methodology for calculating MREL on its website, which was subsequently updated in November 2018. Banks were ordered to comply with the MREL targets set by the resolution authority by January 1, 2023.

Bank-specific MREL targets were communicated to individual banks in the process of developing their resolution plans; the targets varied depending, among others, on the resolution strategy adopted for a given bank. MREL targets present the contribution to loss absorption and recapitalisation as a percentage of total liabilities and own funds. According to information from BFG dated February 5, 2020 the consolidated MREL target to be met by mBank by the end of 2022 is 14.54% of total liabilities including own funds (TLOF), which accounts for 27.515% of the total risk exposure amount (TREA). The requirement has been set taking into account the resolution strategy for Commerzbank AG Group basing on multiple point of entry (MPE) approach. At the same time, mBank was informed how it should progress towards meeting the target. MREL targets to be met at the end of 2019, 2020 and 2021 were set as a percentage of TLOF (9.248%, 11.012% and 12.776%, respectively) and TREA (17.500%, 20.838% and 24.177%, respectively).

In accordance with the BFG Act, MREL-eligible liabilities include instruments which have been issued and fully paid up, are not secured or guaranteed and held by the institution itself, and have a maturity of at least one year.

Furthermore, BFG expects that MREL targets will be complied with using only own funds and subordinated liabilities which in accordance with Bankruptcy Law rank below class five liabilities in the insolvency hierarchy. Since January 2019 a new class of debt, i.e. non-preferred senior debt, fulfils these requirements and is classified as MREL-eligible. In addition, BFG expects these instruments to be available only to professional investors at a minimum nominal value of PLN 400,000 per instrument.

In the case of commitments entered into to meet the consolidated MREL target in the part where it exceeds the individual MREL target, BFG requires only that the instruments should be made available to professional investors.

In the face of the events related to the COVID-19 pandemic, financial safety net institutions, including the BFG, have taken steps to limit the negative impact of the situation on the financial sector, including the banking sector. On March 26, 2020, the BFG published a communication on planned activities in the context of the MREL requirement.

In the next planning cycle, the BFG assumed an update of the MREL amounts assigned to banks in connection with the lifting of the systemic risk buffer on March 19, 2020, previously amounting to 3% of TREA, and the application of an extended target date for meeting the MREL requirement, i.e. January 1, 2024. It also indicated the first binding mid-term target on January 1, 2022 as the deadline. The envisaged solutions regarding the deadlines for meeting the MREL requirements are consistent with the provisions of BRRD II, the national implementation of which is underway. Moreover, the mid-term MREL objectives set for domestic entities identified as resolution entities at the end of 2020 are not considered obligatory by the BGF.

The BFG methodology may be subject to further changes in connection with the ongoing process of implementation into the Polish legal system of provisions on prudential regulations for banks and investment firms (CRD V / CRR II package) and in the area of ​​resolution framework (BRRD II / SRMR II package).

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