FI’s response to proposed new requirement for banks to ensure effective crisis managment

The newly implemented Resolution Act introduces new rules and requirements, including requirements about loss absorbing liabilities. In its response to the Debt Office’s proposal, FI says it is important that such new rules and requirements are consistent with Finansinspektionen’s (FI) supervision and the currently applicable capital requirements.

FI sees particular advantages in the Swedish National Debt Office's (the Debt Office) proposed methodology for determining the minimum requirement for own funds and eligible liabilities (MREL) in the sense that it results in a certain amount of buffers and in the sense that the resolvability assessment is given a prominent role.

FI's principal view is that the new requirements for eligible liabilities should be consistent with the capital and liquidity requirements, and should be set in consideration of the fundamental purpose of these requirements.

FI's comments on the Debt Office's proposal can be summarised as follows:
The role of debt instruments as part of the new MREL requirements should be more limited than the Debt Office proposes. In FI's view, the Debt Office's proposal for a certain minimum share of debt instruments (as part of the resolvability assessment) introduces new refinancing risks.

The proposed automatic link between MREL and the capital requirements needs to be amended to ensure that the new MREL rules do not impact adversely on the economy generally and financial stability in particular.

The application of the MREL requirement needs to provide for a significant element of buffer in order to account for both existing risk of losses and additional risks which MREL introduces, in particular those relating to the need to refinance MREL-eligible debt.