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MREL and TLAC i.e. How to increase the loss absorption capacity of banks
Olga Szczepańska
Olga Szczepańska
Abstract
During the recent financial crises, the cost of the aid provided to banks was mostly borne by taxpayers. This resulted in increased budget deficits and bred moral hazard among banks. The latest reforms introduce regulatory requirements and legal provisions, which in the first place put the burden of the costs related to the bank crisis on institutional shareholders and creditors. The Financial
Stability Board has proposed a standard for the total loss-absorbing capacity of banks (TLAC). In the European context, the equivalent of this requirement is the minimum relevant level of own funds and eligible liabilities (MREL). Both standards require that banks maintain an appropriate value of liabilities that, in the event of a crisis, can be converted into capital and used to cover losses.
This article describes the new requirements, pointing out the similarities and differences between them. The paper also presents reflections on the practical aspects of the implementation of TLAC and MREL, with particular emphasis on the perspective of the domestic financial system.
Keywords:
recovery and resolution, global systemically important banks, banking crisis, crisis managementMost read articles by the same author(s)
- Olga Szczepańska, Rola banku centralnego w sieci bezpieczeństwa finansowego , Safe Bank: Vol. 35 No. 2/3 (2007): Bezpieczny Bank
- Olga Szczepańska, Fundamental premises, assumptions and structure of the financial safety net in the light of theory and international experience , Safe Bank: Vol. 26 No. 1 (2005): Bezpieczny Bank
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