Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (Bank Recovery and Resolution Directive, BRRD) provides for a common EU resolution regime that allows resolution authorities to deal with failing credit institutions as well as ensuring cooperation between home country resolution authorities (home authority) and host authorities. In order to avoid credit institutions structuring their liabilities in a way that interferes with the effectiveness of the bail-in tool or other resolution tools, and to avoid the risk of financial stability collapsing or abrupt withdrawals from the credit institution, the Law on Resolution of Credit Institutions (as well as the BRRD) requires credit institutions to consistently meet an adequate level of minimum requirement for own funds and eligible liabilities (MRELs). This requirement is determined by the Central Bank on an individual basis based on the criteria set out in the Law on Resolution of Credit Institutions as well as on the enabling regulations.
Determining MREL levels based on minimum criteria also requires the Central Bank to assess issues that are taken into account either in determining prudential regulatory requirements or in decisions of supervisory function related to individual cases, such as the degree of losses that credit institutions or groups should be able to cover or risk profile, business model and systemic importance.
The Central Bank estimates the amount of MREL needed to cover losses and, where necessary, recapitalise the credit institution after resolution, which should be linked to capital requirements on a going concern basis, as the credit institution should be able to have the capital it needs to operate in accordance with applicable regulations.