Go Preventive or Go Home - A New Role of MREL

25 Pages Posted: 27 Aug 2020

See all articles by Edoardo D. Martino

Edoardo D. Martino

University of Amsterdam; European Banking Institute

Katarzyna Parchimowicz

University of Wroclaw; European Banking Institute

Date Written: August 21, 2020

Abstract

Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it is also widely considered ineffective and inefficient in handling bank failures. This article analyses the preventive potential of the resolution framework, specifically focusing on the minimum requirement for own funds and eligible liabilities (MREL).

We argue that MREL has a double nature. On the one hand, it should ensure the feasibility of resolution in case of a bank failure. On the other hand, it aims at restricting the funding model of banks, similarly to the other (preventive) capital requirements.

By analysing the 2019 reform of the EU banking regulation, we contend that MREL represents an important complement to the rest of the preventive regulatory framework and that the latest reform unleashes such potential. We demonstrate that the new rules on MREL determination and enforcement allows the resolution authority to look after the build-up of systemic risk. The analysis reveals that MREL can serve both micro- and macro-prudential purposes. Finally, we argue that the current institutional architecture represents the main impeding factor for the new regulation to efficiently work, curbing the positive preventive potential of MREL.

Keywords: law & finance, financial regulation, BRRDII, bank resolution; MREL, preventive regulation, macro-prudential regulation.

JEL Classification: G21; G28; K23

Suggested Citation

Martino, Edoardo D. and Parchimowicz, Katarzyna, Go Preventive or Go Home - A New Role of MREL (August 21, 2020). Amsterdam Law School Research Paper No. 2020-50, Amsterdam Center for Law & Economics Working Paper No. 2020-04, Available at SSRN: https://ssrn.com/abstract=3678624 or http://dx.doi.org/10.2139/ssrn.3678624

Edoardo D. Martino (Contact Author)

University of Amsterdam ( email )

Roetersstraat 11
NE 1018 WB
Amsterdam, 1018 WB
Netherlands

European Banking Institute ( email )

Frankfurt
Germany

Katarzyna Parchimowicz

University of Wroclaw ( email )

Pl. Uniwersytecki 1 50-137
Wrocław
Poland

European Banking Institute ( email )

Frankfurt
Germany

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