SNDO decides that subordinated bonds should be used to resolve a crisis in a bank
(Thomson Reuters ONE) -
The Swedish National Debt Office (SNDO) is today presenting the framework for
the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) for banks
and some other financial institutions. The framework makes it clear that the
costs of a crisis will be borne by the bank's shareholders and certain types of
lenders, and not by the taxpayer. Banks that are important for stability in the
financial system now need to replace a portion of their existing bond holdings
with subordinated bonds.
- In order for the SNDO to provide for effective crisis management for banks, we
require them to have sufficient capital and eligible liabilities in their
balance-sheets. Eligible liabilities used for the minimum requirement must also
be of high enough quality to be used to effect a reorganisation of the bank. We
have therefore decided that the minimum requirement may only be met with capital
and subordinated liabilities, says SNDO Director Hans Lindblad.
Bail-in is the principal tool in the regulations on bank recovery and resolution
that have been in force in Sweden since February 2016. Bail in means that
liabilities in a bank can be written down to cover losses or converted into
equity to restore a bank's own funds in a crisis, in addition to ensuring that
the bank's critical functions can continue. Therefore any costs will be borne by
the bank's lenders and shareholders, rather than the taxpayer.
Liabilities used to meet the SNDO's minimum requirement
The SNDO has now finalized the model for calculation of the Minimum Requirement
for Own Funds and Eligible Liabilities (MREL), which determines how much own
funds and eligible liabilities each bank has to have, what proportion should be
debt and what type of liabilities may be used to meet the requirement. Amongst
other consequences, this means that systemically important banks need to replace
a portion of their existing bond holdings with subordinated bonds, i.e.
liabilities that cover losses ahead of normal non-preferred debt such as
deposits from large companies and bank bonds.[1] Going forward it will primarily
be investors in subordinated liabilities together with shareholders that will
bear the costs of resolution.
Banks that are not systemically important will always meet the SNDO's minimum
requirement provided that they comply with existing capital requirements. In a
crisis, these banks will be declared bankrupt or placed in liquidation rather
than resolution.
SNDO's minimum requirement phased in over five years
The minimum requirement will take effect from 1 January 2018 onwards. Banks must
progressively build up the volume of subordinated liabilities required to meet
the minimum requirement by 2022. During the transitional period, the SNDO will
monitor that volumes are being built up at a reasonable rate. The SNDO estimates
that the four major banks will need to issue subordinated bonds to an amount of
SEK 500 over the next five years in order to comply with the minimum
requirement. This is deemed to be possible without banks needing to increase
their level of debt.
+------------------------------------------------------------------------------+
|Resolution - new regime for bank crises management |
| |
|Since 1 February 2016, Sweden has had new rules for handling crises in banks, |
|other credit institutions and investment firms (collectively 'firms'), which |
|largely replace the bank support legislation from 2008. Under the new rules, |
|the SNDO is the 'resolution authority' responsible for both crisis |
|preparations and managing firms in crisis. Resolution is a special procedure |
|whereby the SNDO takes control of a failing firm in order to restructure it or|
|wind it up in an orderly manner. During the process, all or part of the firm |
|is kept open so depositors and other customers have access to their accounts |
|and other services, thus safeguarding financial stability. The costs of |
|resolution are borne by shareholders and creditors, not by the taxpayers. The |
|SNDO has been tasked with ensuring that banks and some other financial firms |
|always have a certain amount of own funds and liabilities that can be written |
|down in order to cover losses and reinstate the own funds (MREL). |
+------------------------------------------------------------------------------+
Contact
Robert Sennerdal, Press Secretary, +46 (0)8 613 46 94
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[1] Deposits that fall within the compensation amount of SEK 950,000 offered by
the deposit guarantee may not be written down under any circumstances. Deposits
from households and small and medium sized enterprises over this amount are
preferred in insolvency, which means that they only cover any losses after all
subordinated and non-preferred debt have been written down.
Application of the miminum requirement:
http://hugin.info/133745/R/2081365/783996.pdf
This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Riksgälden via GlobeNewswire
Unternehmensinformation / Kurzprofil:
Datum: 23.02.2017 - 09:30 Uhr
Sprache: Deutsch
News-ID 526009
Anzahl Zeichen: 6001
contact information:
Town:
Stockholm
Kategorie:
Business News
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