The forthcoming full incorporation into the European Union legislation of the “Basel III framework” (CRD V (II) – CRR II), on the one hand, and the legislative package to enhance credit institutions’ resolvability (BRRD II-SRMR II) also based on international standards (the “TLAC standard” of the Financial Stability Board), on the other hand, set the stage of this course. The course aims at providing a holistic reading of the various regulatory layers which define the quality and composition of the different loss-absorbing requirements, both for going concern and gone concern situations. In particular, it will highlight the continuum and interplay between these two sets of requirements, assessing the opportunities and challenges they pose for different banking business models and credit institutions’ funding.
The required levels, quality, composition and pecking order in loss absorbency of own funds and other loss-absorbing instruments (MREL) will be analysed both from a theoretical and a practical perspective, to identify their implications in terms of credit institutions’ incentives, costs, profitability, business models and legal structures. The elements covered include: the definitions and criteria to set Own Funds and MREL requirements; the leverage ratio; the treatment of deferred tax assets (DTA) and credits (DTC), minority interests, investments, Third Country issuances; the transitory provisions; common reporting (COREP) and MREL monitoring and reporting. The course will address these issues leveraging on past experiences, the on-going academic and policy debate, as well as the most recent regulatory developments.
You will get an understanding of the criteria and methods for setting own funds requirements for credit institutions in terms of prudence and preparation for resolution.
You will learn the differences between the capital adequacy and the leverage ratios.
You will be able to identify the various elements of credit institutions’ own funds (Common Equity Tier 1 (CET 1) capital, Additional Tier 1 capital, Tier 2 capital) and the quantitative limitations in their use.
You will get an understanding of the MREL and TLAC as elements of the regulatory framework relating to preparation for resolution.