current
CRR Amendments Impacting Risk
The Capital Requirements Regulation (CRR) amendments provide clearer guidance on risk weight treatment for bonds used for TLAC/MREL, but introduce a more granular and potentially penalizing approach for preferred senior unsecured bonds.
Timeframe
immediate
Categories
Subcategories
Impact areas
Detailed Analysis
CRR III clarifies the risk weight treatment for non-preferred senior bonds, classifying them as subordinated exposures with a 150% risk weight. However, the treatment of preferred senior bonds remains ambiguous, particularly those used as eligible liabilities. The requirement for these bonds to be entirely subordinated to excluded liabilities, such as covered deposits, is often unmet, creating uncertainty about their risk weight classification. This ambiguity is further compounded by the diverse practices among European banks regarding the use and communication of preferred senior instruments for MREL purposes.
Context Signals
Banks have been uncertain about the risk weight treatment of senior unsecured bonds used for TLAC/MREL.
The EBA refused to provide an opinion on this for non-preferred senior bonds in 2022.
The diverse practices among banks regarding the use of preferred senior for MREL further complicate the issue.
Edge
Banks might need to adjust their internal risk models and capital allocation strategies based on the final interpretation and implementation of the CRR amendments.
The weighted approach, applying 150% risk weight only to the portion of bonds used for MREL, could become a prevalent practice.
Increased transparency and standardization in the use and communication of preferred senior for MREL could emerge as a regulatory priority.
