In a very timely report, published today, Scope assesses in detail MREL developments in Denmark, Finland, Norway and Sweden. MREL – Minimum Requirement for Own Funds and Eligible Liabilities – is an important component of post-crisis bank reform intended to strengthen the European banking system. In addition to resolution planning, it provides a means to resolve failing banks without relying on state support.

The report points out the notable differences in how Nordic authorities assess whether firms should be subject to MREL requirements, regardless of their systemic status. The inclusion or exclusion of capital buffers in MREL requirements reflect differing views on the amount of bail-in resources that may be needed in a crisis scenario.

For the largest EU banks, the Single Resolution Board (SRB) has set binding targets at group level although there remain ongoing discussions about calibration and how these should be met, especially for banks which are not Global Systemically Important Financial Institutions (G-SIFIs).

“In Denmark, the requirements have been set and the means for meeting them are in place. Danish banks have started issuing MREL-eligible liabilities. In Sweden, requirements have been set but national insolvency laws still need to be changed to allow for the issuance of non-preferred senior debt. In Norway, the MREL framework is being finalised while in Finland, only general guiding principles have been communicated,” said Pauline Lambert, executive director in the banks team at Scope Ratings and co-author of the report with Jennifer Ray.

As seen in European countries that have modified their bank creditor hierarchies, larger banks have successfully issued MREL-eligible securities (non-preferred senior, holding company senior, Tier 2 and AT1 instruments). While there are numerous smaller banks in the Nordic region, with Nordea being the sole G-SIB, Scope does not foresee this as an impediment to meeting MREL requirements.

“Unlike some smaller banks in countries such as Italy and Spain, many Nordic banks already access wholesale markets for funding and have established investor bases. Further, banks are replacing maturing securities with MREL-eligible securities rather than just issuing new securities, which mitigates the risk of market access and investor appetite for the new securities,” Lambert said.

The full report can be found here.