BBVA has announced the MREL regulatory requirement for 2024 -a buffer to absorb losses- which the bank is already in compliance with. Starting next year, the bank needs to have a 22.11 percent volume of its own funds and eligible liabilities, or 25.42 percent including the combined requirement for capital buffers based on its risk-weighted assets (RWAs). As of March 31, 2023, the bank already meets this requirement, reaching 26.89 percent, as well as the subordination requirement.
The Bank of Spain informed BBVA of the new minimum requirement for own funds and eligible liabilities (MREL) regulatory requirement established by the Single Resolution Board (SRB), and calculated using information from December 31, 2021. As of January 1, 2024, BBVA’s own funds and eligible liabilities need to reach 22.11 percent of the total of RWAs from its European resolution group - in other words, BBVA SA and the rest of its franchises in Europe. This new MREL requirement is 7.27 percent when taking into account the total exposure used to calculate the leverage ratio. This requirement applies from January 1, 2022.
Additionally, the SRB establishes a subordination requirement, which orders financial institutions to meet part of its MREL requirement with a minimum percentage of subordinated instruments (those with a level of subordination equal or higher than that of senior non-preferred debt). In the case of BBVA, starting January, BBVA must maintain a volume of own funds and subordinated eligible liabilities equivalent to 13.50 percent of its RWAs in Europe. Taking into account the total exposure used to calculate the leverage ratio, this subordination requirement would stand at 5.61 percent and apply from January 1, 2022.
Furthermore, in addition to the MREL requirement and the subordination requirement in RWAs, there is a combined requirement of capital buffers, of 3.31 percent.
As of today, BBVA meets all these requirements, both taking into account its RWAs in Europe and its total exposure included in the leverage ratio.
BBVA currently has more than 80 percent of eligible instruments for MREL with a degree of subordination equal or higher than that of senior non-preferred debt, which evidences its high loss absorption capacity.
¿Qué es el MREL?
The purpose of MREL is to ensure that European banks possess funds of their own and eligible liabilities to absorb possible losses in case the supervisor deems them as failing.
The Bank Recovery and Resolution Directive (BRRD) created this requirement to make sure that troubled institutions hold enough own funds and eligible liabilities to, first, absorb possible losses, and, second, recapitalize without having to resort to public funds. So, the purpose of this buffer of own funds and eligible liabilities is to avoid taxpayers footing the bill of an eventual bank bailout.
How is MREL determined?
The MREL requirement is determined for each individual bank separately, taking into account capital requirements and other factors such as the corporate structure of each institution and its strategy in case of resolution. In the case of BBVA, given its MPE (‘Multiple Point of Entry’) resolution strategy, the MREL requirement does not apply to BBVA Group’s overall balance sheet, but only to a European scope of resolution, which is made up mainly of BBVA S.A., the parent company that includes the business in Spain.