BBVA already meets new MREL requirement
BBVA has received the new Single Resolution Board’s MREL regulatory requirement, which establishes the buffer the bank must maintain to absorb losses. Starting today, the bank’s own funds and eligible liabilities must represent 22.79 percent of the total of risk weighted assets of its European resolution group (which includes the holding, BBVA S. A. and its subsidiaries in Europe). BBVA already meets this requirement.
The Bank of Spain has informed BBVA of the new Minimum Requirement for own funds and eligible liabilities (MREL) regulatory requirement established by the Single Resolution Board (SRB), calculated with information from December 31, 2022. According to this requirement, BBVA must reach a volume of its own funds and eligible liabilities of 22.79 percent of the total of risk weighted assets for its European resolution group.¹
When taking into account the total exposure used to calculate the leverage ratio, and not the risk weighted assets, the new MREL requirement is 8.48 percent.
In addition, the SRB also establishes a subordination requirement, which requires banks to meet part of their MREL requirement with a minimum percentage of subordinated instruments (those with a level of subordination that is equal or higher than senior non-preferred debt). In this case, BBVA must maintain a volume of subordinated eligible liabilities of 13.50 percent of the risk weighted assets. If, once again, the total exposure used to calculate the leverage is taken into account, this subordination requirement climbs to 5.78 percent.
The MREL in risk weighted assets and the subordination requirement in risk weighted assets does not include the applicable combined capital buffer requirement, which is currently 3.61 percent.
BBVA already meets the established MREL requirement, including the subordination requirement.
What is MREL?
MREL is a requirement for European institutions to have a minimum volume of their own funds and eligible liabilities capable of absorbing losses and recapitalizing the bank in the event that it is declared non-viable.
The Bank Recovery and Resolution Directive (BRRD) created this requirement to ensure that financial institutions have sufficient own funds and eligible liabilities in order to absorb possible losses, first, and second, recapitalize themselves without having to use public funds if needed. This therefore prevents taxpayers from having to cover possible bank bailouts.
The MREL requirement is determined for each bank taking into account the capital requirements, as well as other factors, such as the corporate structure and resolution strategy.
In the case of BBVA, given its ‘Multiple Point of Entry’ (MPE), the MREL requirement does not apply to the BBVA Group’s total balance sheet, but to a European perimeter, mainly comprised of BBVA, S.A., the parent company under which the Group’s business in Spain is located.