"Total assets" versus "risk weighted assets" : does it matter for MREL requirements? / Martin Hellwig
VerfasserHellwig, Martin In der Gemeinsamen Normdatei der DNB nachschlagen In Wikipedia suchen nach Martin Hellwig
ErschienenBonn : Max Planck Institute for Research on Collective Goods, July 2016
Elektronische Ressource
Umfang1 Online-Ressource (26 Seiten) : Diagramme
This material was originally published in a paper provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned by the Directorate General for Internal Policies of the Union and supervised by its Economic Governance Support Unit (EGOV).
SeriePreprints of the Max Planck Institute for Research on Collective Goods ; 2016,12
URNurn:nbn:de:hbz:5:2-115246 Persistent Identifier (URN)
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"Total assets" versus "risk weighted assets" [1.14 mb]
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The paper discusses the role of risk weighting in the determination of minimum requirements for eligible bail-in-able liabilities of banks (MREL), i.e. liabilities that are not exempt from the bail-in tool in bank resolution and that can be written down or converted into equity if losses on assets exceed the available equity and such bailing-in is required to re-establish bank solvency so as to provide a basis for maintaining systemically important operations in resolution. The paper begins with a general discussion of the reasons for introducing bank resolution as a special procedure outside of insolvency law, of the reasons for having the bail-in tool and of the frictions that may stand in the way of successful and frictionless resolution. This discussion emphasizes the importance of having sufficient bailin- able liabilities available; in contrast, for large institutions that have access to bond markets, the social costs of such requirements are small (unlike the private costs to the banks themselves). However, neither risk weighted nor total assets provide proper guidance for determining MREL. Risk-weighting suffers from a lack of a proper statistical basis and a certain manipulability. Moreover, the risk weighting that is used for capital regulation is not well suited for determining MREL; whereas capital regulation focuses on the probability of bad results, MREL is concerned with the extent of losses conditional on results being bad. "Total assets" suffer from not truly representing total assets because various rules, e.g. for netting, allow banks to keep certain assets and liabilities off their balance sheets.