Determination of the minimum requirement for own funds and eligible liabilities

(1) The requirement under section 49(1) is determined by the resolution authority, after consulting the supervisory authority, having regard to the following criteria: 1. the need to ensure that the resolution group can be resolved by applying the resolution tools, including, where appropriate, the creditor participation instrument, to the resolution entity, in accordance with the resolution objectives; 2. the need to ensure, where appropriate, that the resolution entity and its subsidiary undertakings that are institutions or group entities, but not resolution entities, have sufficient own funds and eligible liabilities so that, in the event that the creditor participation instrument, or the write-down and conversion powers, are used in respect of them, losses can be absorbed and it remains possible to restore the total capital ratio, and where applicable the leverage ratio, of the undertakings concerned to a level necessary for them to continue to satisfy the conditions for authorisation and to continue to carry on the activities for which they are authorised under Directive 2013/36/EU or Directive 2014/65/EU; 3. the need to ensure that, in cases where the resolution plan already provides for the possibility of excluding certain categories of eligible liabilities from the creditor participation instrument under section 92(1), or of transferring them in full to a transferee entity in the course of a partial transfer, the resolution entity has sufficient own funds and other eligible liabilities so that losses can be absorbed and the total capital ratio, and where applicable the leverage ratio, of the resolution entity can be restored to a level necessary for it to continue to satisfy the conditions for authorisation and to continue to carry on the activities for which it is authorised under Directive 2013/36/EU or Directive 2014/65/EU; 4. the size, business model, funding model and risk profile of the undertaking; 5. the extent to which the failure of the undertaking would affect financial stability, including, among other things, through contagion to other institutions or undertakings on account of its interconnectedness with other institutions or undertakings or with the rest of the financial system.
(2) Where the resolution plan provides that resolution actions are to be taken in accordance with the scenario referred to in section 40(2), points 2 and 3, or that use is to be made of the powers to write down or convert relevant capital instruments and eligible liabilities under section 65(4), the requirement referred to in section 49(1) must be high enough to ensure the following: 1. the expected losses to be borne by the undertaking are absorbed in full (loss absorption); 2. the resolution entity and its subsidiary undertakings that are institutions or group entities, but not resolution entities, are recapitalised to a level that enables them to continue to satisfy the conditions for authorisation and to continue to carry on the activities for which they are authorised under Directive 2013/36/EU, Directive 2014/65/EU, or comparable conditions for authorisation, for an appropriate period not exceeding one year (recapitalisation).
(3) For resolution entities, the amount resulting from the requirement under subsection (2), first sentence, corresponds 1. for the purposes of calculating the requirement under section 49(1) in accordance with section 49(2), point 1, to the sum of a) the losses to be absorbed in resolution, corresponding to the requirements of Article 92(1)(c) of Regulation (EU) No 575/2013 and section 6c(1) of the Banking Act applicable to the resolution entity on a consolidated basis at the level of the resolution group, and b) a recapitalisation amount that enables the resolution group resulting from the resolution to restore compliance with its applicable total capital ratio requirement under Article 92(1)(c) of Regulation (EU) No 575/2013 and its applicable requirement under section 6c(1) of the Banking Act on a consolidated basis at the level of the resolution group, following implementation of the preferred resolution strategy, and 2. for the purposes of calculating the requirement under section 49(1) in accordance with section 49(2), point 2, to the sum of a) the losses to be absorbed in resolution, corresponding to the resolution entity's leverage ratio requirement under Article 92(1)(d) of Regulation (EU) No 575/2013 on a consolidated basis at the level of the resolution group, and b) a recapitalisation amount that enables the resolution group resulting from the resolution to restore compliance with the leverage ratio requirement under Article 92(1)(d) of Regulation (EU) No 575/2013 on a consolidated basis at the level of the resolution group, following implementation of the preferred resolution strategy. For the purposes of section 49(2), point 1, the requirement referred to in section 49(1) is expressed as a percentage represented by the loss absorption and recapitalisation amount calculated under the first sentence, point 1, divided by the total risk exposure amount. For the purposes of section 49(2), point 2, the requirement referred to in section 49(1) is expressed as a percentage represented by the amount calculated under the first sentence, point 2, divided by the total exposure measure. In determining the individual requirement under the first sentence, point 2, the resolution authority takes into account the requirements under section 7a(3) and (4) of the Restructuring Fund Act.
(4) In determining the recapitalisation amounts referred to in subsection (3), the resolution authority proceeds as follows: 1. it uses the most recently reported values for the relevant total risk exposure amount or the relevant total exposure measure for the leverage ratio, adjusted for any changes resulting from the resolution actions provided for in the resolution plan, and 2. after consulting the supervisory authority, it adjusts, upwards or downwards, the amount corresponding to the requirements under section 6c(1) of the Banking Act, in order to determine the requirement to be applied to the resolution entity following implementation of the preferred resolution strategy.
(4a) The resolution authority may increase the requirement under subsection (3), first sentence, point 1, letter b, by an amount necessary to ensure that, following resolution, the undertaking is able, for an appropriate period not exceeding one year, to maintain sufficient market confidence in the undertaking. Where the resolution authority increases the requirement under the first sentence, that amount is set equal to the combined buffer requirement applicable after application of the resolution tools, less the requirement under section 10i(1), point 2, of the Banking Act. The amount under the first sentence is adjusted downwards where the resolution authority, after consulting the supervisory authority, determines that it is feasible and credible for a lower amount to be sufficient to maintain market confidence and to ensure both the continuation of the institution's or group entity's critical functions and its access to financing, without extraordinary public financial support being required beyond the contributions from the resolution financing arrangements under section 3a(4) and section 7a(3) and (4) of the Restructuring Fund Act, after implementation of the resolution strategy. That amount is increased where the resolution authority, after consulting the supervisory authority, determines that a higher amount is necessary, for an appropriate period not exceeding one year, to maintain sufficient market confidence and to ensure both the continuation of the institution's or group entity's critical functions and its access to financing, without extraordinary public financial support being required beyond the contributions from the resolution financing arrangements under section 3a(4) and section 7a(3) and (4) of the Restructuring Fund Act.
(5) For resolution entities that are not subject to the requirements under Article 92a of Regulation (EU) No 575/2013 and that are part of a resolution group with total assets exceeding EUR 100 billion, the level of the requirement referred to in subsection (3) corresponds to at least 1. 13.5 per cent, where calculated under section 49(2), point 1, and 2. 5 per cent, where calculated under section 49(2), point 2. By way of derogation from section 49b, resolution entities satisfy the requirement under the first sentence with own funds, subordinated eligible instruments, or liabilities within the meaning of section 49b(3).
(6) The resolution authority may, after consulting the supervisory authority, decide to apply the requirements under subsection (5) to a resolution entity that is not subject to the requirements under Article 92a of Regulation (EU) No 575/2013 and is part of a resolution group with total assets below EUR 100 billion, and in respect of which the resolution authority concludes that it would, with reasonable likelihood, pose a systemic risk in the event of failure. In taking its decision, the resolution authority takes into account the following criteria: 1. the predominance of deposits and the absence of debt instruments in the funding model, 2. the extent to which access to the capital markets for eligible liabilities is limited, and 3. the extent to which the resolution entity relies on Common Equity Tier 1 capital to meet the requirement under section 49e. Where no decision under the first sentence is taken, decisions under section 49b(5) remain unaffected. The resolution authority notifies the Board of decisions under the first sentence, insofar as they concern resolution entities for which the Board is competent.
(7) For undertakings that are not themselves resolution entities, the requirement referred to in subsection (2), first sentence, corresponds 1. for the purposes of calculating the requirement under section 49(1) in accordance with section 49(2), point 1, to the sum of a) the losses to be absorbed, corresponding to the requirements applicable to the undertaking under Article 92(1)(c) of Regulation (EU) No 575/2013 and section 6c(1) of the Banking Act, and b) a recapitalisation amount that enables the undertaking to restore compliance with its applicable total capital ratio requirement under Article 92(1)(c) of Regulation (EU) No 575/2013 and the requirement under section 6c(1) of the Banking Act, following exercise of the power to write down or convert relevant capital instruments and eligible liabilities under section 65(4), or following resolution of the resolution group, and 2. for the purposes of calculating the requirement under section 49(1) in accordance with section 49(2), point 2, to the sum of a) the losses to be absorbed, corresponding to the undertaking's leverage ratio requirement under Article 92(1)(d) of Regulation (EU) No 575/2013, and b) a recapitalisation amount that enables the undertaking to restore compliance with the leverage ratio requirement under Article 92(1)(d) of Regulation (EU) No 575/2013, following exercise of the power to write down or convert relevant capital instruments and eligible liabilities under section 65(4), or following resolution of the resolution group. For the purposes of section 49(2), point 1, the requirement referred to in section 49(1) is expressed as a percentage represented by the amount calculated under the first sentence, point 1, divided by the total risk exposure amount. For the purposes of section 49(2), point 2, the requirement referred to in section 49(1) is expressed as a percentage represented by the amount calculated under the first sentence, point 2, divided by the total exposure measure. In determining the individual requirement under the first sentence, point 2, the resolution authority takes into account the requirements under section 7a(3) and (4) of the Restructuring Fund Act.
(8) In determining the recapitalisation amounts referred to in subsection (7), the resolution authority must 1. use the most recently reported values for the relevant total risk exposure amount or the relevant total exposure measure, adjusted for any changes resulting from the measures provided for in the resolution plan, and 2. after consulting the supervisory authority, adjust, upwards or downwards, the amount corresponding to the requirement referred to in section 6c(1) of the Banking Act, in order to determine the requirement to be applied to the undertaking concerned following exercise of the power to write down or convert relevant capital instruments and eligible liabilities under section 65(4), or following resolution of the resolution group.
(9) The resolution authority may increase the requirement under subsection (7), first sentence, point 1, letter b, by an amount necessary to ensure that, following exercise of the power to write down or convert relevant capital instruments and eligible liabilities under section 65(4), the undertaking is able, for an appropriate period not exceeding one year, to maintain sufficient market confidence. Where the resolution authority increases the requirement under the first sentence, that amount is set equal to the combined buffer requirement applicable after exercise of the power under sections 65, 77 and 89, or after resolution of the resolution group, less the requirement under section 10i(1), point 2, of the Banking Act. The requirement referred to in the first sentence is adjusted downwards where the resolution authority, after consulting the supervisory authority, determines that it is feasible and credible for a lower amount to be sufficient to ensure market confidence and to ensure both the continuation of the institution's or group entity's critical functions and its access to financing, without extraordinary public financial support being required beyond the contributions from the resolution financing arrangements under section 3a(2) and section 7a(3) and (4) of the Restructuring Fund Act, after the power under sections 65, 77(2) and 89 has been exercised, or after resolution of the resolution group has taken place. That amount is increased where the resolution authority, after consulting the supervisory authority, determines that a higher amount is necessary, for an appropriate period not exceeding one year, to maintain sufficient market confidence and to ensure both the continuation of the institution's or group entity's critical functions and its access to financing, without extraordinary public financial support being required beyond the contributions from the resolution financing arrangements under section 3a(2) and section 7a(3) and (4) of the Restructuring Fund Act.
(10) Where the resolution authority assumes that certain categories of eligible liabilities are, with reasonable likelihood, wholly or partly to be excluded from the creditor participation instrument under section 92(1), or could be transferred in full to a transferee entity in the course of a partial transfer, the requirement referred to in section 49(1) is met with own funds or other eligible liabilities sufficient to 1. cover the liabilities excluded under section 92(1), and 2. ensure that the conditions referred to in subsection (2) are satisfied.
(11) A decision of the resolution authority to prescribe a minimum requirement for own funds and eligible liabilities includes corresponding reasons, together with a complete assessment of the elements referred to in subsections (2) to (10), and is reviewed by the resolution authority without delay in order to take account of any changes to the level of a requirement set under section 6c(1) of the Banking Act.
(12) For the purposes of subsections (3) and (7), the transitional provisions laid down in Part 10, Title I, Chapters 1, 2 and 4, of Regulation (EU) No 575/2013, and in the national legislation on the exercise of the options available to supervisory authorities under that Regulation, are determinative for the capital requirements.