Cyprus banks on track to meet MREL goals, according to SRB chief

Chair of the Single Resolution Board Dominique Laboureix has commended Cypriot banks for their progress in aligning with the Minimum Requirements for Own Funds and Eligible Liabilities (MREL).

It should be noted that MREL serves as a capital tool, incorporating instruments such as bail-in bonds, and secondary capital issued by banks beyond their own funds.

This initiative aims to strengthen banks’ capacity to absorb losses and enhance their ability to undergo restructuring in times of crisis, reducing the likelihood of resorting to taxpayer funds.

The MREL targets for each bank are set by the Single Resolution Board, which has defined these objectives for the two Cypriot banks, Bank of Cyprus and Hellenic Bank.

Speaking to the Cyprus News Agency (CNA), Laboureix noted that Cypriot banks have been granted a longer transitional period, when compared to other European banks, extending until 2024 and 2025.

“What I can say is that Cypriot banks are on a good path to meet their targets even before the transitional period,” Laboureix said.

“Therefore, Cypriot banks will achieve their goals on time,” he added.

Laboureix also explained that the concept of resolution replaces liquidation with an efficient process.

“With resolution, instead of asking taxpayers to pay for the collapse of a bank, as in the past, or even some creditors, as in Cyprus ten years ago, perhaps a better solution is to ask banks to build their resilience by issuing capital instruments,” he stated.

Asked about the progress made by the SRB, which, together with the National Resolution Authorities, forms the Single Resolution Mechanism (SRM), Laboureix stated that the council has made “tremendous progress, but the journey is not over”.

“We cannot say that the journey is over because the risks are evolving,” he said, recalling that when the SRB was established in 2015, no one could have imagined the crises that have unfolded since then.

These include Covid-19 pandemic, the British gilt crisis, geopolitical risks with Russia’s invasion of Ukraine, conflicts in Gaza, and disruptions in free navigation in the Red Sea.

“Thus, the level of uncertainty increases, and the risks in the banking sector rise,” he explained, pointing to new challenges from digitisation, including cyber risks, challenges related to the green transition, and the crisis sparked by the collapse of medium-sized banks, such as the deposit run at Silicon Valley Bank and the collapse of the Swiss giant Credit Suisse.

He mentioned that European banks have gained the ability to absorb losses, and the SRB has the Single Resolution Fund with €78 billion, stating that the situation is “much better compared to ten years ago, but, as I said, the journey is not over”.

What is more, Laboureix explained that the SRB’s strategy is guided by two issues, including addressing new risks and the smooth exercise of the council’s powers by acquiring necessary data from banks, allowing the SRB to act faster in a potential crisis.

“If we don’t have this data, we won’t be able to act quickly. That’s why it’s essential to move from building MREL, the capacity to absorb losses, to the ability to use these funds in the event of a crisis,” he said.

In response to the question of whether the narrative “too big to fail,” prevalent during the 2008 financial crisis when taxpayers rescued banks, has ended, Laboureix said that “under normal conditions, we can find other solutions due to the toolkit we have“.

He said that the toolkit can be further improved with the European Commission’s proposal for adjusting and further strengthening the existing EU framework for bank crisis management and deposit insurance.