Dominique Laboureix, head of the European Single Resolution Board, stated that regulators are better prepared for future bank failures following recent crises. He emphasized that while the banking sector is resilient, a lack of trust could still lead to instability. Laboureix highlighted the importance of MREL debt and the ongoing work to ensure banks can be smoothly resolved.
The statements from the SRB head indicate a proactive approach by European regulators to strengthen the banking sector's resilience and preparedness for potential future crises, aiming to prevent taxpayer-funded bailouts and maintain financial stability.
Dominique Laboureix, the head of the European Single Resolution Board (SRB), has stated that regulators are better equipped to handle future bank failures, drawing lessons from recent crises like the collapse of Silicon Valley Bank and the forced acquisition of Credit Suisse by UBS. Despite the resilience of the European banking sector, Laboureix cautioned that a lack of trust could still lead to market instability.
Recent banking crises have underscored the need for enhanced preparedness. The SRB reported that most leading eurozone banks have met a January 2024 target for issuing special debt, known as Minimum Requirement for Own Funds and Eligible Liabilities (MREL), which is designed to replenish capital during a crisis and allow for a bank's orderly resolution. This debt is written down to bail in the bank, preventing taxpayer bailouts and addressing the 'too big to fail' problem.
By the end of 2022, two-thirds of banks had met their final MREL targets. However, 24 banks still had a shortfall, amounting to €20.5 billion, or 0.3% of total risk exposures. While about €2.7 trillion has been issued, 14 of these banks have been granted extensions until the end of 2024 or 2025 to meet their obligations. The SRB's focus is now shifting towards ensuring banks can credibly demonstrate their ability to be smoothly resolved, restructured, or sold without disrupting customers. The watchdog is also developing further guidance on resolution scenarios, incorporating lessons learned from recent market turmoil, particularly concerning evaporating liquidity.