Bank : MREL / SNP: clearer visibility

The European harmonisation of the creditor hierarchy, implemented in December 2017, gives all European banks an opening into the senior non-preferred debt market. - This was timely as the MREL becomes binding this year for Europe’s biggest banks and its application will be mandatory within a maximum of four years. - Although the details are still being discussed and expected to be finalised when the BRRD2 is published later this year, the Single Resolution Board has set its MREL policy for 2018. - In addition to the formulation, which includes the guidance part, the SRB has introduced a minimum subordination benchmark to attain the required ratio. We think that this ‘partial’ subordination will significantly ease pressure on SNP/Holdco estimated issuance volumes in the near future. - >However, this situation may change in 2019, and it will be important to see what banks have to say on this subject. Their commitment to ‘protect” their senior bondholders will lead them to issue more subordinated eligible liabilities than the minimum requirement. - On the basis of the SRB’s last publication in December, we are updating our estimates of eligible liability requirements (MREL) for a sample of around 30 European banks. This has allowed us to estimate future issuance volumes of SNP/HoldCo paper and to adjust our estimate for senior, SNP and Tier 2 paper.