Capital indicators

Capital indicators should identify any significant actual and likely future deterioration in the quantity and quality of capital in a going concern, including increasing level of leverage.

When selecting capital indicators the institution should consider ways to address the issues stemming from the fact that the capacity of such indicators to allow for a timely reaction can be lower than for other types of indicators, and certain measures to restore an institution’s capital position can be subject to longer execution periods or greater sensitivity to market and other conditions. In particular, this can be achieved by means of establishing forward-looking projections, which should consider material contractual maturities relating to capital instruments.

The capital indicators should also be integrated into the institution’s Internal Capital Adequacy Assessment Process (ICAAP) pursuant to Article 73 of Directive 2013/36/EU.

The thresholds for indicators based on regulatory capital requirements should be calibrated by the institution at adequate levels in order to ensure a sufficient distance from a breach of the capital requirements applicable to the institution (including minimum own funds requirements as specified in Article 92 of Regulation (EU) 575/2013 and additional own funds requirements applied pursuant to Article 104(1)(a) of Directive 2013/36/EU.

In line with the objective of the recovery process and the flexibility given to the institution to act independently when breaching indicators, regulatory capital indicators should be set at a level higher than those that will allow supervisory intervention.

Generally, capital indicators should be calibrated above the combined capital buffer requirement. Where an institution calibrates its capital indicators within the buffers, it should clearly demonstrate in its recovery plan that its recovery options can be implemented in a situation where the buffers have been totally or partially used.

The thresholds for indicators related to the requirements set out in Articles 45c and 45d of Directive 2014/59/EU (minimum requirement for own funds and eligible liabilities – MREL) and Article 92a or 92b of Regulation (EU) No 575/2013 (TLAC), expressed as percentages of the total risk exposure amount (TREA) and total exposure measure (TEM), should be aligned with the calibration of the regulatory capital recovery plan indicators and they should be set at a level above the one allowing the resolution authority’s intervention in accordance with Art icle 16a of Directive 2014/59/EU [as introduced by Directive (EU) 2019/879] and Article 128 of Directive 2013/36/EU [as amended by Directive (EU) 2019/878]. The threshold should be generally calibrated by the institution above the combined buffer requirement when considered in addition to (i) the TLAC minimum requirement and

• (ii) the final MREL or the binding intermediate target levels of MREL (if different) expressed as percentages of TREA. The institution should also take into account any additional element considered relevant when determining those requirements, including a subordination requirement, as applicable. If an institution should decide to calibrate indicators related to MREL and TLAC within the buffers, it needs to clearly demonstrate in its recovery plan that its recovery options can be implemented in a situation where the buffers have been totally or partially used.

The indicator threshold should take into account the maturity profile of eligible liabilities and the institution’s ability to roll them ove r. For groups with an MPE resolution strategy, where the prudential and resolution scopes might differ, the institution should calibrate the consolidated level MREL/TLAC indicators for each of the resolution entities/groups.

The threshold calibration for MREL should be agreed by the competent authority in consultation with the resolution authority when making their assessment of the recovery plan. Upon being notified by the institution of a breach of the MREL indicator, the competent authority should inform the resolution authority and cooperate with it considering the importance of MREL to the resolution objectives under Article 31 of Directive 2014/59/EU.