Based on the resolution plan for the institution, including the selected resolution strategy, the Resolution Authority takes a decision on each institution’s MREL. MREL entail that the institution must have enough capital to ensure that it can be recapitalised, or that debt can be written down debt or converted to equity, if the institution should fail. Institutions that do not satisfy the conditions for resolution are placed in conventional winding-up proceedings pursuant to the Act on Financial Undertakings and will only be required to satisfy general capital requirements for financial institutions.
MREL are therefore intended to ensure that it instead of bailing a failed financial institution out using Government funds, it will be possible to bail in and recapitalise it using creditors’ funds. MREL also have another objective: to ensure that the institution has adequate loss absorption capacity.
More information on the MREL-requirements for Financial undertakings in Iceland can be found in the Central Bank‘s MREL Policy.