IRELAND Law and Practice Contributed by: Keith Robinson, Barry Tyrrell and Julia Mullin, Dillon Eustace LLP
with Tier 1 capital. This Pillar One requirement applies to all banks uniformly. • The Pillar Two requirement is an additional capital requirement that applies on a case-by- case basis, subject to the supervisory review and evaluation process and the relevant bank’s individual business model and risk profile. • The combined buffer requirement: the CBI also applies the individual buffers provided for in CRD IV being: (a) the capital conservation buffer which is fixed at 2.5% of a bank’s total RWA; (b) the global/other systemically important institution (“GSII/OSII”) buffer. The six banks regulated by the CBI are subject to the OSII buffer ranging from 0.5% to 1.5%; (c) the counter-cyclical capital buffer (“CCyB”) which is currently at 1.5% in Ire - land. The CCyB could be increased above 1.5% were the CBI to deem that cyclical risks were becoming elevated; and (d) the systemic risk buffer (the “SRB”) which is designed to mitigate long-term, non-cyclical risk which may have serious adverse consequences for the economy. The CBI does not intend to introduce a SRB as the applicable risks are now captured through the CBI’s strategy for the CCyB. The types of capital that qualify for capital adequacy purposes are common equity Tier 1 comprising ordinary share capital and reserves, additional Tier 1 being perpetual co-ordinated debt instruments which contain certain speci - fied features, including restrictions on redemp - tion and automatic triggers for write-down of the debt or conversion of the debt into equity and Tier 2 being subordinated debt with an original maturity of at least five years.
In addition to the requirements of CRD V/CRR, the Bank Recovery and Resolution Directive (as amended) (the “BRRD”), as implemented in Ire - land, also requires banks to meet the minimum requirement for own funds and eligible liabilities (“MREL”) to enable banks to absorb losses and restore their capital position in a resolution sce - nario. MREL requirements are institution spe - cific. If a resolution tool under the BRRD is to be implemented (ie, the bank will not be liquidated), the default MREL requirement is calculated as approximately two times the sum of Pillar One, Pillar Two and the combined buffer requirement. This may be adjusted upwards or downwards in accordance with the provisions of the BRRD. Regulation (EU) 2022/2036 came into force on 14 November 2022 and made certain amendments to CRR and the BRRD to improve the resolvabil - ity of EU banking institutions (the “Daisey Chain Regulation”). The Daisey Chain Regulation spe - cifically provides resolution authorities with the power to set internal MREL on a consolidated basis. In these cases, intermediate subsidiar - ies will not be obliged to deduct their individual holdings of internal MREL. This is done to avoid in particular double-counting of MREL elements at the level of intermediate entities, ensuring that EU banking groups keep sufficient loss absorp - tion capacity in line with their disclosed MREL. Specific MREL treatment has been introduced for entities in a banking group that are to be wound up in accordance with insolvency laws (and therefore will not be subject to resolution action such as a conversion or write-down of MREL instruments) (known as “Liquidation Enti - ties”). Liquidation Entities will not be required to comply with an MREL requirement unless the resolution authority decides otherwise.
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