Further elaboration on the definition of remaining maturity of eligible liabilities

How shall remaining maturity be determined in case of deposits that can be withdrawn at any time?

Directive 2014/59/EU (BRRD) in Article 45(4) stipulates that for the purpose of inclusion in eligible liabilities meeting MREL the maturity of eligible liabilities shall be the first date where a right for early reimbursement arises. Even most long term deposits (of governments or large corporations not excluded from MREL-eligible liabilities) with a remaining maturity of more than one year can be asked to be paid back immediately (losing only the interest), making ’this moment’ the earliest reimbursement. Approach 1: Strict interpretation Where deposits (or other liabilities) can be broken up at any time, it means that its owner has a right for early reimbursement and the remaining maturity is zero days (or 1-2 days if the owner requires the amount in cash), that’s why deposits which can be asked to be paid back before maturity cannot be included in the amount of own funds and eligible liabilities meeting MREL. Rationale for approach 1: The BRRD is clear on the definition of maturity, and this approach results in a harmonised definition across the EU. However, this approach significantly narrows the amount of deposits that can be included in the amount of own funds and eligible liabilities meeting MREL. Approach 2: Expanded interpretation In order to include deposits with a remaining maturity of at least 1 year but which can be withdrawn at any time, a definition of ’stable deposits’ shall be used similar to the one used for the purpose of Liquidity Coverage Ratio (LCR), specified in Regulation 575/2013 (CRR). Stable deposits can be included if a depositor has to pay a material penalty (in excess of interest lost) (CRR 421 (5)) when withdrawing the deposit. Rationale for Approach 2: With the definition used in Approach 2 more deposits can be included in the amount of own funds and eligible liabilities meeting MREL, but also a criterium applies that those the depositor has a strong incentive not to withdraw the deposit before maturity. However, this approach is more complicated to (eg. materiality of penalty), furthermore the LCR definition refers only to retail deposits while DGS-eligible retail deposits are excluded from the amount meeting MREL.