The impact of the bank recovery and resolution directive (2014/59/EU) on the capital and liabilities of Maltese-registered core banks : perceptions and an analysis

Abstract

Purpose: The aim of this research was to analyse the impact of the Bank Recovery and Resolution Directive (BRRD) on the capital and liabilities of Maltese core banks, and to collate the banks’ perceptions in this regard. It was also deemed relevant to obtain the banks’ opinions on the state of preparedness for the local implementation of the BRRD, both from their own individual perspective, as well as in relation to the Maltese banking industry. Design: An analysis of the BRRD’s impact, on the capital and liabilities of banks, was formulated through a scrutiny of the BRRD, as well as through a review of the literature in this regard. The perceptions, of the Maltese core banks, were collated through face-to-face interviews with high-ranking officials from the five Maltese-registered core domestic banks, so classified by the Central Bank of Malta. Findings: The result of the research indicated that the Maltese core domestic banks did not consider that the BRRD would instigate an increase in the share capital of the banks. It was deemed that other recently issued regulation, such as Banking Rule 15 on capital conservation buffers, might possibly bring about changes in the issued share capital of Maltese banks, but not specifically the BRRD itself. On the other hand, it was considered that the issue of other forms of capital, such as subordinated debt, contingent convertible bonds and unsecured long-term debt, would quite possibly be a more common feature on the Maltese market, as a result of the BRRD. There was lack of clarity about which liabilities would be excluded from the provisions of the BRRD. The general view, on the state of preparedness, was that the Maltese banking industry still had some way to go. Conclusions: The perceptions of the participant banks were generally in line with the provisions of the BRRD and the industry perspective. The greatest lack was identified in the level of knowledge about which, and how, liabilities would be affected by the BRRD. Value: The need for guidance and training, on the BRRD, was mentioned in more than one context, and by more than one participant. Ideally, this is to be provided by the MFSA.