Germany amends SRM law to address criticism

Author: Ben Bschor | Published: 28 Sep 2015

Germany has dropped the term 'subordinated’ from a proposed law that will change the hierarchy of liabilities in insolvency and resolution.

The last-minute change, ahead of an upcoming vote in parliament, is aimed at addressing criticism of an earlier version of the Single Resolution Mechanism (SRM) law by the European Central Bank (ECB).

The latest version was published on Wednesday last week. It was approved by the first chamber of the German parliament, the Bundestag, the next day, following a second and third reading both taking place in the afternoon.

Despite the change in the wording, the proposal still achieves the main purpose of allowing senior subordinated instruments to qualify for total loss absorbency capacity (TLAC) purposes, according to lawyers who have analysed the draft law.

Conflicts with TLAC

The new TLAC standard is currently being developed under leadership of the Financial Stability Board (FSB). It will apply to the...