Too-big-to-fail can be solved inexpensively

Analysis - January 2017 - No. 1

Authors Danmarks Nationalbank
Subject Financial stability
Type Analysis
Year 2017
Published 18 January 2017
Danmarks Nationalbank’s calculations show that the price of solving the too-big-to-fail issue for the Danish mortgage banks is low. Introduction of a minimum requirement for own funds and eligible liabilities, MREL, corresponding to 8 per cent of the mortgage banks’ total liabilities and own funds would justify an increase of administration margins by between 0.02 and 0.11 percentage point. An MREL would allow the mortgage banks to write down up to 8 per cent of their liabilities and own funds. Hence, the Resolution Fund can be used in the event of very large losses.