Daisy Chains: Council and Parliament reach agreement

The Council and the European Parliament today reached a provisional political agreement on the Daisy Chains proposal. The proposal is a targeted amendment of the Bank Recovery and Resolution Directive or (BRRD) and the Single Resolution Mechanism Regulation or (SRMR) to include targeted proportionality requirements to the treatment of ‘internal MREL’ in bank resolution groups.

Effective resolution

The BRRD requires banks and other credit institutions established in the EU to meet a minimum requirement for own funds and eligible liabilities (‘MREL’) to ensure an effective and credible application of the bail-in tool. Failure to meet MREL may negatively impact institutions’ loss absorption and recapitalisation capacity and, ultimately, the overall effectiveness of resolution.

Where an MREL instrument is issued by a subsidiary within a banking group and directly or indirectly subscribed by its parent company, it is referred to as ‘internal MREL’. Under indirect subscription, the intermediate subsidiary must deduct its holdings of internal MREL from its own funds to ensure the integrity and loss absorbency of the MREL instruments.

New rules to avoid disproportionate effects

After analysis, the Commission found that the application of the deduction requirement on internal MREL could have a disproportionate detrimental impact for certain banking group structures, namely those operating under a parent holding company and certain operating company structures.

The Daisy Chains proposal aims to give the resolution authorities the power of setting internal MREL on a consolidated basis subject to certain conditions. Where the resolution authority allows a banking group to apply such consolidated treatment, the intermediate subsidiaries will not be obliged to deduct their individual holdings of internal MREL, thus preventing the detrimental effect identified by the Commission.

In addition, the proposal introduces a specific MREL treatment for ‘liquidation entities’. Those are defined as entities within a banking group earmarked for winding-up in accordance with insolvency laws, which would, therefore, not be subject to resolution action (conversion or write-down of MREL instruments).

On this basis and as a rule, liquidation entities would not be obliged to comply with an MREL requirement, unless the resolution authority decides otherwise on a case-by-case basis for financial stability protection reasons. The own funds of these liquidation entities issued to the intermediate entities will not need to be deducted except when they represent a material share of the own funds and eligible liabilities of the intermediate entity.

The provisional text agreed between the Council and the European Parliament clarify the concept and scope of liquidation entities and provide further detail on the conditions for the application of the consolidated treatment of internal MREL.

Next steps

The agreement found today is provisional and needs to be confirmed by member states’ representatives in the Committee of permanent representatives (COREPER) and by the European Parliament. Once endorsed, the legal text will be consolidated and formally voted in the European Parliament and the Council. The text will then be published in the Official Journal and enter into force 20 days later. The rules will start applying six months later.


On the 18 April the European Commission adopted a legislative package known as the reform of the Crisis Management and Deposit Insurance framework (‘CMDI’) setting out amendments to Directive 2014/59/EU (the Bank Recovery and Resolution Directive or ‘BRRD’) and to Regulation (EU) No 806/2014 (the Single Resolution Mechanism Regulation or ‘SRMR’).

As part of the CMDI package the Commission also adopted a targeted amendment of the BRRD and of the SRMR as a separate legal instrument (the ‘Daisy Chains proposal’) to address specific issues on the treatment of ‘internal MREL’

The Council reached agreement on the proposal on 17 November 2023.

The Daisy Chains proposal, was presented as a self-standing legal instrument for the co-legislators to fast-track its adoption ahead of the remainder of the CMDI review proposals.