ECB Annual Report on supervisory activities

jurisdictions.
Fit and proper assessment: in accordance with CRD IV supervisory authorities
must assess whether candidates for the management bodies in banks are fit and
proper. The <strong>ECB</strong> takes such fit and proper decisions for directors of the 126 biggest
banks in the euro area, whereas fit and proper decisions for less significant
institutions are still taken by the national supervisors, except in the case of a new
banking licence.
Internal model: any risk measurement and management approach applied in the
calculation of own funds requirements that is proprietary to a credit institution and
requires prior permission by the competent authority in accordance with Part Three
of the CRR.
Joint Supervisory Team (JST): a team of supervisors composed of <strong>ECB</strong> and NCA
staff in charge of the supervision of a significant supervised entity or a significant
supervised group.
Less significant institution (LSI): a less significant institution is any institution that
is supervised by national competent authorities (NCAs). By contrast, significant
institutions (SIs) are those banking groups that are directly supervised by the <strong>ECB</strong>.
Maximum distributable amount (MDA): breaches of the combined buffer
requirement (CBR) lead to mandatory restrictions on distributions (e.g. dividends,
coupon payments on AT1 capital instruments, discretionary bonuses). A bank which
fails to meet its CBR will be automatically prohibited from distributing more than the
MDA. The MDA is the bank’s distributable profit multiplied by a factor ranging
between 0.6 and 0, depending on by how much CET1 capital falls short of the CBR.
Minimum requirement for own funds and eligible liabilities (MREL): a
requirement for all EU credit institutions with the aim of enabling credit institutions to
absorb losses in the event of their failure. The MREL requirement was issued by the
European Commission in the Bank Recovery and Resolution Directive (BRRD). It
has the same goal as the TLAC requirement. However, the specific capital
requirements prescribed by the MREL are calculated differently, following criteria set
by the EBA.
National competent authority (NCA): a public authority or body officially
recognised by national law, which is empowered by national law to supervise
institutions as part of the supervisory system in operation in the Member State
concerned.
Non-objection procedure: a standard decision-making process established by the
SSM Regulation for the <strong>ECB</strong>'s supervisory activities. The Supervisory Board takes
draft decisions, which are submitted to the Governing Council for adoption.
Decisions are deemed to be adopted unless the Governing Council objects within a
defined period of time, not exceeding ten working days.
Non-performing loans (NPLs): paragraph 145 of Annex V of the EBA ITS on
supervisory reporting provides that “non-performing loans are those that satisfy
<strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Glossary 76