On December 11, 2015, the BoE published proposals on its approach to setting a Minimum Requirement for own funds and Eligible Liabilities (known as MREL). This is the equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. Under the BRRD and related UK legislation, the BoE is responsible for directing relevant firms to maintain MREL. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to UK authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to UK authorized subsidiaries of such firms. The BoE will set an individual MREL for each firm. It intends to follow the EBA’s final draft RTS which require it to set an amount for loss absorption prior to and in resolution and an amount for recapitalization, tailored according to the resolution strategy set for each firm. The BoE intends to use the transitional provisions available under the BRRD. For most firms this means that the BoE will set consolidated MREL at no higher than a firm’s current regulatory minimum capital requirements, starting in 2016 with a final conformance date of January 1, 2020. For UK Global Systemically Important Banks, the BoE will apply the FSB’s TLAC requirement. UK G-SIBs will therefore need to meet a minimum TLAC/MREL requirement, on a consolidated basis, of 16% of risk-weighted assets or 6% of leverage exposures by January 1, 2019. The proposals should be read in conjunction with the PRA’s proposed approach to setting regulatory buffers in view of MREL. Responses to the BoE’s consultation are due by March 11, 2016.
The BoE’s consultation paper is available at:
The EBA’s final draft RTS are available at: https://www.eba.europa.eu/documents/10180/1132900/EBA-RTS-2015-05+RTS+on+MREL+Criteria.pdf.
The FSB’s TLAC term sheet is available at: http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Principles-and-Term-Sheet-for-publication-final.pdf.
The PRA’s consultation paper is available at: