BoE and PRA are consulting on the minimum requirement for own funds and eligible liabilities (MREL) for all UK banks, building societies and certain investment firms. BoE’s consultation looks at its approach to setting the MREL, and its proposed Policy Statement which will include details of why the MREL is required and what it must address as well as explaining:
- calibration of MREL: how BoE intends to set MRELs for institutions according to their resolution strategies;
- MREL instrument eligibility (external MREL): outlining the basic qualifications that liabilities must possess to be used to meet MREL;
- MREL in the context of groups: outlining BoE’s approach to setting MRELs for entities within groups (including ring-fenced banks) and its proposals regarding structural subordination;
- transitional arrangements BoE intends to apply in the phase-in period for MREL until 2020 (2019 in respect of global systemically important banks (G-SIBs)), and provisions for MREL that will apply to institutions post-resolution; and
- other issues that BoE thinks are important but is not proposing to address in the statement at this time.
PRA’s proposal focuses on:
- the relationship between MREL and buffers: PRA thinks firms should not be able to double count common equity tier 1 capital towards, on the one hand, MREL, and, on the other, risk-weighted capital and leverage buffers; and
- the relationship between MREL and the Threshold Conditions: a firm in breach of MREL should expect PRA to investigate whether the firm is failing or likely to fail – although breach will not of itself automatically mean the firm is failing.