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Home > Prudential Regulation Authority > The minimum requirement for own funds and eligible liabilities (MREL) – buffers – CP15/17
 

The minimum requirement for own funds and eligible liabilities (MREL) – buffers – CP15/17

27 July 2017

Background

This consultation paper (CP) sets out the Prudential Regulation Authority’s (PRA’s) proposed expectations with regard to the relationship between MREL and buffer requirements, as well as the consequences of not meeting these.

This CP is relevant to all PRA-regulated banks, building societies and PRA-designated investment firms (‘firms’).

Summary of proposals

This CP proposes to update Supervisory Statement (SS) 16/16 ‘The minimum requirement for own funds and eligible liabilities (MREL) – buffers and Threshold Conditions’ (see Appendix).

In November 2016 the PRA published SS16/16, which sets out how the PRA views the relationship between MREL and the buffer requirements from the two going-concern regimes: 

  • risk-weighted capital buffers: derived both from the Capital Requirements Directive and Capital Requirements Regulation (jointly ‘CRD IV’)  and from firm-specific capital requirements set by the PRA (the PRA buffer);  and
  • leverage buffers: buffers that form part of the UK leverage ratio framework as explained in Policy Statement (PS) 27/15 ‘Implementing a UK leverage ratio framework.’

SS16/16 states that the PRA expects firms not to count Common Equity Tier 1 (CET1) capital towards both MREL and the buffer requirements.

Subsequently, the PRA has been asked about the situation where MREL is calibrated on the basis of one capital regime (eg leverage, in circumstances where the leverage requirement is larger than the risk-weighted requirement), but the largest requirement for buffers derives from the other regime (eg risk-weighted capital).

The PRA believes this situation applies to a very small number of firms. Nonetheless, this CP proposes to update the SS to clarify that the expectations sets in SS16/16 are not intended to create a different buffer requirement from that which is usable in the going-concern regime.

Responses and next steps

This consultation closes on Friday 29 September 2017. The PRA has chosen a short consultation period, as it wishes to provide certainty on the policy in a timely fashion. The PRA aims to publish the updated supervisory statement before the end of 2017. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP15_17@bankofengland.co.uk.

Consultation paper

The minimum requirement for own funds and eligible liabilities (MREL) – buffers – CP15/17

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