Indicative minimum requirements for own funds and eligible liabilities (MREL)

In June 2018, the Bank published a Statement of Policy on its approach to setting a minimum requirement for own funds and eligible liabilities (MREL)  for UK banks, building societies and large investment firms.

What is MREL?

MREL is a critical part of a resolution strategy. It is a requirement for the minimum loss-absorbing capacity institutions must hold, and it can comprise both ‘going concern’ and ‘gone concern’ resources.

Going concern resources, typically in the form of common equity, absorb losses in times of stress and ensure that a bank can keep operating, and maintain its supply of credit to the economy.

Gone concern resources, typically in the form of debt, absorb losses when a bank undergoes resolution or is placed into insolvency.

Smaller institutions provide banking activities of a scale that means they can be allowed to go into insolvency if they fail. These firms will satisfy MREL by simply meeting their minimum regulatory capital requirements as a going concern. There is no gone concern requirement for these firms. More detail on the capital framework for bank capital is set out in the Supplement to the December 2015 Financial Stability Report.  

However, larger banks and building societies may have a resolution plan that involves the use of the Bank’s bail-in or partial transfer resolution tools. As part of their MREL, these firms will be required to hold additional resources beyond their going concern requirements. 

In addition, all firms are expected to hold going concern capital buffers on top of these requirements. The buffers are calibrated to reflect a firm’s systemic importance and to counter idiosyncratic exposures. They are intended to be used so that banks can absorb losses without breaching their minimum going concern requirements. Firms are not permitted to count these capital buffers towards meeting their MREL. This means the capital buffers add to the total loss-absorbing capacity of each bank.

How large is the MREL for larger firms?

‘Bail-in’ is the resolution strategy for the largest firms. MREL is needed in a bail-in resolution to absorb losses and to recapitalise the continuing business. From 1 January 2022 these firms will be required to hold both their minimum going concern capital requirements, plus additional MREL of a quantity equal to those going concern requirements. Together, these resources comprise a firm’s MREL. 

UK firms will become subject to interim MREL requirements on 1 January 2020, prior to the final requirements coming into force in 2022. The Bank will review its approach to calibration of MREL in 2022 for all firms before the end of 2020, before final MRELs are set. In doing so, the Bank will have particular regard to any intervening changes in the UK regulatory framework, as well as institutions’ experience in issuing liabilities to meet their interim MRELs.

Indicative MRELs

The Bank has published indicative interim and final MRELs for each of the UK’s global and domestic systemically important banks. As a firm’s MREL will depend upon its going concern requirements in a particular year, these figures are indicative and are based on the calibration methodology set out in The Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL), with reference to the each firm’s minimum going concern capital requirements and balance sheets as at December 2017. 

In addition to the global and domestic systemically important UK banks, there are nine other UK banks and building societies that have an MREL that exceeds their minimum regulatory going concern capital requirements, based on data as at December 2017. These are:

  • Clydesdale Bank
  • Coventry Building Society
  • Metro Bank
  • Skipton Building Society
  • Leeds Building Society
  • Tesco Bank 
  • The Co-operative Bank
  • Virgin Money
  • Yorkshire Building Society
The Bank has published the average indicative interim and final MREL of these firms. This is provided as an average because publication of individual values would reveal the firm-specific element of each firm’s capital assessment, some of which have not previously been disclosed. Leeds Building Society and The Cooperative Bank are additions to the list since last year’s publication.
This page was last updated 13 June 2018
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