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.