First published on 8 November 2016
This supervisory statement (SS) is aimed at Prudential Regulation Authority (PRA)-regulated banks, building societies and PRA designated investment firms (firms).
This statement sets out the PRA’s expectations on the relationship between the minimum requirement for own funds and eligible liabilities (MREL) and both capital and leverage ratio buffers, as well as the implications that a breach of MREL would have for the PRA’s consideration of whether a firm is failing, or likely to fail, to satisfy the Threshold Conditions.
This SS provides further detail in relation to the high level expectations outlined in ‘The PRA’s approach to banking supervision’. As set out in the approach document, firms are expected to engage directly with policy material, including SSs, and determine — bearing in mind the overarching principle of safety and soundness — whether they meet the PRA’s expectations.
This SS should be read in conjunction with the Bank of England’s (the Bank’s) statement of policy on its approach to setting MREL, PRA SS6/14 on capital buffers, and PRA SS31/15 on leverage buffers.
Update on 16 July 2019: On 7 June 2019, the Capital Requirements Regulation (CRR) II was published in the Official Journal of the European Union. As set out in the updates on the CRD IV and Resolution web pages published on Monday 10 June 2019, CRR II introduces new requirements for UK Global Systemically Important Institutions (G-SIBs) and UK material subsidiaries of non-EU G-SIBs in respect of ‘own funds and eligible liabilities’, some of which are directly applicable from Thursday 27 June 2019.
The PRA is in the process of reviewing the relevant amendments to the EU’s revised risk management measures (CRR II /Capital Requirements Directive V / Bank Recovery and Resolution Directive II), and it will consider whether changes to SS16/16 are required in due course. In the interim, the PRA clarifies that expectations in SS16/16 apply in respect of minimum requirements for own funds and eligible liabilities (MREL) set by the Bank of England, as the UK resolution authority, and to the new CRR II requirements in respect of ‘own funds and eligible liabilities’.