New Bank of England rules on MREL

November 8, 2016

The Bank of England (BOE) is announcing new rules designed to make it easier to manage the failure of banks and building societies, as part of reforms to end taxpayer bailouts in the UK. Responses to the consultation and Statement of Policy on the BOE’s approach to setting the MREL can be found here.

Following the public consultation, BOE is publishing their policy on setting the Minimum Requirement for own funds and Eligible Liabilities (MREL), which is a requirement under the EU Bank Recovery and Resolution Directive. These requirements will make it possible to resolve failing banks by ensuring that they hold sufficient equity and debt to absorb losses. It will enable the recapitalisation of businesses that need to keep operating during the process (called ‘bail-in’) because they provide important financial services to households and businesses.

These rules represent one of the last pillars of post-crisis reforms designed to make banks safer and more resilient, and to avoid taxpayer bailouts in future. Banks are now required to hold several times more loss-absorbing resources than they did before the crisis, while annual stress tests check firms’ resilience to severe but plausible shocks.

The new rules will be introduced in two phases. Banks will be obliged to comply with interim requirements by 2020. From 1 January 2022, the largest UK banks will hold sufficient resources to allow the Bank of England to resolve them in an orderly way.

For further details on MREL, please see the full press release here, as well as the Prudential Regulation Authority (PRA) Policy Statement and Supervisory Statement.

 

Related links: