The Bank of England’s Review of MREL

Notes for editors

1. The Bank of England, as the UK resolution authority, is responsible for taking action to manage the failure of certain financial institutions – including UK-headquartered banking groups and UK-incorporated banks and building societies (together, banks) –  a process known as ‘resolution’. Resolution allows the shareholders and unsecured creditors of failed banks to be fully exposed to losses, while ensuring the critical functions of the bank can continue. Resolution reduces the risks to depositors, the financial system, and public funds that could arise due to the failure of a bank.

2. The minimum requirement for own funds and eligible liabilities (MREL) is a minimum requirement for banks to maintain equity and eligible debt so that they can be ‘bailed in’ should a bank fail. The purpose of MREL is to help ensure that when banks fail the resolution authority can use these financial resources to absorb losses and recapitalise the continuing business.

As a result, MREL is a critical element of an effective resolution regime.

3. The Bank reaffirmed in June 2018 that it would review the calibration of MREL and the final compliance date, prior to setting end-state MRELs, having particular regard to any intervening changes in the UK regulatory framework as well as banks’ experience in issuing liabilities to meet their interim MRELs. Having completed an initial analysis of banks’ access to the market for MREL instruments, the Bank has decided to issue this Discussion Paper as the first part of the MREL Review.

4. The Bank of England’s Resolvability Assessment Framework (RAF) is designed to make resolution more transparent, better understood, and more successful. It builds on the work done since the financial crisis, ensuring that firms are, and are able to demonstrate that they are, resolvable. It sets out how the Bank, as resolution authority, will assess resolvability, building on work that both firms and the Bank have already done.