On 3 December 2021, the Bank of England (BoE) issued a Policy Statement ‘The Bank of England’s review of its approach to setting a minimum requirement for own funds and eligible liabilities’.
The Policy Statement follows a consultation that the BoE conducted earlier this year which reviewed its approach to setting a minimum requirement for own funds and eligible liabilities (MREL). The Policy Statement contains:
- An overview of the BoE’s revised approach to setting MREL, including as regards resolution strategy thresholds, calibration of MREL, MREL eligibility and intragroup MREL distribution.
- Feedback on the earlier consultation and proposed final changes to the text of the BoE’s MREL Statement of Policy. The revised Statement of Policy will be effective from 1 January 2022.
The policy changes are ultimately intended to help ensure that all firms, including mid-tier firms and major UK firms, can be resolved in an orderly manner consistent with the BoE’s statutory objective to protect and enhance UK financial stability, as well as the statutory objectives of the UK’s special resolution regime (special resolution objectives) to which the authorities must have regard when using or considering the use of stabilisation powers. The final MREL policy incorporates two significant changes to ensure it is proportionate. First, it provides new and growing firms with a clear, stepped and flexible glide-path to meeting their end state MRELs. Growing firms will now have an advance ‘notice period’ of ordinarily three years before the start of their transition to end-state MREL, and six years starting from the point at which their transition begins to meet their end-state MREL in full, with either one or two intermediate steps to smooth any ‘cliff-edge’. There will also be scope for firms to request a flexible two year add-on, should circumstances warrant it.
The BoE has also published a statement seeking ideas to support its work to improve depositor outcomes in the event of bank or building society insolvency.