On 18 December 2020, the Bank of England (BoE) published a Discussion Paper that is the first part of its review of the BoE’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL). The BoE wishes to use the Discussion Paper to open up a broad dialogue with interested parties on the development of the MREL framework. Given mid-tier banks’ experience of issuing MREL instruments, the focus of the Discussion Paper is on these banks. The Discussion Paper discusses how the different resolution strategies help to deal with the impact of bank failures and, in the case of the mid-tier banks, shares analysis of the consequences should they have their resolution strategies, and so MRELs, altered such that they would enter an insolvency procedure in the event of failure.
The BoE first published its MREL policy in 2016, updating it in 2018 to reflect the BoE’s approach to the intragroup distribution of MREL resources. The BoE 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 BoE has decided to issue the Discussion Paper as the first part of the MREL Review. The Discussion Paper will gather feedback and ideas from stakeholders to inform the BoE’s views on the policy choices that it will consult on in the second part of the review.
The deadline for comments on the consultation paper is 18 March 2021.
The BoE has also announced changes to deadlines for certain firms to meet their MREL and resolvability deadlines under the Resolvability Assessment Framework (RAF).
The BoE has extended the deadline for mid-tier banks to comply with their end-state MRELs to 1 January 2023, unless they are already subject to a later deadline. This replaces indicative end-state MREL compliance dates falling before that date that the BoE had previously communicated.
‘Mid-tier banks’ in scope of the BoE announcement include:
- UK resolution entities that are not global systemically important banks or domestically systemically important banks (or their subsidiaries) for which the BoE has set (or has indicated it will set) an MREL in excess of minimum capital requirements.
- UK material subsidiaries of such institutions.
- Certain UK subsidiaries of overseas groups for which the BoE has set internal MREL in excess of minimum capital requirements.
Before 1 January 2023, the BoE expects mid-tier banks to continue to comply with their interim external and internal MRELs, as set in accordance with point b. of para. 9.4(b) of the BoE Statement of Policy on ‘The Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities’, or as otherwise communicated to them by the BoE.