UK: All I Want For Christmas Is An MREL

Last Updated: 23 December 2015
Article by Simon Brennan and Scott Martin

Most Read Contributor in UK, August 2017

On 11 December the Bank of England (the Bank) laid out its plans for setting the minimum requirement for own funds and eligible liabilities (MREL) – loss absorbing capacity requirements introduced in the EU by the Bank Recovery & Resolution Directive (BRRD).

The requirement sets an amount of capital and liabilities for firms to hold in order to make the 'bail-in' of creditors a credible means of absorbing losses and recapitalising failing banks. Banks, building societies and 730k investment firms in the UK come within scope of the regime.

MREL introduces an additional prudential constraint for firms, alongside risk-weighted capital and leverage requirements. It will be set at the amount the Bank judges necessary for loss absorption prior to and in resolution, and for recapitalisation post resolution via the bail-in tool.

The amount of MREL will vary firm by firm according to the resolution strategy that the Bank adopts – whether that is modified insolvency, deposit book transfer or whole-firm transfer, the decision being a function of size, complexity and systemic importance of the firm. The Bank identifies three categories of firms to guide the determination of the resolution strategy:


Resolution strategy

MREL requirement

Under 40,000 "transactional accounts"

Firms likely to undergo a modified insolvency process

Will usually require no additional loss-absorbing capacity requirement

Greater than 40,000 accounts, and balance sheet size less than £15bn to 25bn

Firms likely to need a partial transfer of assets

Some additional loss-absorbency required to effect the partial transfer, but not to support recapitalisation of the part of the business "left behind"

Greater than £15bn to 25bn assets

Firms likely to undergo a bail-in resolution

Requires loss-absorbing capacity of roughly double regulatory capital requirements in order to be able to effect recapitalisation post-resolution

Most investment firms will therefore in practice not be subject to additional loss-absorbing capacity requirements under the MREL regime, avoiding both the direct additional capital cost and the additional regulatory complexity compliance with the regime will entail. Only the smallest banks though are likely to be similarly exempt.

Around 15 of the largest UK-headquartered banks – a broader set than just the number of UK global systemically important banks (G-SIBs) and ring-fenced banks – along with some UK subsidiaries of foreign banks, will be required to hold at a minimum, capital and eligible liabilities equal to approximately two times their minimum capital requirement (the greater of Pillar 1 plus Pillar 2A, any applicable leverage ratio, and the Basel 1 floor).

The remainder of firms will have to hold a smaller amount of additional capital over and above their minimum capital requirement.

The Bank will use its MREL power to implement the international standard, Total Loss Absorbing Capacity (TLAC) set by the Financial Stability Board (FSB), and in the process be more specific than the BRRD on some topics. In particular, it will require "structural subordination" (explained below) of liabilities (or "contractual subordination" for building societies). It will also explicitly exclude structured notes and other liabilities with significant derivatives components from eligibility for MREL, a point on which the BRRD was more ambiguous.

The Bank expects to set individual MREL for UK-incorporated entities within UK headquartered groups, including ring-fenced banks, subject to the group's resolution strategy. It will set MREL for UK subsidiaries of foreign banks to reflect the agreed resolution strategy.

A breach of MREL will not automatically mean that the Prudential Regulation Authority (PRA) considers a firm to be failing or likely to fail its threshold conditions. Subject to the capital restoration plan that will need to be submitted in the event of a breach, there will be the possibility of restructuring or prohibiting dividends.

Implications for firms

The Bank has been measured and proportionate in its approach. It could have gone further, both in terms of quantum, and scope. But its requirement for structural subordination and exclusion of structured notes and some other liabilities, as well as its preference for MREL to be issued by holding companies which have 'clean' balance sheets that have no operating liabilities, will be more demanding for some firms. The Bank will doubtless be hoping to influence the EBA and the European Commission to amend the BRRD accordingly when a legislative update is proposed next year.

A key question for some firms will be what precisely the Bank means by "transactional accounts". The Bank identifies several possible definitions. It also asks whether there should also be a threshold based on the amount held in the accounts, rather than just the number (and it cites the PRA's threshold of £350mn of sight deposits for the purpose of requirements on operational continuity).

The Bank does not believe it will be necessary for a firm emerging from resolution immediately to meet all applicable capital requirements, and that in general it will be unnecessary to require an additional amount over any above minimum capital requirements for market confidence. Neither of these factors is therefore included in the amount required for recapitalisation. For G-SIBs and ring-fenced banks, however, this assumption will need to be tested. Firms subject to a bail-in resolution strategy will also want to look in more detail at the Bank's assumptions about the post-recapitalisation and understand the implications for their MREL. (And more broadly, the framework of capital requirements for UK banks is evolving – as set out in a recent statement by the Bank's Financial Policy Committee – with potential implications for MREL for some business models.)

The Bank parks the issue of disclosure until ongoing discussions by the Basel Committee on Banking Supervision have been concluded. The assumptions it does set out, however, confirm expectations that banks have significant investments to make in systems and reporting capabilities, including in detailed disclosure of creditor hierarchies on an entity by entity basis. In addition to public disclosure, the Bank will require data to enable to it to monitor and set individual MREL levels. The Bank does not, though, envisage introducing any formal reporting requirement before 2018, but may collect data as part of its ongoing data collection for resolution planning.

What comes next?

The Bank's consultation and a related consultation by the PRA close on 11 March 2016. Any revisions to the policy statements will take into account the final EU technical standard on MREL that should be adopted by the European Commission next year.

In most cases MREL will simply be set at the current minimum capital requirement between 2016 and 2019. The new framework being proposed will take effect from January 2020 (or January 2019 for G-SIBs). In 2016 the Bank will indicate where it expects MREL to be set for each firm from 2020 (2019 for G-SIBs), and confirm the resolution strategy for each firm.

Digging into the detail

Minimum requirement

For those firms likely to undergo bail-in, the Bank adopts an approach for setting MREL largely in line with the EBA's draft proposed standards on MREL, indicating an amount of effectively double a firm's minimum regulatory capital requirement (i.e. twice Pillar 1 + Pillar 2A, or the leverage ratio where appropriate).

Under the TLAC standard, G-SIBs must meet a minimum TLAC requirement of 16% of risk-weighted assets, or 6% of leverage exposures, by January 2019 and the Bank indicates it expects UK G-SIBs to meet this minimum.

Capital buffers though will sit "on top of" MREL requirements, and would need to be met using separate capital.

Eligibility of liabilities

In order to count towards MREL, liabilities will be required to have a minimum one-year residual maturity. Liabilities with significant derivative components, including structured notes, are expected not to be eligible. Liabilities subject to set-off or netting arrangements will not be eligible either. Those governed by non-EEA law will only be eligible where the Bank is satisfied that they can be bailed in.

Structural subordination

Firms will be expected to structurally subordinate liabilities in order for them to be eligible for MREL, by meeting their consolidated requirement through external issuance from their holding company, and down streaming it internally to relevant subsidiaries (building societies will be permitted to use contractual subordination). This approach effectively extends the TLAC subordination requirement to all MREL firms, which was not a requirement under the BRRD.

Internal pre-positioning

Internal MREL should be distributed appropriately – firms should "ensure that sufficient MREL resources are pre-positioned at appropriate entities within a group". The Bank does not set specific pre-positioning rules although it commits to make this pre-positioning "as consistent as possible with the TLAC standard," (75-90% of the hypothetical standalone requirement), but not for ring-fenced banks.

Minimum debt requirement

The consultation does not include rules on a minimum quantum of MREL that would have to be met with debt liabilities instead of regulatory capital (the TLAC standard introduces a one-third minimum debt requirement).

Large exposure limits

The Bank indicates it will work with the PRA to ensure that any interactions between the large exposures framework and (internal) MREL are managed appropriately.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.