New Bank of England rules bring UK closer to ending taxpayer bailouts
08 November 2016
This PRA's Policy Statement provides feedback on responses to Consultation Paper ‘The minimum requirement for own funds and eligible liabilities (MREL) – buffers and Threshold Conditions’ and sets out the final SS on the relationship between MREL and buffers, and MREL and Threshold Conditions.
Following a public consultation, the BoE is publishing our 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 because they provide important financial services to households and businesses. This process is called ‘bail-in’.
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. Banks are now also structured in a way that supports resolution. The Bank of England now has the legal powers necessary to manage the failure of a bank, and significant progress has been made to ensure there is coordination between national authorities should a large international bank fail.
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. [...]
Policy statement
Alongside this Policy Statement (PS), the Bank of England (the Bank) has published a statement of policy on its approach to setting MREL in line with relevant legislation.
The Prudential Regulation Authority (PRA) received nine responses to CP44/15. Overall, the PRA does not consider that the responses require significant changes to its proposals. The PRA has made two amendments to the draft Supervisory Statement (SS) to provide further clarity to firms. The amendments concern the entry into force of the proposed policies and the relationship between the MREL buffer policy and restrictions on distributions. Chapter 2 explains these changes and provides several further minor clarifications in light of feedback received.
Supervisory statement
This statement sets out the PRA’s expectations on the relationship between the minimum requirement for own funds and eligible liabilities (MREL) and both capital and leverage ratio buffers, as well as the implications that a breach of MREL would have for the PRA’s consideration of whether a firm is failing, or likely to fail, to satisfy the Threshold Conditions.
This SS provides further detail in relation to the high level expectations outlined in ‘The PRA’s approach to banking supervision’. As set out in the approach document, firms are expected to engage directly with policy material, including SSs, and determine — bearing in mind the overarching principle of safety and soundness — whether they meet the PRA’s expectations.
Policy statement
Supervisory statement
Press release
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