BoE to Review MREL Approach, Extend MREL and Resolvability Timelines
BoE published a discussion paper as part of the review of the approach to setting a minimum requirement for own funds and eligible liabilities (MREL) for banks in UK. The paper discusses resolution strategies that help to deal with the impact of bank failures. With respect to the mid-tier banks, the discussion paper 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 discussion paper will gather feedback and ideas to inform BoE policy choices, on which the BoE expects to consult in 2021. The feedback period for the discussion paper ends on March 18, 2021. BoE is also extending the timelines for certain firms to meet the end-state MREL and the resolvability requirements under the Resolvability Assessment Framework or RAF.
Given the experience of mid-tier banks of issuing MREL-eligible instruments, the focus of the discussion paper is on these banks. In this paper, the banks that are in scope of the stabilization powers of BoE but are not global or domestic systemically important financial institutions (or their subsidiaries) are referred to as "mid-tier banks." The discussion paper summarizes the purpose of MREL in the context of the development of effective resolution regimes. It provides an overview of the BoE analysis of the potential impact of MREL on the statutory special resolution objectives of a hypothetical mid-tier bank failure in the event that insufficient MREL resources were available for an orderly resolution and the bank had to instead enter an insolvency procedure. The discussion paper also sets out a high-level summary of banks’ experience in issuing liabilities to meet their MRELs. It considers the potential interactions of the MREL regime with other regulatory developments.
The MREL review of BoE will consider the resolution strategy thresholds, the calibration of MREL, instrument eligibility, and the application of MREL requirements in banking groups. Toward its MREL review in 2021, BoE will consider the review of the UK leverage ratio framework by the Financial Policy Committee (FPC) and the Prudential Regulation Committee (PRC). BoE expects to propose any changes to the MREL framework In the summer of 2021 and to implement the resulting policy changes by the end of 2021. To enable BoE to engage with interested parties on the issues set out in the discussion paper and to complete its review of the MREL framework in 2021 in light of that engagement, BoE also announced changes to the MREL and resolvability deadlines for mid-tier banks:
- The new timeline for mid-tier banks to comply with their end-state MRELs is January 01, 2023, unless they are already subject to a later deadline; this replaces the indicative end-state MREL compliance dates falling before that date, which BoE had previously communicated.
- Mid-tier banks are expected to continue to comply with their interim external and internal MRELs before January 01, 2023, or as otherwise communicated by BoE.
- The timeline for mid-tier banks to implement Statements of Policy related to the Resolvability Assessment Framework has been extended from January 01, 2022 to January 01, 2023.
MREL requirements applicable to all other institutions are unaffected by this announcement. The global and domestic systemically important banks (G-SIBs and D-SIBs) in UK will continue to be required to meet end-state MRELs from January 01, 2022. UK G-SIBs and UK material subsidiaries of non-UK G-SIBs will remain subject to requirements for own funds and eligible liabilities set by the revised Capital Requirements Regulation (CRR2) and The Capital Requirements (Amendment) (EU Exit) Regulations 2019. The resolvability assessment framework deadlines for major UK banks and building societies remain unchanged.
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Comment Due Date: March 18, 2021
Keywords: Europe, UK, Banking, MREL, Resolvability Assessment Framework, Resolution Framework, Implementation Timeline, CRR2, Basel, Regulatory Capital, BoE
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