On December 11, 2017, the Prudential Regulation Authority published an updated Supervisory Statement, "The minimum requirement for own funds and eligible liabilities (MREL) - buffers and Threshold Conditions." The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss- absorbing capacity (TLAC) set by the Financial Stability Board.
The updated Supervisory Statement set out the PRA's expectations on the relationship between the minimum requirement for MREL and both capital and leverage ratio buffers. It follows the PRA's consultation earlier this year clarifying that it did not intend to create a different buffer requirement from that which is usable in the going-concern regime. The Supervisory Statement also discusses 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. The PRA has confirmed that it expects firms not to count Common Equity Tier 1 (CET1) capital towards both MREL and the capital buffer requirements.
The Supervisory Statement applies to PRA-regulated banks, building societies and PRA-designated investment firms.
The updated Supervisory Statement is available at: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisorystatement/2017/ss1616update.pdf?la=en&hash=EE48E560E732C247821BBD03CE3B5BFD03465060
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.