Minimum Requirements for Own Funds and Eligible Liabilities (MREL)
Produced in partnership with Nicholas Mead of KPMG
Minimum Requirements for Own Funds and Eligible Liabilities (MREL)

The following Financial Services guidance note Produced in partnership with Nicholas Mead of KPMG provides comprehensive and up to date legal information covering:

  • Minimum Requirements for Own Funds and Eligible Liabilities (MREL)
  • Origins of Minimum Requirements for Own Funds and Eligible Liabilities
  • What constitutes MREL?
  • The MREL requirement
  • Bank of England and PRA application of the MREL rules
  • EBA initiatives in relation to MREL
  • Link between MREL, Basel capital requirements and the leverage ratio
  • Relationship between MREL and TLAC
  • MREL and the SRB
  • EU approach to MREL and convergence—the Risk Reduction package
  • more

Origins of Minimum Requirements for Own Funds and Eligible Liabilities

The origins of Minimum Requirements for Own Funds and Eligible Liabilities (MREL) lie in the hard lessons learned during the financial crisis. When the crisis hit and the scale of the losses incurred by the large international banks was fully realised, global regulators faced two inter-linked dilemmas:

  1. the operations of these banks were so complex that regulators did not fully understand the economic impact of allowing them to fail, and

  2. these banks did not have sufficient resources to allow regulators to carry out an orderly wind-up of their operations with minimal loss to depositors

As a result, banks across the world received governmental support, and ultimately taxpayer bail-out, in order to avoid financial collapse. The thrust of international regulation since the crisis has concentrated on identifying solutions to avoid this situation occurring in the future.

One of the solutions is to ensure that banks have sufficient financial resources at their disposal to allow an orderly resolution of their operations at the point of failure—so called ‘gone concern’ resources. In this way the cost of resolution is internalised rather than transferred to taxpayers as was the case during the crisis.

Proposals to ensure that banks have sufficient gone concern loss absorbency have come from a number of fronts—in the UK the concept was