BoE: banks must raise £27bn for new capital buffers

By 2020, firms will need to raise £27bn on top of mandatory capital requirements to minimise the risk of a future crisis and prevent the need for a taxpayer bailout.

Related topics:  Finance News
Rozi Jones
11th December 2015
Mark Carney BoE

From 1 January 2016, The Bank of England must set a minimum requirement for own funds and eligible liabilities (MREL) for all banks, building societies and 730k investment firms.

MREL can be satisfied by a combination of regulatory capital and certain long term unsecured debt resources.
 
The Bank will set MREL on a firm-specific basis, depending on the resolution strategy for the firm. The Bank says it will take a proportionate approach, with the strategy driven by a range of factors, including a firm’s size, the scale of its critical economic functions and the complexity of transferring these activities in resolution. 

For firms which need a bail-in strategy to continue operating, the recapitalisation amount is likely to be at least equal to existing Pillar 1 plus Pillar 2A capital requirements.

For firms for which part of the business could be transferred to a private sector purchaser or temporarily to a bridge bank in resolution, the Bank proposes to set a recapitalisation amount that may be lower than existing Pillar 1 plus Pillar 2A capital requirements.

For firms which can be placed into insolvency their recapitalisation needs will be zero.

The Bank will provide firms with an indication of their prospective 2020 MREL during 2016, and will set MRELs on a transitional basis until 1 January 2020.

Mark Carney, Governor of the Bank of England, said:

“The implementation of MREL is a crucial step forward in ensuring that any bank, large or small, carries sufficient resources to be resolved in an orderly way, without recourse to public subsidy and without disruption to the wider financial system.”

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