Deloitte comments on Bank of England’s MREL consultation

David Strachan, Head of EMEA Centre for Regulatory Strategy, Deloitte:

“The Bank’s recognition of proportionality is important, and consistent with its broader narrative in this area. A large number of banks will nonetheless be in scope. Only the very smallest banks will be completely excluded from MREL and the additional regulatory complexity it entails.

“Around 15 UK banks could be within scope of a bail-in strategy if the balance sheet threshold is set at £15bn. This is well beyond the number of global systemically important and ring-fenced banks in the UK.

“Taking a proportionate approach should not be confused with a soft one. The Bank is looking to go beyond the minimum expectations set out by the Bank Recovery and Resolution Directive (BRRD).

“It is interesting to ask where the Bank’s approach differs from the BRRD, as currently drafted. For banks identified as candidates for bail-in resolution, one area will be the requirement for MREL resources to be subordinated to operating liabilities. There will likely be strong preference for this to be achieved structurally, through the parent company’s issuance of MREL liabilities, in this instance.

“The presumptive exclusion of structured notes and liabilities with significant derivatives components is another point of difference. The Bank will doubtless be hoping to influence the EBA and the EU Commission to amend the BRRD accordingly.

“The Bank parks the issue of disclosure until discussions by the Basel Committee on Banking Supervision have been concluded. The assumptions it does set out, however, will confirm some expectations that banks have significant investments to make in systems and reporting capabilities. For example, in detailed disclosure on credit hierarchies on an entity by entity basis.” 

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Notes to editors

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