The minimum requirement for own
funds and eligible liabilities (MREL) is creating a cliff-edge
for challenger banks, forcing them to hold the same level of
capital as HSBC and Barclays.
Currently, banks that have between
£15 billion ($19.4 billion) and £25 billion in risk
weighted assets (RWAs), and between 40,000 and 80,000
transactional accounts are required to hold MREL that can be
bailed in should a bank fail.
"This approach to setting MREL creates a
cliff-edge effect as there is no proportionality in terms of
size or business model," said Simon Hills, director of
prudential policy at UK Finance.
This is exacerbated for banks using the
more conservative standardised approach to calculating credit
risk RWAs compared to those on the internal ratings based
According to Hills, a solution to this could be to increase
the MREL threshold or to allow it to be set on a...