The Minimum Requirement for own funds and Eligible Liabilities (MREL) is a prudential requirement imposed on banks in the European Union to ensure they hold a sufficient cushion of capital and bail-inable debt that can absorb losses and recapitalise the institution if it fails. The goal is to make bank resolution credible without resorting to taxpayer-funded bailouts, operationalising the "bail-in" principle introduced after the 2008 financial crisis.
MREL was established by the Bank Recovery and Resolution Directive (BRRD) of 2014 (Directive 2014/59/EU) and substantially revised by BRRD II (Directive 2019/879/EU) to align EU rules with the international Total Loss-Absorbing Capacity (TLAC) standard set by the Financial Stability Board in 2015 for global systemically important banks (G-SIBs).
The requirement is set on a case-by-case basis by the relevant resolution authority — the Single Resolution Board (SRB) for significant banks in the Banking Union, and national resolution authorities for smaller institutions. It is expressed as a percentage of both:
- Total Risk Exposure Amount (TREA), and
- Leverage Ratio Exposure (LRE).
Instruments eligible to meet MREL include Common Equity Tier 1 (CET1) capital, Additional Tier 1 and Tier 2 instruments, and certain subordinated or senior unsecured liabilities that meet conditions on maturity, governing law, and absence of set-off rights. For resolution entities of G-SIBs and "top-tier" banks, a subordination requirement applies so that bail-in does not breach the "no creditor worse off" principle.
Banks were given a transitional period to build up MREL stacks, with the final compliance deadline of 1 January 2024 for most EU institutions. Failure to meet MREL can trigger restrictions on distributions (the Maximum Distributable Amount mechanism, M-MDA) and supervisory measures.
MREL is conceptually parallel to TLAC but applies more broadly: TLAC covers only G-SIBs globally, whereas MREL applies to all EU banks subject to resolution planning.
Example
In 2023 the Single Resolution Board reported that the vast majority of banks under its remit were on track to meet their final binding MREL targets by the 1 January 2024 deadline set under BRRD II.
Frequently asked questions
TLAC is a global Financial Stability Board standard applying only to G-SIBs, while MREL is an EU requirement applied to all banks subject to resolution planning, calibrated bank-by-bank by the resolution authority.
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