The Bank of England has taken the unprecedented step of publishing how much special debt each big bank must issue as part of rules to prevent taxpayer bailouts of lenders.
The special debt is known as MREL — or minimum requirements for own funds and eligible liabilities — and converts to equity in a crisis to “bail in” creditors rather than rely on taxpayer funds. The requirements are made up of banks’ “going concern” capital that they already must hold, plus this special debt that triggers once a bank is deemed by regulators to be failing.
While the banks have known for some time what their specific levels would be, the BoE as part of a transparency drive published the lenders’ bespoke requirements on Friday for the first time. The data also sets out the banks’ overall requirements for the first time.
The BoE said in November that lenders would have until 2022 to meet the full requirements, with a 2020 deadline for interim levels.
Until 2020, the six big lenders of Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander and Standard Chartered will all have their “gone concern” capital — the debt that can convert to equity — set at 8 per cent of their assets when weighted for risk.
By 2020, Lloyds and Santander have the highest Interim MREL requirements — at 20.5 per cent and 20.9 percent of risk-weighted assets respectively — but once extra buffers are included for the most systemically important lenders, it is Barclays that has the highest overall requirements by 2020, set at 24.5 per cent.
However, by 2022 when the full requirements come into force, Santander will have the highest overall requirements including the buffers, at 29.3 per cent of RWAs.
HSBC told the Financial Times earlier this week that its MREL requirement was not as onerous as first estimated.
One lender notably absent from the list was the Co-operative Bank. As a smaller lender it does not have to issue the special “gone concern” debt but it still has to comply with going-concern capital levels.
The BoE published aggregate average levels for this smaller category of lenders but excluded the Co-op.
This was because “the firm is currently seeking a sale, which has the potential to significantly affect The Co-operative Bank’s balance sheet. Therefore an indicative MREL based on The Co-op’s balance sheet today may not be a useful guide to the eventual requirement,” the BoE said.