One of the primary areas is minimum requirement for own funds and eligible liabilities (MREL), which was introduced in 2016 and is a regulatory requirement that means banks and investment firms must hold a minimum amount of equity and debt that can be used to absorb losses and recapitalise in the event of failure.
The regulators have said they will increase the “total assets indicative thresholds” for a transfer or bail-in preferred resolution strategy from £15bn-25bn to £25bn-40bn.
The regulators said this “will provide greater clarity and flexibility on whether a firm will need a transfer or bail-in strategy, with the former no longer needing to hold MREL above minimum capital requirements”.
The change will be applied from January 2026, and the thresholds will be updated every three years, starting in 2028, to “reflect changes in nominal economic growth”.
Other changes include alterations to MREL reporting and disclosure requirements.
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The regulators confirmed that there would be some delays to the implementation of Basel 3.1, which is now set to come into effect from 1 January 2027.
The PRA has also proposed to update the Resolution Assessment reporting and disclosure threshold, which assesses the ability of banks to be resolved if they face financial distress, from firms with £50bn of retail deposits to £100bn.
The proposed change will “ensure only the largest and most complex firms would need to report and disclose their preparations for resolution”.
The PRA has also announced prospective plans to “make it easier for mid-sized banks to compete in the mortgage market”.
The regulator will publish a discussion paper in mid-summer with options to help mid-sized banks to grow by “adjusting some barriers to gaining permissions to build Internal Ratings Based Models for residential mortgages”.
IRB models allow banks to use their own internal models as inputs for determining their regulatory risk-weighted assets (RWAs) for credit risk, subject to certain constraints.
Sam Woods, CEO of the PRA and deputy governor for prudential regulation at the Bank of England, said today’s announcements “will give certainty to firms of all sizes about the future capital framework, bring in a simpler regime for smaller banks, make it easier for mid-sized banks to scale up in the mortgage market, and allow an extra year for part of the implementation of new investment banking rules”.
Dave Ramsden, deputy governor for markets and banking at the Bank of England, said: “We have considered and reflected industry feedback in today’s announcements. These changes are designed to foster growth and competition, recognising that smaller firms present lower risks to financial stability, whilst also maintaining size-appropriate resolvability capabilities.
“This will ensure a proportionate UK resolution regime that is fit for purpose and ready to be used if required to resolve firms in a way that protects depositors and public funds.”
Nigel Terrington, Paragon Banking Group’s CEO, said the increase to the MREL capital requirement threshold, coupled with a commitment to review it in line with nominal GDP growth on a three-year basis, is a “positive move and something we have championed over many years. It provides many mid-tier banks with the capacity to grow without the risk of being drawn into a regime intended for systemically important firms”.
He continued: “A vibrant and resilient mid-tier and specialist banking sector is essential to supporting the government’s economic ambitions. Today’s announcement is a strong step in harnessing the full potential of this sector, removing a significant barrier to growth and helping to deliver greater choice and competition for consumers.
“We also welcome the PRA’s decision to review the internal ratings based (IRB) process. This needs to be streamlined and accelerated to enable mid-tier banks to compete more actively in the mortgage market, supporting growth and choice for homeowners and landlords.”
