Earlier this year UK Finance responded to the Bank of England (the Bank) discussion paper on MREL. As expected, the Bank has now released its follow-up consultation paper which acknowledges many of the concerns we raised in our response.

A firm's minimum requirement for own funds and eligible liabilities (MREL) is set by the Resolution Authority, part of the Bank, so it could be ?bailed in? should it fail. If a firm exceeds one of two thresholds it is required to hold MREL of twice its minimum regulatory capital requirement. These thresholds are either 40-80,000 'transaction accounts? or 'total assets' of between £15 billion and £25 billion.

Our responses to the earlier discussion paper highlighted the ambiguity that these indicative ranges create and suggested both thresholds should be reviewed. Consequently, it was pleasing to see the consultation paper addressing these concerns.

The consultation paper acknowledges that changes in the way transactional accounts are used, alongside technological innovation, may have reduced the disruption that individuals could suffer were their account provider to fail.

Working with industry and others, the Bank will review whether or not it could increase or remove the transaction account threshold.

In the meantime, pending a more modern definition of transaction accounts firms may exceed the transaction account limit. This is subject to the Bank making a firm-specific judgment about possible MREL requirements.

The consultation paper proposes that the £15-£25 billion total asset threshold remains. UK Finance had suggested it should be increased, citing international comparisons. As we also suggested however, there will be a stepped, six-year glide-path to full MREL requirement compliance from the point at which firms expect to exceed £15 billion worth of assets. This addresses a key concern that under the current approach there is a sudden ?cliff-edge? effect, requiring firms to immediately raise bail-inable capital for the first time once they exceed the total assets threshold.

Our response also highlighted the potential difficulties of raising relatively small amounts of bail-inable capital in the event of wholesale debt capital market dislocation. The Bank has helpfully proposed that in such circumstances a firm may exceptionally request an extra two years of transitional time.

The consultation paper does not contemplate any changes to the treatment of ?legacy? capital instruments, or the intra group distribution of internal MREL, where UK Finance had also suggested changes.

The Bank is to be commended in taking industry's views into account in crafting the proposals in the consultation paper. We look forward to continuing the debate with the Bank about its approach to setting MREL and responding to it by the 1 October deadline.