MREL for sale-of-business resolution strategies

FSI Briefs  |  No 20  | 
07 September 2023


  • Making the European bank failure management framework suitable for mid-sized banks requires facilitating sale-of-business transactions by ensuring both adequate financial support from the deposit insurance fund and the availability of sufficient assets that could be transferred to an acquirer.
  • Under the current financial cap, support by deposit insurers is limited by the costs (net of recoveries) they would incur if paying out covered deposits in a bank liquidation. That crucially depends on the ranking of deposit insurance fund claims in the creditor hierarchy. The ability to transfer sufficient assets is directly linked to the minimum requirement for eligible liabilities (MREL).
  • As a minimum, MREL should aim to help close the expected gap between transferred liabilities and assets, after considering the available support from the deposit insurer. 
  • Consequently, calibrations should be based on the prevailing status for deposit insurance fund claims in insolvency and on a structured assessment of three key factors: (i) the estimated (franchise) value of banks' assets; (ii) the proportion of transferred liabilities which are not covered by the deposit insurance fund; and (iii) the liquidation procedure's ability to preserve banks' asset values.