TLAC and MREL · RiskAtoms Academy

By the end you will be able to

1Explain why banks need loss-absorbing capacity beyond their capital, and how bail-in uses it in resolution.
2State the FSB's TLAC minimum, 18% of RWA and 6.75% of the leverage exposure, and what can count.
3Calculate a UK bank's MREL, 2 × (Pillar 1 + Pillar 2A), and its resources net of the CET1 its buffers use.
4Work out RiskAtoms Bank plc's MREL position and how far a bail-in of its layers can go.

Why it matters

In 2008 governments chose between letting big banks fail and rescuing them with public money. Mostly they rescued them. Since then the rules have built a third way: a failing bank is put into resolution, its shareholders and bondholders take the losses, and some of its bonds become its new equity. For that to work, the bank must have enough bonds that can take the hit. RiskAtoms Bank plc has £3,995m of capital. Its regulators want £4,790m that could be bailed in, on top of the CET1 for its buffers.

Core explanation

Enough to fail safely

Going concern, gone concern

Capital requirements keep a bank alive. L4.1.03: Additional Tier 1 and Tier 2 showed that Tier 2 is gone-concern capital: it absorbs losses only when the bank fails. Resolution needs much more of that. On failure the authority must absorb the losses that sank the bank and then recapitalise it so it can keep its licence and its customers. Bail-in does both: it writes down capital and debt, junior first, and converts debt into new shares. The capacity for that has two names: TLAC for G-SIBs, a global minimum, and MREL in the UK and EU, set bank by bank.

Illustrative dataRiskAtoms Bank plc's capital book

The same made-up UK bank as Level 3: £67bn of assets and £4bn of equity at 31 December 2025, in £ millions. Module 4.1 adds its regulatory layer: own funds, deductions, risk-weighted assets by risk type, buffers, the leverage exposure and MREL, computed from the Level 3 credit, trading, derivatives and operational risk books. Every figure is illustrative, not any bank's data.

Pro forma. The book applies Basel 3.1, the 2017 finalisation of Basel III, to the 31 December 2025 balance sheet. On that date the bank still reported under the old UK CRR. The UK applies Basel 3.1 from 1 January 2027, and the internal model approach for market risk from 1 January 2028 (PRA PS1/26, paras 1.23 and 1.24). So the book shows the bank as it would look under the new rules.

TLAC

The Financial Stability Board published its TLAC standard in November 2015. Its main terms:

Term	TLAC term sheet
Minimum	16% of RWA and 6% of the Basel leverage exposure from 1 January 2019; 18% and 6.75% from 1 January 2022 (section 4)
Buffers	Not counted: the regulatory capital buffers are met on top (section 4)
Debt	Expected to be at least a third of TLAC, in debt rather than equity (section 6)
Maturity	At least one year remaining (section 9)
Excluded	Insured deposits, deposits repayable within a year, derivatives, secured liabilities and others that are hard to bail in (section 10)
Subordination	Below excluded liabilities: by contract, by law or by issuing from a holding company, with a small exemption (section 11)
Inside groups	Material subsidiaries hold internal TLAC of 75% to 90% of their external requirement (section 18)

RiskAtoms Bank plc is not a G-SIB. If it were, TLAC would ask for £4,105m on the RWA leg and £4,756m on the leverage leg. The leverage leg binds: the bank's RWA density of 32.4% is below the 37.5% at which 6.75% of exposure equals 18% of RWA, the same arithmetic as L4.1.06: The leverage ratio.

Subordination

Bail-in must not reach the liabilities it is meant to protect, or break the no creditor worse off safeguard. So eligible debt must rank below the excluded liabilities. Three ways: a clause in the bond (contractual), a law that ranks it lower (statutory), or issuing it from a holding company that owns the bank (structural). UK banks mostly use the third: the holding company lends the money on to the bank as internal MREL, and if the bank fails the holding company's creditors are paid only from what is left.

Sort itBail-in-able or not?

Could each liability count towards a UK bank's MREL?

Ordinary shares (CET1)
Perpetual AT1
Senior bonds issued by the holding company, four years to run
Senior bonds maturing in six months
Covered bonds
Retail deposits in current accounts
Liabilities on derivatives

UK MREL

The Bank of England sets each firm's MREL from its preferred resolution strategy (MREL statement of policy, July 2025, in force from 1 January 2026). Firms with fewer than about 40,000 to 80,000 transactional accounts would go through a modified insolvency, and their MREL is just their capital requirement. Larger firms are resolved by transferring their business or, above an indicative £25bn to £40bn of total assets, by bail-in (4.4 to 4.8). With £67bn of assets, RiskAtoms Bank plc is a bail-in firm.

A bail-in firm needs the loss-absorption amount plus the recapitalisation amount, each equal to its minimum capital requirement: so twice Pillar 1 plus Pillar 2A, or twice its leverage requirement if that is higher and it is in scope (4.11). The CET1 that meets the combined buffer cannot also count (3.7). For the bank:

CET1

£3,020m

AT1

£400m

Tier 2

£575m

Senior, a year or more

£3,500m

Less: CET1 for buffers

£1,026m

MREL resources

£6,468m

MREL: £4,790m

£m. The dashed line is the £4,790m requirement. Excluded: £51,500m of deposits, £2,500m of covered bonds and £500m of senior bonds with less than a year to run.

The formal version

TLAC (term sheet, section 4), with RWA $R$ and leverage exposure $E$ , if the bank were a G-SIB:

\text{TLAC} \ge \max(18\%\,R,\ 6.75\%\,E) = \max(4{,}105.4,\ 4{,}755.6) = 4{,}755.6

UK MREL for a bail-in firm (statement of policy, 3.7 and 4.11), with leverage rate $\lambda$ applying only to firms in scope:

\begin{aligned} \text{MREL} &= \max\big(2\,(P_1 + P_{2A})\,R,\ 2\,\lambda\,E_{\text{UK}}\big) \\ &= \max\big(2 \times (8\% + 2.5\%) \times 22{,}807.7,\ \text{n/a}\big) = 4{,}789.6 \\ \text{resources} &= \text{own funds} + \text{eligible debt} - \text{CBR}\times R \\ &= 3{,}994.7 + 3{,}500 - 4.5\% \times 22{,}807.7 = 6{,}468.4 \\ \text{surplus} &= 6{,}468.4 - 4{,}789.6 = 1{,}678.7 \end{aligned}

If the bank were in scope of the UK leverage ratio, the second leg would be 2 × 3.25% × £64,553m = £4,195.9m, below the RWA leg. Max of two legs: see M-A11: Min, max, floors and caps. £ millions.

Try it

Put a loss through the bank at the point of failure. The layers absorb it junior first; then the authority converts what is left of the debt into new CET1 until CET1 alone covers its minimum of £2,395m again. How big a loss can the layers take and still recapitalise the bank? What is left of the senior bonds?

Try itBail-in, layer by layer

Loss at the point of failure£4.0bn

Before: the layers, junior first

After: written off (hatched), converted into new CET1 (solid), still debt (faint)

Layer	Held	Written off	Into new CET1	Left as debt
CET1	£3,020m	£3,020m	£0m kept	–
AT1	£400m	£400m	£0m	£0m
Tier 2	£575m	£575m	£0m	£0m
Senior bonds, a year or more to run	£3,500m	£5m	£2,395m	£1,100m
Total	£7,495m	£4,000m	£2,395m	£1,100m

New CET1 after bail-in£2,395m

Target: the MCR, 10.5% of RWA£2,395m

Recapitalised without touching depositsyes

Loss beyond every layer£0m

Layers are the book's CET1, AT1, Tier 2 and the £3,500m of senior bonds with a year or more to run, assumed structurally subordinated. Deposits, covered bonds and short-dated debt are outside the layers. The target is Pillar 1 plus Pillar 2A, 10.5% of RWA of £22,808m, held fixed: in a real resolution the authority values the bank first and the balance sheet shrinks. The target is met entirely in CET1, so debt starts converting once a loss passes £625m, although for some way beyond that the bank, counting its AT1 and Tier 2, would still meet its minimum requirements and a real bail-in, which needs the bank to be failing or likely to fail, would not yet have begun. Illustrative data, £ millions.

Worked example

RiskAtoms Bank plc's MREL, and a bail-in

The bank's MREL position at 31 December 2025, pro forma, and a £4,000m loss at the point of failure. £ millions.

From strategy to new equity

Step 1 of 6

1
Strategy
£67bn of assets, above the indicative £40bn, and a retail bank with far more than 80,000 transactional accounts: bail-in. Not in scope of the UK leverage ratio, so no leverage leg.

Regulatory lens

TLAC is the FSB's term sheet of 9 November 2015; MREL is set by each resolution authority. How resolution itself works, from recovery plans to the bail-in instrument, is L4.9.09: Recovery and resolution. As at 3 November 2026 as at 3 Nov 2026.

In the UK

The Bank of England's MREL statement of policy was updated in July 2025, with effect from 1 January 2026. It sets the indicative total-asset threshold for bail-in at £25bn to £40bn. A firm that becomes subject to MREL above its capital gets a transition that steps up at two, four and six years (9.7 to 9.9). Eligible debt must have at least a year to run (5.2) and, for resolution entities, normally be structurally subordinated (6.2 and 6.3).

In the EU

The Single Resolution Board sets MREL as a loss-absorption amount plus a recapitalisation amount, each RWA × (Pillar 1 + Pillar 2 requirement), plus a market confidence charge equal to the combined buffer less the countercyclical buffer; on the leverage basis each is the exposure × the leverage ratio requirement. G-SIIs must meet a subordination floor of 18% of RWA plus the combined buffer, or 6.75% of the exposure, and G-SIIs and other large banks have a subordination target of 8% of total liabilities and own funds. The combined buffer is not part of MREL and cannot be met with the same instruments as the RWA-based MREL (SRB MREL policy, May 2021).

In the US

US G-SIBs face the Federal Reserve's TLAC and long-term debt rules. The December 2025 rule that recalibrated the enhanced supplementary leverage ratio also realigned the leverage-based parts of those requirements with it (90 FR 55248).

Spark Atoms

Spark AtomSold for one euro

On 6 June 2017 the ECB judged Banco Popular Español failing or likely to fail. The next day the Single Resolution Board transferred all its shares and capital instruments to Banco Santander for €1. All depositors were protected and no public funds were used. In March 2020 the SRB decided that no compensation was due to the shareholders and creditors: they would have done no better in insolvency.

Spark AtomLeverage binds again

Were RiskAtoms Bank plc a G-SIB, the 6.75% leverage leg of TLAC (£4,756m) would beat the 18% RWA leg (£4,105m). Low-density mortgage banks meet the leverage backstop in their capital and again in their loss-absorbing debt.

Key takeaways

Resolution needs capacity to absorb losses and to recapitalise the bank. Bail-in writes down capital and debt, junior first, and converts debt into new shares.
TLAC (FSB, 2015) asks G-SIBs for at least 18% of RWA and 6.75% of the leverage exposure since 2022, with the buffers on top.
Eligible debt is unsecured, has at least a year to run and ranks below the excluded liabilities: by contract, by law or through a holding company.
UK MREL for a bail-in firm is 2 × (Pillar 1 + Pillar 2A): £4,789.6m for RiskAtoms Bank plc, 21% of RWA.
Resources are own funds plus eligible debt less the CET1 for buffers: £6,468.4m, a surplus of £1,678.7m.

Reaction

Check what stuck

Question 1 · objective 2

A G-SIB has RWA of £100bn and a leverage exposure measure of £300bn. What is its TLAC minimum, in £m, ignoring buffers?

£m

Question 2 · objective 3

A UK bail-in firm out of scope of the leverage ratio has RWA of £40bn and Pillar 2A of 3%. What is its MREL, in £m?

£m

Question 3 · objective 3

That firm has own funds of £5bn, eligible senior debt of £4bn and a combined buffer of 4% of its £40bn RWA. What are its MREL resources, in £m?

£m

Question 4 · objective 3

Which of these can count towards a UK bank's MREL?

AA senior unsecured bond issued by its holding company, with three years to runBA covered bond secured on its mortgagesCA senior bond issued by the operating bank, maturing in eight monthsDRetail deposits covered by the deposit guarantee scheme

Question 5 · objective 4

RiskAtoms Bank plc's MREL is £4,789.6m and its resources are £6,468.4m. What is its surplus, in £m?

£m

Glossary

Resolution: Taking control of a failing bank so that its critical services continue, its losses fall on its investors and public money is not used.
Bail-in: A resolution tool: the authority writes down a failed bank's capital and debt, or converts debt into new shares, to absorb losses and recapitalise it.
TLAC: Total loss-absorbing capacity: the FSB's minimum for G-SIBs of capital and debt that can absorb losses in resolution, at least 18% of RWA and 6.75% of the leverage exposure (term sheet, section 4).
MREL: Minimum requirement for own funds and eligible liabilities: the UK and EU requirement, set bank by bank, for capital and debt that can be bailed in.
Subordination: Ranking below other creditors, so that losses reach you first. TLAC and MREL debt must rank below the liabilities that cannot be bailed in.
Structural subordination: Subordination by issuing from a holding company: its creditors are paid only from what is left in the operating bank after the bank's own creditors.
Excluded liabilities: Liabilities that cannot count towards TLAC or MREL: insured deposits, deposits repayable within a year, secured liabilities such as covered bonds, derivatives, and debt with less than a year to run.
Minimum capital requirement (MCR): Minimum capital requirement, in the Bank of England's MREL policy: Pillar 1 plus Pillar 2A, or the leverage requirement if higher.
Loss-absorption amount: Loss-absorption amount: the part of MREL that absorbs the losses up to the point of failure.
Recapitalisation amount: Recapitalisation amount: the part of MREL that becomes new capital after bail-in, so the bank meets its minimum again.
No creditor worse off: No creditor worse off: creditors in a resolution must not lose more than they would have in an ordinary insolvency.

Deep Dives & Origins

Deep Dives

Financial Stability Board, Total Loss-Absorbing Capacity (TLAC) Term Sheet, 9 November 2015: short, and the source of every later rule. Intermediate.
Bank of England, The Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL), July 2025. Advanced.

Origins

Financial Stability Board, Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution: Total Loss-absorbing Capacity (TLAC) Term Sheet, 9 November 2015, sections 4, 6, 7, 9, 10, 11, 18 and 21.
Bank of England, MREL statement of policy, July 2025 (effective 1 January 2026), paras 3.7, 4.3 to 4.11, 5.2, 6.2, 6.3 and 9.7 to 9.9.
Single Resolution Board, Minimum Requirement for Own Funds and Eligible Liabilities (MREL): SRB Policy under the Banking Package, May 2021.
Single Resolution Board, “The Single Resolution Board adopts resolution decision for Banco Popular”, 7 June 2017.
Single Resolution Board, decision that no compensation is due to Banco Popular's shareholders and creditors, March 2020.
Final rule on the enhanced supplementary leverage ratio, 90 FR 55248, 1 December 2025.

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