Summary

The BSA supports the development of an effective regime for bank resolution.  We agree that failing deposit-takers need to be able to be resolved safely, without the taxpayer bailouts or massive calls on FSCS levy payers which were a feature of the banking crisis (and in the latter case for which our members are still paying).

So we agree that these costs need to be allocated first to the holders of any forms of capital, and then to categories of non-preferred creditors – and we recognise that for institutions such as building societies which do not have a large natural stock of liabilities eligible for bail-in, this may result in some needing to issue new bail-in debt. The cost of doing so will be considerable, and will ultimately be borne by customers, so MRELs need to be sensibly calibrated without overshooting.

Like over-insurance, holding excessive levels of MRELs benefits no-one, and in the case of mutuals like building societies, will divert too much of the society’s earnings away from members and into servicing MREL instruments held by wholesale bondholders. Moreover, the application of MRELs through the partial transfer strategy to medium sized deposit-takers which have entered the current account market risks creating, through a massive cliff effect at the boundary, a major barrier to competition in the current account market. Instead we need a more graduated result. And the potential inclusion of other types of accounts that may sometimes be used for transactional purposes may only encourage providers towards removing payment functionality from those accounts.

For the full response, please click here.