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Minimum Requirement for Own Funds and Eligible Liabilities (MREL)

By Ceren Gokhan

During the 2008 financial crisis, many banks that faced collapse were saved by bail-outs, where governments used taxpayer money to keep the institutions stable. To prevent this from happening again, European regulators introduced a new safety mechanism designed to ensure that if a bank fails, it has enough of its own resources to cover its losses.

The Minimum Requirement for Own Funds and Eligible Liabilities (MREL) is a requirement for EU banks to maintain a minimum amount of equity and debt that can be bailed-in. This means that instead of taxpayers paying the bill, the bank’s investors and certain creditors are the ones who take the hit to keep the bank’s essential functions running.

What MREL does

MREL is a cornerstone of the EU’s framework for managing failing banks, known as the Bank Recovery and Resolution Directive (BRRD). It ensures that a bank has a reliable cushion to absorb losses and can be recapitalized during a crisis.

While the LCR focuses on having enough cash for 30 days, MREL focuses on the long-term structure of a bank’s funding.

  1. Bail-in power: MREL ensures there is a specific layer of eligible liabilities, mostly certain types of bonds, that can be written down or converted into equity if the bank is failing.
  2. Resolution strategy: Every bank has a specific MREL target set for them by resolution authorities, such as the Single Resolution Board (SRB). This target is based on the bank's size, risk profile, and how complex it would be to fix if it broke.
  3. Loss absorption: If a bank hits a major crisis, MREL resources are used first to absorb the losses, protecting the depositors and the wider economy.

Why MREL matters to the financial ecosystem

  • For partners and businesses, MREL is about stability without state intervention. It creates a predictable path for what happens during a worst-case scenario.

  • Protects taxpayers: By ensuring banks pre-fund their own potential failure, MREL removes the burden from the public.

  • Market discipline: Because investors know their bonds could be bailed-in under MREL rules, they are more likely to monitor the bank’s risk-taking closely, which encourages better management.

  • Continuity of service: The ultimate goal of MREL is to make sure that even if a bank is resolved, your payments still go through, your cards still work, and the financial system remains functional.

Interesting facts

  • You might hear MREL mentioned alongside Total Loss-Absorbing Capacity (TLAC). While they do similar things, TLAC is a global standard for the world’s largest, systemically important banks, whereas MREL applies to all banks in the EU.

  • While MREL allows for losses to be passed to investors, there is a legal safeguard ensuring that no creditor suffers more under a resolution than they would have if the bank had simply gone into normal bankruptcy.

  • In the Eurozone, MREL targets are not set by the banks themselves but are strictly mandated by the Single Resolution Board, often in cooperation with national authorities like BaFin.

Further reading

To understand the full safety net of European banking, you can explore our entries on the Liquidity Coverage Ratio (LCR) and the European Banking Authority (EBA). For the official legal framework, visit the European Commission’s page on Bank Recovery and Resolution.

Further Reading