European Morning Credit: Today in European Credit

Research evidence excerpt

European Morning Credit: Today in European Credit

flexibility on the use of data-processing services, information technology

and back-office functions between the two parts of a banking group could cut costs

without compromising resolution aims, according to the PRA. Note the government

is not taking up the industry’s proposal to allow e.g. the ring-fenced bank to share

its excess liquidity with the non-ring-fenced bank, on the grounds it would increase

mutual financial dependence.

3. Reviewing the £35bn deposit threshold: a review every three years (starting in

2Q28, since the £35bn threshold is the product of a review in February 2025) could

increase the deposit threshold over which banks are subject to the ring-fencing

regime, to take system deposit growth into account. That could delay the moment

the regime kicks in for smaller banks. In practice, this could apply to US banks’

relatively recent digital banking entrants in the UK. Reporting requirements will also

be reviewed every three years.

4. Removing duplication: some ring-fencing rules could be scrapped if their

objectives are met by other ‘prudential or resolution’ requirements. Some elements

could be moved into PRA rules rather than legislation, which would allow for more

‘agile’ updating. There will also be a review of the interaction of various frameworks

(leverage, Basel IV output floor, internal MREL) to ‘address inefficiencies. The BoE is

set to review the calibration of the MREL scalar that determines what proportion of

externally issued MREL is required at the ring-fenced bank level (currently set

between 75% and 90%). We think a reduction in this scalar could lead to intra-group

liquidity reallocation, rather than lower external MREL issuance.

2 European Morning Credit | 19 May 2026

CR