11  But to set a higher requirement if we have doubts about: the home  resolution strategy, the availability of a surplus at the top of the group or a lack of reciprocity in MREL-setting in other jurisdictions (that is others all set at the 90% end of the range). We expect to say more about surplus MREL and the form it should be held in to be readily available when we come to finalise our internal MREL policy next year. Another important objective for us in setting policy on internal MREL is to avoid any distortion in the sequence of loss absorption between operating companies (OpCo) and the group holding company (HoldCo). We require UK banks to issue external MREL out of their HoldCos, structurally subordinated to liabilities at the OpCo. The issuance proceeds are then onlent to the OpCo as internal MREL broadly mirroring their external form, for example: Tier 2 could be onlent as Tier 2, AT1 as AT1 and senior debt out of HoldCo would be downstreamed as an internal debt instrument sitting senior to capital instruments but junior to operating liabilities in the OpCo. We need to be sure that as losses are incurred in the operating company they are absorbed in an order that follows the OpCo creditor hierarchy and does not bypass certain instruments.
We want debt investors to be able to price risk effectively by being clear about where they rank in the creditor hierarchy and to give them confidence that we can stick to the hierarchy in applying losses and that we will not be picking winners and losers within a class. Counting as MREL senior debt issued out of operating companies without subordination looks like a recipe for undermining that confidence. (b) Bail-in execution We also want to be clear as a resolution authority how we will conduct the resolution in a way that preserves value and distributes it fairly, ensuring no creditor worse off protections are met. To that end, we have thought hard about the valuation capabilities we need firms to have so that we can value losses and recapitalisation needs in an effective and timely way. We have just consulted on a set of principle level 12  requirements and expect to finalise policy in this space in the next few months. We believe that the bail-in valuation for a large cross-border firm is not something that can be fixed over a weekend. Valuation on that timetable will inevitably tend to overshoot on the estimation of losses, not least because a significant driver of the valuation will be the reorganisation that follows the bail-in and the restructuring costs and disposal valuations associated with that.