BRUSSELS (Reuters) - Euro zone banks which issued large amounts of loss-absorbing debt under English law could have more time to meet requirements after Britain leaves the European Union, the bloc’s agency responsible to winding down failing lenders said on Thursday.

HSBC and Barclays' buildings in Canary Wharf are seen behind a City of London sign outside Billingsgate Market in London, Britain, August 8, 2018. REUTERS/Hannah McKay

Under EU banking rules, banks must issue special loss-absorbing debt known as MREL (minimum requirement for own funds and eligible liabilities) that can be converted into capital if a crisis burns through their core capital buffer.

The Single Resolution Board (SRB) has estimated that banks in the euro zone have around 100 billion euros ($113 billion) of debt issued under English law.

If no agreement is found between Britain and the EU on mutual acceptance of these outstanding bonds to absorb losses, euro zone banks will have to issue new bonds to cover likely capital gaps after Britain leaves the EU.

In a report released on Thursday, the SRB said that for banks that after Brexit could have a MREL shortfall caused by debt issued under English law, “an extension of transitional periods” to meet their requirements could be considered.

This is the first time the agency, which is in charge of setting the MREL for top euro zone banks, is saying it could be more lenient.

So far the agency has advised banks to introduce clauses in contracts of bonds issued under English law that would clarify they could be wiped out in case of liquidation under EU rules.

The SRB repeated on Thursday this call and also urged banks to consider issuing new debt under the law of one of the remaining EU countries to avoid possible legal uncertainty in the future.

Banks who fail to meet their MREL targets could be forced to sell assets or be subject to other punitive measures.

An SRB official also clarified that British or other foreign banks with operations in the euro zone should have sufficient loss-absorbing buffers at their euro zone subsidiaries as if they were stand-alone banks, a requirement that could increase costs for foreign lenders.

($1 = 0.8837 euros)