EBA publishes its annual MREL quantitative monitoring report and impact assessment
On 16 January 2023, the European Banking Authority (EBA) released its latest annual quantitative report on the minimum requirement for own funds and eligible liabilities (MREL). The report found that 70 out of 245 banks had a combined MREL shortfall of €33 billion as of December 2021, a 42% decrease compared to the previous year.
The report highlights the progress in closing MREL shortfalls, although the rate is lower for smaller banks. The impact of MREL on the profitability of banks varies across different types of banks and member states but is manageable. The impact of the MREL framework on bank profitability appeared manageable, with the cost of the existing amount of eligible debt estimated at 1,22% of net interest income. The additional issuances required to close the shortfall is expected to account for a limited 0,125% of the net interest income for the sector overall.
The report revealed that resolution entities reduced or closed their MREL shortfalls through an increase in their stock of eligible instruments rather than by deleveraging. A 6% increase in eligible instruments was observed in the total sample between 2019Q4 and 2021Q4, while a 3% increase in total risk exposure was observed in the same period. As of 2021Q4, eligible instruments accounted for 31% of total risk exposure, compared to 30% in 2019Q4. Own funds instruments were the primary source of MREL compliance as of December 2021, and senior non-preferred debt was the most prominent type of eligible debt. Wholesale deposits were limited except for banks with assets below €10 billion, where they reached up to 5% of the total risk exposure amount.
Tightening funding conditions were not expected to pose significant difficulties for managing MREL resources for any specific type of bank. However, banks with weaker balance sheets and poor structural profitability may face more significant challenges than their more established counterparts.
For inquiries please contact:
RBI Regulatory Advisory
Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria | Tel: +43 1 71707 - 5923