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Report on holdings of eligible liabilities issued by G-SIIs and O-SIIs is published by the EBA

The European Banking Authority (EBA) has released a report on the holdings of Minimum Requirement for Own Funds and Eligible Liabilities (MREL) instruments by EU banks, focusing on those issued by the most systemic European banks.

The findings reveal that as of December 2021, the exposure of resolution banks to eligible liabilities from global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) remains relatively small, with limited potential direct contagion risks. More than half of the resolution banks in the sample have exposures below 2% of MREL and 0.6% of the total risk exposure amount (TREA).

Furthermore, the Report highlights that the largest EU banks do not heavily rely on other banks for placing their MREL instruments. Only a limited 3.7% of eligible liabilities from G-SIIs and O-SIIs were placed with banks in the sample, with a small number of banks placing more than 20%.

Considering these limited exposures, the Report concludes that direct spill-over effects from a potential bail-in would be constrained. The Report examined systemic crisis scenarios involving the failure of G-SIIs and O-SIIs rated below investment grade and the failure of the largest issuers in the sample. In both scenarios, the contagion through direct exposures would not result in the failure of any holders, and none of the banks would breach their Pillar 2 Requirement (P2R). 

However, the Report does identify some outliers with higher-than-average exposures, where twenty-five banks report exposures above 8% of their MREL and six institutions report exposures above 20% of their MREL. It is important to note that the Report does not cover issuances by non-systemic banks and does not fully consider the impact on banks with balance sheets below EUR 5 billion, which limits the scope of its conclusions.*

 *as of December 2021 for both resolution groups and resolution entities. The data collection is addressed at the highest level of consolidation (i.e., intra-group exposures are excluded). The sample for the main calculations in the Report comprises 124 resolution banks (106 resolution groups and 18 stand-alone banks) from 23 member states, covering 74% of EU banking sector assets. 

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