EU banks largely meet MREL targets, smaller firms face compliance hurdles
The European Banking Authority's second MREL impact assessment report finds that nearly all EU institutions met their final MREL targets by the January 1, 2024 deadline. The report, covering 2022-2024, highlights increased MREL resources but also structural challenges and higher compliance costs for smaller banks.
Meeting the 2024 deadline
The European Banking Authority's second MREL impact assessment report, covering the 2022-2024 period, confirms that nearly all EU institutions met their final MREL targets by the January 1, 2024 deadline.
This follows the full implementation of the BRRD II framework.
Both total and subordinated MREL requirements increased across all bank categories, reflecting the compliance deadline.
In parallel, MREL resources grew significantly, reaching an average of 34.7 percent of Total Risk Exposure Amount (TREA) by the end of 2024.
This growth was primarily driven by increases in senior non-preferred (SNP) debt, senior unsecured instruments, and Common Equity Tier 1 (CET1).
Only 37 banks experienced declines in eligible resources, none of which resulted in a shortfall.
The introduction of MREL requirements also spurred issuances of eligible liabilities, particularly SNP, with EUR 371 billion issued across 105 banks in 2024.
Smaller banks' persistent challenges
Despite overall compliance, the report highlights persistent structural challenges for smaller banks.
While market access for these institutions has gradually improved, they continue to face hurdles related to their size, ratings, and investor base, particularly in diversifying their funding base through subordinated issuances.
Authorities observed no material changes to the business models or legal and operational structures of banks directly attributable to MREL for larger, diversified institutions.
However, smaller, retail-oriented and deposit-funded banks reported relatively higher MREL-related compliance costs and increased complexity in adapting to the framework.
This suggests a differentiated impact across the banking sector.
Proportionality remains key
The report confirms the success of MREL implementation, with EU banks largely meeting their targets and building substantial resolution capacity.
However, it also exposes a persistent proportionality issue, where smaller institutions face disproportionate burdens and higher compliance costs.
This underscores the EBA's ongoing work to streamline capital and TLAC/MREL requirements, suggesting future adjustments may be needed to ensure a more equitable framework.