EBA updates its quantitative analysis on MREL

20 December 2017

The EBA published today an updated quantitative analysis on the minimum requirement for own funds and eligible liabilities (MREL). Based on the same methodology and assumptions developed in the context of the  MREL report published in December 2016, the EBA updated its estimates of capacity and funding needs of a representative sample of European banks to meet MREL under alternative scenarios. In this exercise, the EBA highlighted a modest improvement in the stack of MREL eligible instruments in 2016.
The updated MREL quantitative analysis was carried out with data as of end December 2016 and covers MREL ratios, MREL capacity, MREL quality and the estimated MREL funding needs of the full sample of 112 EU banks. In addition, a consistent sample of 100 banks was used to compare the evolution of MREL over the previous two years. 
Despite the substantial differences across categories of banks and individual banking groups, the results of the updated analysis showed that in 2016, the consistently monitored sample of 100 banks, on average:
  • Improved their risk profile as measured by a risk weighted assets (RWAs) decrease of EUR 431.1 billion (-4.9%), which significantly contributed to the improved (lowered) estimated MREL funding needs. 
  • Only marginally increased the stack of MREL eligible instruments, both in absolute and relative amounts – nominal MREL increased by EUR 4.5 billion (+0.1%), while the share of MREL as a percentage of RWAs improved by 1.9 percentage points to 37.8% of RWA. This was largely driven by G-SIIs which have been actively issuing MREL in 2016 and early 2017.
  • Slightly improved the quality of MREL, as captured by the increase of the stock of subordinated MREL instruments (EUR 33 billion, +1.9%). 
  • Mitigated total estimated MREL funding needs by EUR 25.8 billion (-11.4%) and EUR 119.0 billion (-30.9%) under Loss Absorption (LA) buffer and buffer/8% baseline scenarios respectively. Aggregated subordinated estimated MREL funding needs have decreased by EUR 15.2 billion (-11.3%).

Notes to editors

  • MREL is a requirement for a bank to hold a sufficient amount of own funds and debt instruments of a certain quality in order to absorb losses and recapitalise its critical functions in case of failure.
  • MREL pursues a similar aim as the global Total Loss Absorbing Capacity (TLAC) standard developed by the Financial Stability Board.
  • MREL decisions are to be determined and calibrated by resolution authorities for each and every institution according to the specific characteristics of the firm. However, given that to this date no MREL decision has yet been taken, assumptions had to be made as to resolution strategies, scope and calibration of MREL. These assumptions are in line with the EBA RTS on MREL but are, by definition, different from the actual levels of MREL that will ultimately be determined for each institution and group.
  • The two scenarios considered in the Report for the calibration of MREL are: the loss-absorbing buffer, or ‘LA buffer' scenario, amounting to twice capital requirements where combined buffer requirements are only included once for loss absorption purposes; and the ‘Buffer/8%' scenario, a more stringent calibration where banks must meet the higher of twice capital requirements and buffers, or 8% of total liabilities and own funds."
  • Central estimates on which the figures above are based assume a full recapitalisation for G-SIBs and O-SIIs, a subordination requirement for G-SIBs in line with the TLAC standard, and a subordination requirement for O-SIIs of 13.5% of RWAs in line with the subordination recommendations made in the Report. Estimates for other banks, that are neither G-SIBS nor O-SIIs, assume partial (50%) recapitalisation only and do not include a systematic subordination requirement.

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772