The EBA Publishes Its Second MREL Impact Assessment Report

Why It Matters

MREL compliance is essential for orderly resolution, and the findings show growing loss‑absorbing capacity in large banks but persistent hurdles for smaller institutions, influencing EU financial stability and funding markets.

Key Takeaways

• EU banks reached 34.7% MREL of total risk exposure.
• €371 bn (~$401 bn) MREL‑eligible debt issued in 2024.
• Larger banks diversify subordination layers; smaller rely on CET1.
• Compliance costs higher for deposit‑funded small banks.
• No major business‑model changes attributed to MREL.

Pulse Analysis

The MREL framework, introduced under the EU Bank Recovery and Resolution Directive, aims to ensure that systemically important banks possess sufficient loss‑absorbing capacity before a crisis. By mandating a minimum share of eligible liabilities, regulators seek to protect taxpayers and preserve market confidence during resolution. The EBA’s latest impact assessment provides the first comprehensive, three‑year snapshot of how banks have adapted to these rules, offering a benchmark for future policy refinements across the continent.

Data from the report reveal that EU banks collectively issued roughly €371 bn (approximately $401 bn) of MREL‑eligible instruments in 2024, pushing the average coverage to 34.7% of total risk‑exposure amount. Larger institutions have taken advantage of deep wholesale funding markets, issuing senior non‑preferred debt and other subordinated layers, while smaller, deposit‑funded banks rely heavily on retained earnings and CET1 capital. This divergence underscores a growing stratification in funding capabilities, with smaller banks facing steeper compliance costs and limited access to diversified capital sources.

The assessment’s conclusion that business models remain largely unchanged masks underlying pressures on smaller banks, which may struggle to meet subordination requirements without eroding profitability. Policymakers are now weighing proposals to streamline the MREL/TLAC regime, balancing the need for robust resolvability against the operational burden on less‑capitalised institutions. Continued monitoring will be critical as the EU moves toward a more integrated resolution framework, and any adjustments could reshape funding dynamics for both large and niche players in the European banking sector.