EBA Report Highlights Progress and Ongoing Challenges in EU Banks’ MREL Compliance

The European Banking Authority (EBA) has released its second Impact Assessment Report on the minimum requirement for own funds and eligible liabilities (MREL), examining how the framework has affected banks across the European Union, as well as its influence on markets and funding structures.

According to the findings, banks within the EU have continued to strengthen their MREL positions while also improving their access to financial markets, with minimal disruption to their overall business models. However, the report also underscores that structural difficulties remain, particularly for smaller institutions that face greater challenges in adjusting to the regulatory requirements.

Between 2022 and 2024, banks significantly increased their stock of MREL-eligible instruments in order to meet the final compliance targets that came into force on January 1, 2024. By the close of 2024, resolution entities held eligible instruments averaging 34.7 percent of their total risk exposure amount, demonstrating substantial progress toward meeting regulatory expectations.

The EBA’s analysis indicates that the implementation of MREL has driven a notable rise in the issuance of eligible liabilities across the banking sector. In 2024 alone, resolution entities issued €371 billion worth of such instruments, highlighting robust activity in the market.

Despite these advances, disparities persist between larger and smaller banks. While the framework has facilitated improved market access even for smaller institutions and groups operating under a multiple point of entry structure, these entities continue to face obstacles. The composition of MREL resources reflects both regulatory subordination requirements and the varying degrees of access banks have to wholesale funding markets.

Senior non-preferred debt has become the primary form of eligible liability under the framework. Larger banks, benefiting from broader and more diversified market access, continue to issue instruments across multiple layers of subordination. In contrast, smaller banks depend more heavily on retained earnings and Common Equity Tier 1 capital to satisfy their MREL obligations.

Overall, own funds remain the dominant component of MREL, accounting on average for 20.5 percent of total risk exposure. Authorities observed no significant shifts in banks’ business models directly attributable to MREL, suggesting that the framework has not caused major operational disruptions.

Nevertheless, the report points out that smaller, deposit-funded institutions encounter higher compliance costs and increased complexity compared to their larger counterparts. Structural changes within banking groups have also been limited, with most adjustments driven by broader resolvability considerations rather than MREL requirements alone.

Under the Bank Recovery and Resolution Directive, the EBA is required to produce an impact assessment every three years. This latest publication marks the final report under the current mandate, bringing the existing reporting cycle to a close.

At the same time, the authority is considering ways to simplify and better align capital requirements, including Total Loss-Absorbing Capacity (TLAC) and MREL frameworks, in line with broader efforts to enhance regulatory and supervisory efficiency.

MREL itself is designed to ensure that EU financial institutions maintain sufficient capacity to absorb losses, enabling authorities to implement resolution strategies effectively in the event of bank failures. The directive initially established January 1, 2024 as the deadline for compliance, although certain institutions were granted limited exceptions.

By fLEXI tEAM