The European Banking Authority (EBA) this week published its second Impact Assessment Report on minimum requirement for own funds and eligible liabilities (MREL), evaluating its effects on EU banks, markets and funding structures.

The report found that EU banks have continued to build up MREL resources, while also improving market access with limited impact on business models.

At the same time, it highlighted that structural challenges persist for smaller banks, particularly in adapting to the framework.

Between 2022 and 2024, banks increased their MREL eligible instruments to meet final targets applicable from January 1, 2024.

By the end of 2024, resolution entities held MREL eligible instruments averaging 34.7 per cent of total risk exposure amount, reflecting progress in meeting requirements.

The analysis showed that the introduction of MREL prompted significant issuance of eligible liabilities across all banks.

In 2024 alone, resolution entities issued €371 billion in MREL eligible instruments, indicating strong market activity.

While the framework has supported market access for smaller banks and multiple point of entry groups, challenges remain for smaller institutions.

The composition of MREL resources reflects both subordination requirements and access to wholesale funding markets.

Senior non preferred instruments have emerged as the dominant form of eligible debt within the framework.

Larger banks continue to issue across multiple subordination layers, benefiting from broader market access.

In contrast, smaller banks rely more heavily on retained earnings and Common Equity Tier 1 capital to meet requirements.

Overall, own funds remain the largest component of MREL, accounting for 20.5 per cent of total risk exposure amount on average.

Authorities reported no material changes to banks’ business models directly linked to MREL, suggesting limited disruption.

However, smaller deposit funded institutions face higher compliance costs and increased complexity, compared with larger banks.

The report also found that structural adjustments within banking groups remain limited, driven more by resolvability considerations than MREL requirements alone.

The EBA is mandated under the Bank Recovery and Resolution Directive to produce an impact assessment every three years.

This report represents the final iteration under the current mandate, concluding the existing reporting cycle.

In parallel, the EBA is exploring ways to streamline capital and TLAC and MREL frameworks, in line with recommendations on improving regulatory and supervisory efficiency.

MREL is designed to ensure that EU institutions maintain sufficient loss absorbing capacity, enabling the execution of resolution strategies in case of failure.

The directive originally set January 1, 2024 as the deadline for compliance, with limited exceptions for certain banks.