EBA publishes Report on holdings of eligible liabilities issued by G-SIIs and O-SIIs

EBA published a report on the holdings of MREL instruments by G-SIIs and O-SIIs.
The report found that as of 31 December 2021, the holdings of these instruments were small, and the direct contagion risks were limited. More than half of the resolution banks in the sample had exposures to eligible liabilities issued by G-SIIs and other O-SIIs below 2% of MREL and 0.6% of the TREA.
The report also found that the largest EU banks did not heavily rely on other banks to place their MREL instruments. Only a limited 3.7% of eligible liabilities issued by G-SIIs and O-SIIs were placed with banks in the sample, with a few banks placing more than 20%. This suggests that direct spill-over effects from a possible bail-in would be limited.
The analysis conducted in the report considered systemic crisis scenarios, such as the failure of G-SIIs and O-SIIs rated below investment grade or the failure of the largest issuers in the sample. Under both scenarios, the contagion via direct exposures would not lead to the failure of any of the holders, and none of the banks would breach their P2R.
However, the report did identify some outliers with higher-than-average exposure to eligible liabilities. Twenty-five banks reported exposures above 8% of their MREL, and six institutions reported exposures above 20% of their MREL. It’s important to note that the report’s conclusions were limited as it did not capture issuances by non-systemic banks and did not consider the impact on banks with balance sheets below EUR 5 billion.
Chaper 1 deals with general remarks, Chapter 2 provides an overview of the amount and distribution of holdings of eligible liabilities issued by G-SIIs and O-SIIs and Chapter 3 assesses the risk of contagion under two scenarios:
1. the failure of G-SIIs and O-SIIs rated below investment grade; and
2. the failure of banks with largest placement of EL with other banks in the sample.
The analysis in the report was based on data collected as of December 2021, focusing on resolution groups and entities. The sample included 124 resolution banks from 23 member states, covering 74% of the EU banking sector assets.