EBA publishes its annual quantitative monitoring report on minimum requirement for own funds and eligible liabilities complemented by a related impact assessment

The European Banking Authority, EBA, has published its „EBA MREL Quantitative Monitoring Report and Impact Assessment“ for 2021 as mandated by Article 45l of the Bank Recovery and Resolution Directive II (BRRD II).
In the annual report, EBA assesses
+ how the requirement for own funds and eligible liabilities has been implemented at national level;
+ how the power has been exercised by resolution authorities and
+ the aggregate level and composition of own funds and eligible liabilities of institutions and entities, the amounts of instruments issued in the period, and the additional amounts necessary to meet applicable requirements.
In addition to the annual report EBA added an impact assessment due every three years:
+ the impact of the minimum requirement for own funds and eligible liabilities;
+ the interaction of the minimum requirements with the own funds requirements, leverage ratio and the liquidity requirements laid down in Regulation (EU) No 575/2013 and in Directive 2013/36/EU and
+ the capacity of institutions or entities to independently raise capital or funding from markets in order to meet any proposed harmonised minimum requirements.
In its review of the work conducted by the colleges during the year 2021 and as stated in the annual report, the EBA was largely satisfied with the work:
+ Instead of deleveraging, resolution entities made progress toward MREL compliance by expanding their holdings of eligible instruments.
+ Senior non-preferred is now the most significant category of permissible debt, while own funds instruments are the principal source to comply with MREL.
+ Over 2021, the majority of resolution banks have displayed significant levels of issuance.
+ Although it differs by bank type, the cost of MRELs issued so far is usually affordable for all banks.
+ Closing MREL shortages generally has a minimal impact on banks‘ profits, however certain banks experience issues.
+ In terms of total assets, banks having trouble issuing remain small overall, although they may account for a sizeable portion of total assets in specific member states.
Out of a sample of 245 banks, 70 institutions indicated an MREL shortfall of €33 billion, according to the EBA, down 42% from the previous year’s quantitative MREL report.