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MREL: financial stability implications

Author

Listed:
  • Gaiduchevici, G.
  • Zochowski,D.

Abstract

This article focuses on the evaluation of the market’s capacity to absorb the issuance of MREL-eligible debt and the impact of the change in the composition of banks’ liabilities on profitability and capital. The market for bank debt in some euro area countries is characterised, in aggregate terms, by home bias and cross-holdings, which may impede issuance. The average spread between MREL-eligible and MREL-ineligible bonds has been hovering at around 66 basis points (bp) over the past two years. However, the impact of an increase in the overall funding costs on banks’ profitability and capital is likely to be limited overall. All in all, from a system-wide perspective, the extra cost of issuing MREL bonds does not pose a challenge for banks’ core profitability and capital. However, home bias and shallow debt markets in some countries could make it difficult for banks with limited access to international capital and debt markets to place MREL-eligible debt. JEL Classification: G00

Suggested Citation

  • Gaiduchevici, G. & Zochowski,D., 2017. "MREL: financial stability implications," Macroprudential Bulletin, European Central Bank, vol. 4.
    • Handle: RePEc:ecb:ecbmbu:2017:0004:1
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    References listed on IDEAS

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    2. Schoenmaker, Dirk, 2017. "A macro approach to international bank resolution," ESRB Working Paper Series 56, European Systemic Risk Board.
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    Cited by:

    1. Albertazzi, Ugo & Barbiero, Francesca & Marqués-Ibáñez, David & Popov, Alexander & Rodriguez d’Acri, Costanza & Vlassopoulos, Thomas, 2020. "Monetary policy and bank stability: the analytical toolbox reviewed," Working Paper Series 2377, European Central Bank.
    2. Altavilla, Carlo & Fernandes, Cecilia Melo & Ongena, Steven & Scopelliti, Alessandro, 2022. "Bank bond holdings and bail-in regulatory changes: evidence from euro area security registers," Working Paper Series 2758, European Central Bank.

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    More about this item

    Keywords

    MREL; financial stability; macroprudential policy; debt;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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