MREL: financial stability implications

G. Gaiduchevici and Dawid Żochowski

Macroprudential Bulletin, 2017, vol. 4

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

Keywords: MREL; financial stability; macroprudential policy; debt (search for similar items in EconPapers)
Date: 2017-12
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Citations: View citations in EconPapers (2)

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