The euro area banking sector and MREL: a challenge for medium-sized banks?

Abstract

The introduction of the Minimum Requirement for Own Funds and Eligible Liabilities has meant that euro area banks – including some smaller banks that had no previous experience on the debt markets – have had to issue more debt. At end-October 2023, large issuers still accounted for the bulk of issuance, but the number of issuances made by medium-sized banks had increased. These banks can achieve a lower issuance cost than their larger peers, by placing bonds that have a lower level of subordination and a shorter maturity, and thanks to their good financial ratios. However, certain challenges remain, such as their poorer credit ratings and the uncertainty regarding market capacity to absorb a larger volume of issuance by medium-sized banks.