EBA says European banks need to raise EUR 276bn, down from EUR790bn, in new capital

The EBA published today its final Report on the implementation and design of the minimum requirement for own funds and eligible liabilities (MREL). The Report quantifies the current MREL stack and estimates potential financing needs of European Union (EU) banks under various scenarios. It also assesses the possible macroeconomic costs and benefits of introducing MREL in the EU. Finally, the Report recommends a number of changes to reinforce the MREL framework and integrate the international standards on total loss-absorbing capacity (TLAC) in the EU’s MREL.
The Report is addressed to the European Commission, which issued its banking reform package on 23 November 2016. The European Parliament and Council will deliberate on this package in the coming months and the Report will shed light on a number of technical issues still open for discussion.
Under central estimates, the Report assesses that the financing needs 133 banking groups included in a representative sample would have to meet in order to comply with an assumption-based MREL requirement in the steady phase would range between EUR 186bn and EUR 276bn. Moreover, subject to the assumptions used in the Report, the net macro-economic impact of introducing MREL in the EU is positive and ranges between 17 and 91 basis points of GDP.
The EBA makes a number of recommendations aimed at improving the EU MREL framework to best deliver on the main objectives of the bank resolution reform, namely preserving financial stability, addressing the too-big-to-fail problem and breaking the sovereign-bank nexus. The Report promotes a technically sound implementation of international standards as part of an integrated EU framework in order to avoid banks being faced with two sets of rules.

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