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

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.