Lukáš Pfeifer, Libor Holub
This article studies the impacts of the minimum requirement for own funds and eligible liabilities (MREL) on the effectiveness of macroprudential capital regulation of the banking sector. It examines the MREL’s effect on the usability of banks’ capital buffers and any capital surplus for absorbing losses and lending to the economy in various economic scenarios. We quantify this usability in a comprehensive framework of the currently applicable capital requirements. The article concludes that the introduction of the MREL may cause usability to decrease, especially during long adverse economic episodes in banks that use internal models to manage credit risk.
Issued: December 2022
Download: Thematic article on financial stability 2/2022 (pdf, 926 kB)