The European Banking Authority estimated that possible funding needs for minimum requirement for own funds and eligible liabilities, or MREL, would range between €186.10 billion and €276.20 billion, for a sample comprising 133 banks from 18 EU member states.
The new range compares to the regulator's prior estimate of as much as €790 billion that European banks might have had to sell in loss-absorbing liabilities to meet new regulations.
The EBA also showed that the net macroeconomic impact of introducing MREL in the EU is positive and ranges between 17 basis points and 91 basis points of GDP.
The regulator's final recommendations on the implementation and design of MREL includes subjecting global systemically important banks to a partial subordination requirement of at least 14.5% of their risk-weighted assets, in line with the Financial Stability Board's total loss-absorbing capacity term sheet. Other systemically important institutions could be subject to a partial subordination requirement of 13.5% of RWAs, with some flexibility to cater for market capacity and differences in resolution strategies.
The watchdog is proposing that equity should not be counted toward MREL and capital buffers at the same time.
"This could be done either by stacking the buffers above MREL or by treating the buffers as a parallel framework to MREL," the EBA said. "Nevertheless, it is crucial that a breach of MREL is treated as seriously as a breach of capital requirements."
The EBA said the European Parliament and Council will discuss its recommendations in the coming months.