BBVA comfortably surpasses its new MREL requirement
The Bank of Spain has informed BBVA of its new minimum requirement for own funds and eligible liabilities (MREL), the regulatory framework that requires banks to have sufficient funds to absorb losses in case of crisis. Starting June 12, 2025, BBVA must maintain a buffer of 23.13 percent of the total risk-weighted assets (including the parent company, BBVA S.A and its subsidiaries in Europe). With an MREL ratio of 33.20 percent at the end of March 2025, the bank already far exceeds this threshold, and also meets the additional requirements for subordination and capital buffers.
Every year, the Single Resolution Board (SRB) determines the volume of own funds and eligible liabilities that every bank must maintain to cover possible losses. Specifically, based on data from December 31, 2023, and starting today, BBVA must maintain a volume of eligible instruments representing 23.13 percent of the risk-weighted assets of its European resolution group¹.
If total exposure used to calculate the leverage ratio of the European resolution group is taken into account, and not risk-weighted assets, the new MREL requirement is 8.59 percent.
Furthermore, the SRB establishes a subordination requirement, which obliges banks to meet part of their MREL requirement with a minimum percentage of subordinated instruments (those with a subordination level equal to or greater than non-preferred senior debt). In this case, BBVA must maintain a volume of subordinated eligible liabilities representing 13.50 percent of the risk-weighted assets. Again, if total exposure used to calculate the leverage ratio is taken into account, this requirement stands at 5.66 percent.
The MREL and subordination requirements based on risk-weighted assets are joined by the combined capital buffer requirement of 3.65 percent.
BBVA currently complies with all of these requirements, both when taking into account its risk-weighted assets in Europe and when looking at its total exposure included in the leverage ratio.
What is the MREL?
MREL is a requirement for European banks to have a minimum volume of own funds and liabilities with the capacity to absorb losses and recapitalize the bank if it is declared non-viable.
The Bank Recovery and Resolution Directive (BRRD) created this requirement to ensure that financial institutions have sufficient own funds and eligible liabilities to first, absorb possible losses, and second, recapitalize themselves without the need to use public funds if necessary. This prevents taxpayers from having to cover the cost of possible bank bailouts.
The MREL requirement is determined on a bank-by-bank basis, taking into consideration the capital requirements, as well as other factors such as the corporate structure and resolution strategy.
In BBVA’s case, given its ‘Multiple Point of Entry’ resolution strategy, the MREL requirement does not apply to the BBVA Group’s consolidated balance sheet, but to a European perimeter, mainly composed of BBVA, S.A., the parent company responsible for the Group’s business in Spain.