Issuance yield of MREL-eligible bank debt: a benchmarking model

This paper develops a benchmarking framework to assess the cost of issuing MREL-eligible debt, enabling structured comparisons across banks, instruments and jurisdictions. Using data on 12,075 securities issued by 206 banks in the banking union from 2019 Q3 to 2024 Q3, we quantify how bank characteristics, macroeconomic conditions and instrument features affect issuance costs. Compared with banks with assets below €100 billion, global systemically important institutions benefit from significantly lower costs, down by 92 basis points, while other systemically important institutions and top-tier banks benefit by 88 basis points. Higher credit ratings are associated with up to an 86 basis point reduction in issuance spreads; greater efficiency, proxied by a lower cost-to-income ratio, also narrows spreads. The overnight index swap rate is the most influential macroeconomic factor, with each percentage point increase associated with a 97 basis point rise in costs. Longer maturities and greater subordination significantly increase funding costs. Lastly, we apply the model to decompose issuance costs for seven Spanish banks, identifying key cost drivers across institutions, and to simulate the impact of issuing senior non-preferred versus senior debt for four European banks near the €100 billion size threshold, documenting the implications of subordination requirements for banks’ net income.