Eligible liabilities are qualifying bank obligations that can count with own funds toward MREL and absorb losses or support recapitalization in resolution.
Eligible liabilities are bank obligations that meet legal conditions to count alongside own funds toward the EU Minimum Requirement for Own Funds and Eligible Liabilities (MREL). They are intended to provide credible loss-absorption and recapitalization capacity if a bank enters resolution.
The term does not mean deposits or other liabilities against which a bank holds central-bank reserves. That separate concept is a reservable liability. Because “eligible” always depends on a specific rule, readers should identify the jurisdiction, resolution entity, instrument terms, and measurement date before treating a liability as eligible.
flowchart LR
A["Bank enters severe stress"] --> B["Losses reduce available capital"]
B --> C["Resolution authority applies<br/>the planned strategy"]
C --> D["Eligible instruments may be<br/>written down or converted"]
D --> E["Losses are absorbed and the<br/>resolved business is recapitalized"]
The actual sequence depends on the resolution decision, creditor hierarchy, statutory safeguards, available own funds, and the instruments in scope. MREL resources make a strategy more feasible; they do not predetermine every creditor’s treatment.
Under the current EU framework, authorities express MREL using risk-based and leverage-based measures. A simplified presentation is:
The resolution authority determines the applicable requirement. The target can reflect the preferred resolution strategy, loss-absorption and recapitalization needs, market-confidence adjustments, subordination requirements, and institution-specific decisions. There is no universal percentage that can be applied to every bank.
Qualifying instruments often include specified unsecured debt issued by the resolution entity, including senior non-preferred or subordinated debt, when all applicable conditions are met. Common eligibility questions include whether the instrument:
This is a screening list, not a complete legal test. Articles 45b and 45f of the Bank Recovery and Resolution Directive (BRRD), the Capital Requirements Regulation, the Single Resolution Mechanism Regulation, and the authority’s decision control the result.
| Liability or resource | Can it absorb losses? | Does it automatically count toward MREL? |
|---|---|---|
| Common Equity Tier 1 and other qualifying own funds | Yes, according to the capital and resolution hierarchy | Own funds can count, but they are not called eligible liabilities in the narrow instrument sense |
| Qualifying unsecured debt with adequate remaining maturity | Potentially | It may count if every eligibility condition is met |
| Other unsecured senior liability | It may be bail-inable | Not necessarily; bail-inability alone is insufficient |
| Covered deposit | Excluded from bail-in under the BRRD | No |
| Secured liability, including a covered bond to the secured extent | Generally protected to the secured amount | Generally no |
| Short-term interbank, payment-system, employee, or critical trade liability within an exclusion | Generally excluded under the applicable statutory category | No |
| Withdrawable deposit above the coverage limit | Treatment depends on scope and creditor hierarchy | It usually will not qualify if it cannot satisfy maturity and other instrument conditions |
The distinction matters to both analysts and investors. A bank’s total unsecured liabilities can be much larger than the amount that qualifies toward its MREL requirement.
External MREL generally refers to eligible instruments issued by a resolution entity outside its resolution group. Those instruments are positioned to absorb group losses under the chosen resolution strategy.
Internal MREL generally refers to qualifying resources issued by a subsidiary or other non-resolution entity within the group to its resolution entity, directly or through permitted structures. It is intended to transfer losses and recapitalization resources within the resolution group.
The distinction is important because the issuer, holder, consolidation level, and write-down mechanism differ.
Assume a resolution authority’s decision requires a bank to maintain EUR 24 billion of qualifying own funds and eligible liabilities under a simplified measurement.
The bank reports:
EUR 10 billion of qualifying own fundsEUR 12 billion of unsecured debt that meets all applicable MREL conditionsEUR 5 billion of otherwise similar debt with only nine months of remaining maturityOnly the first two amounts qualify in this simplified example:
The bank therefore has a EUR 2 billion shortfall against the assumed requirement. The EUR 5 billion short-dated instrument is still a liability and might remain exposed to loss under other rules, but it does not cure the MREL shortfall if it fails the applicable remaining-maturity test.
In practice, the bank must also check entity level, subordination, ownership, deductions, prior permissions, governing law, and the exact resolution decision.
Eligible debt is designed to bear loss in resolution. A holder can face principal write-down, conversion into equity, payment suspension, valuation uncertainty, or a change in the timing and form of recovery. Seniority reduces or changes loss exposure but does not guarantee repayment.
Before evaluating an instrument, identify:
This page provides general financial and regulatory education, not legal, resolution-planning, compliance, or investment advice. Current EU legislation and the relevant resolution authority’s decision control a specific instrument or institution.