Evolving key risks in the banking sector, and related priorities for the SRB: the impact of the current ‘inflation crisis’

Abstract

This study discusses recent and current conditions relating to financial stability in the euro area, developing, in particular, on the impact of the current “inflation crisis” on financial stability vulnerabilities. Furthermore, it addresses two related priorities for the Single Resolution Board (SRB): the first relates to the ability of credit institutions (and at what cost) to raise debt in capital markets, in view of the current high levels of interest rates, to timely meet their minimum requirement (for own funds and) eligible liabilities (MREL); the second refers to the eventual need for adjustment of preferred resolution strategies and the development of alternative ones for at least some credit institutions, considering the difficulties in meeting MREL targets under the current conditions.

JEL Classification: E42, E43, E44, E51, E52, E58, F33, F36, F55, G21, G23, G28, K10, K23, K33, N14, N24