Funding – state of play

Rising relevance of market-based funding and deposits in 2024

Banks grew their liabilities by around 3% in 2024, reaching EUR 26.2 tn as of YE 2024. Within liabilities, debt securities issued increased the most, rising by around 3% and reaching a share of 20.3% of total liabilities in Q4 2024 (19.7% in Q4 2023). Deposits remained the most important source of funding and continued to increase their share of total liabilities. Household deposit volume reached a share of nearly one third of total liabilities and increased by 1.3% in relative terms in 2024, to a share of 31.1%. The share of NFCs deposits marginally increased to 17.2% in Q4 2024, while the share of deposits from credit institutions grew stronger, from 6.3% in Q4 2023 to 6.5% in Q4 2024. These developments widely confirm banks’ intentions regarding their funding mix, as expressed in previous RAQ results^[31]. Within customer deposits, a move from term deposits to sight deposits was observed, as central banks lowered their policy interest rates, lowering the interest rate differential between term deposits and sight deposits.

The importance and volume of central bank funding continued to decrease in 2024. This is reflected in decreasing other liabilities in total liabilities, which include deposits from central banks, and fell from 14.4% in Q4 2023 to 13.1% in Q4 2024. The decrease is not least driven by final repayments of TLTRO funding that EA banks had taken up from the ECB, and which had to be finally repaid by December 2024, when the programme ended. At the start of 2024, the outstanding TLTRO amount was at around EUR 400 bn, and a large share of this amount was repaid in H1 2024. Accordingly, other liabilities in total liabilities decreased strongly in H1 2024, and decreased more slowly in H2 2024. The composition of total liabilities indicates that the main replacement for central bank funding was debt securities issued, followed by increasing customer deposits. In parallel to the decrease in central bank funding, the EU/EEA banks’ asset encumbrance ratio has also further declined (see more details on this in Chapter on Asset encumbrance). Regarding the liability mix, dispersion among countries has remained wide. While banks from Nordic countries have a higher dependency on market-based funding, certain banks domiciled in, for example, Cyprus, Greek, Latvia, Poland, Portugal and Slovenia, rely more heavily on household deposits (Figure 23).

Market data indicate that EU/EEA banks remained very active in primary funding markets in 2024, except for periods of significant volatility, which resulted in the described increase in the proportion of market-based funding in banks’ total liabilities. Issuance volumes of subordinated capital instruments of Tier 2 (T2) and Additional Tier 1 (AT1) increased sharply in 2024 compared to the previous two years. However, 2024 volumes of senior preferred, non-preferred senior and unsecured funding issued from holding companies (HoldCo) decreased compared to 2023. Issuance volumes of covered bonds were also lower than in 2023.

Market sentiment for bank funding became more challenging in 2025

Primary bank funding markets were overall resilient in the first months of 2025. Moderate issuance volumes of unsecured instruments amid slightly tightening spreads and rather low volatility were reported, while macroeconomic growth expectations were still more benign than they have become since April 2025. Market conditions became more challenging in March 2025. Higher market interest rate- and spread volatility resulted in rising yields for bank debt instruments amid a backdrop of a deteriorating macroeconomic outlook with rising sovereign yields. This led to episodes of very limited debt issuance activity. It came to a near standstill following the 2 April 2025 announcements by the US administration on the planned increases in tariffs globally, when market volatility spiked. Spreads faced a very marked widening for all instruments across the capital stack (Figure 24). Funding market conditions have improved again since then, with resuming issuance activity and decreasing spreads.

 [*] With regard to IHS Markit in this chart, and any further references to it in this report and related products, neither Markit Group Limited (‘Markit’) nor its affiliates nor any third-party data provider make(s) any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. Neither Markit nor its affiliates nor any data provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the Markit data, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

Issuance data shows that volumes of bank debt instruments were lower in the first five months of 2025 than in the first five months of 2024 across most seniorities (Figure 25). The end of TLTRO in 2024, which was a driver for issuances last year to replace it, might be one reason for lower primary market activity this year. Rather long periods of market volatility, coupled with a deteriorating economic outlook, are presumably also among the drivers of reduced issuance volumes so far. Only the issuance volume of AT1 instruments and senior preferred instruments was broadly the same as it was in 2024. Covered bond issuance volume has been particularly reduced so far in 2025 compared to the first months of 2024. An observed tightening of spread differentials between covered bonds and sovereign, supranational, and agency bonds, making covered bonds relatively less attractive for investors, are among additional drivers for this development. Within the covered bond segment, the issuance volume of green bonds has increased markedly, as green covered bonds have become more mainstream products and are increasingly used in the financing of green projects. The share of green bonds in senior preferred and senior non-preferred and HoldCo instruments has remained broadly the same. The first green T2 instruments were reported in early 2025 (Figure 25).

[*] Based on publicly available market data, which may not completely reflect all issuances of the different types of debt and capital instruments. 

Senior unsecured debt is a key resource for meeting MREL^[34]

Senior preferred instruments (in Figure 26 described as ‘senior unsecured’) are one of the key components that EU/EEA banks use to meet their MREL-related funding needs. This is independent of their size and accordingly applies for Global Systemically Important Institutions (G-SIIs) as well as top tier / fished and other institutions. It shows that functioning funding markets for these instruments are not least paramount for all groups of banks, to meet their ongoing MREL requirements. Whereas senior non-preferred funding plays a similar role for the first two groups, it is of smaller relevance for the group of ‘other’ banks, not least due to their need to meet subordination requirements only on a case-by-case basis, depending on resolution authorities’ assessment of no creditor worse off (NCWO) risks. For those 'other' institutions, which tend to correspond to the smaller institutions in the covered sample, CET1 is of greater relevance (Figure 26)^[35].

The importance of a functioning primary market for MREL debt is also reflected in data showing the maturing volumes of the respective funding instruments. The volume of senior non-preferred debt instruments with residual maturities of between one and two years – i.e. instruments that would implicitly need to be replaced to keep their MREL eligibility status – reached slightly more than EUR 70 bn as of Q2 2024, whereas volumes of respective senior preferred and similar instruments reached nearly EUR 130 bn (Figure 27). As a high-level comparison of potential primary market capacity to digest the replacement of such volumes within a one year period, actual issuances of senior non-preferred debt reached around EUR 130 bn, and for preferred debt more than EUR 150 bn in 2024 (see also Figure 25 and above coverage on primary markets). Funding plan data similarly indicate that these maturing volumes can be replaced (on banks’ funding plans, including planned gross and net issuances by debt category, see Chapter on Funding plans - outlook below). However, certain risks remain that banks cannot fully replace such maturing MREL funding volumes. This will also depend on how primary markets further evolve this year.

Funding plans – outlook

Deposits and long-term debt expected to become more prominent in banks’ funding mix

The expiry of extraordinary central bank support measures and the application of binding MREL requirements led to a substitution of central bank funding by market-based funding and client deposits in the last year. According to funding plan data based on the respective sample of banks (see the Introduction Chapter and Annex with sample of banks), deposits from central banks dropped from 1.9% in 2023 to 0.7% of total liabilities as of the end of 2024 and are expected to stay at this level for the years 2025 to 2027 (‘the forecast period’). Long-term unsecured debt instruments increased from 8.8% in 2023 to 9.5% of total liabilities in 2024 and banks forecast this level to be stable over the forecast period (Figure 28). In addition to market-based funding, deposits from households increased from 27.6% in 2023 to 28.0% in 2024. Banks expect the share of household deposits to increase further throughout the forecast period, to reach 28.5% in 2027. The share of deposits from NFCs slightly decreased in 2024 (from 15.4% in 2023 to 15.3% in 2024), but banks expect that NFC deposits will reach 15.8% of total liabilities by the end of 2027.

While the overall funding composition is expected to remain rather stable over the forecast period, banks’ funding plans suggest that some liability segments will show larger moves than others. The fastest growing liability segment is expected to be repurchase agreements, with an expected increase of 16% during the three-year forecast period, of which 11% is expected in 2025. Three further liability segments are expected to grow by around 10% over the forecast period. These include long-term unsecured debt securities, deposits from households and deposits from NFCs. Derivatives and deposits from central banks are the only two liability segments with projected declines over the forecast period (-9% and -3% respectively; Figure 29). The decline in derivatives on the liability concurs to a similar expectation for the asset side (see Chapter on Assets: outlook and related possible explanations for these expectations).

[*] Original maturity <1 year

Trends in market-based funding: rising issuance volumes

Over the forecast period, banks plan to increase total long-term funding by 7%, reaching a total outstanding volume of EUR 4.8 tn in 2027 (EUR 4.5 tn in 2024). Banks expect a total net issuance volume across all long-term debt securities of EUR 106 bn in 2025, EUR 99 bn in 2026 and EUR 113 bn in 2027. Banks in most countries plan for a significant net issuance volume in 2025, with overall issuance volume highest in France, Germany and Sweden. The latter also has the highest issuance relative to the size of the local banking market. Banks in a number of countries such as Ireland, Belgium and Norway expect a negative net issuance volume in one of the years of the forecast period. In most cases this either follows or is followed by a year of positive net issuances (Figure 30).

Banks expect to increase the outstanding volume of unsecured debt instruments by 5.9% over the forecast period, to EUR 2.9 tn in 2027 compared to EUR 2.8 tn in 2024. However, there are significant divergences between segments of unsecured debt instruments. Senior preferred instruments (represented as ‘other long-term unsecured instruments’ in Figure 31) are the main driver behind this trend, with outstanding volume expected to increase by 10% and reach EUR 1.5tn by 2027. Banks also forecast growth for senior non-preferred instruments of 5% throughout the forecast period, with outstanding volume set to reach EUR 660 bn. Similarly, banks plan to grow AT1 instruments by 7% and reach EUR 93 bn by 2027. For other segments, outstanding volume is expected to decline over the next three years. This is the case for T2 instruments (-4% by 2027), subordinated instruments (-7% by 2027) and senior HoldCo (-1% by 2027).

According to banks’ funding plans, yearly issuance volumes over the next three years are expected to rise. In 2025, the total volume of unsecured debt to be issued is EUR 548 bn, which compares with EUR 409 bn placed in 2024. Senior preferred and senior non-preferred issuances dominate the 2025 issuance volume, with EUR 317 bn and EUR 122 bn respectively (Figure 32). The growth in issuance volume for both segments can mainly be explained by higher maturing volumes in 2025 compared to 2024. The volume of maturing debt in 2025 is higher than the planned issuance volume for senior HoldCo instruments (EUR 60 bn vs EUR 55 bn) and for T2 instruments (EUR 49 bn vs EUR 46 bn), pointing to a slight underfunding for these types of instruments in 2025. The high net positive issuances in 2024 for both segments, however, might indicate that banks have pre-funded some of the 2025 maturing volume in 2024.

The issuance volume of unsecured instruments is set to stay high in 2026, mainly driven by a high volume of maturing debt. Banks plan to issue EUR 308 bn of senior preferred and EUR 106 bn of senior non-preferred instruments in 2026, resulting in a positive net issuance volume for the two main debt classes. For T2 instruments, the planned 2026 issuance volume of EUR 37 bn is below the maturing volume of EUR 41 bn. The same pattern repeats itself in 2027, with senior preferred and senior non-preferred instruments issuance volume exceeding maturing volume and T2 issuance volume below maturing volume.

Significant rise in planned covered bond issuances might be challenging to meet

On secured debt, banks plan to strongly increase secured funding issuances in 2025 after a comparatively low issuance volume in 2024. Compared to 2024, the total issuance volume of long-term secured debt is expected to double to EUR 325 bn in 2025 (EUR 151 bn in 2024)^[36]. The issuance volume of covered bonds is expected to reach EUR 259 bn in 2025, followed by EUR 298 bn in 2026 and EUR 304 bn in 2027. The strong increase in covered bond issuance in the forecast period is largely driven by a high volume of maturing covered bonds. Yet the issuance volume of covered bonds is forecasted to exceed the volume of maturing covered bonds in each year of the forecast period, representing a total net issuance volume of almost EUR 100bn for the forecast period. Equally important in size are retained covered bonds (i.e. those that have not been placed on the market). In 2024, retained covered bonds amounted to EUR 203 bn (1.6 times the issuance volume). The ratio of retained vs issued covered bonds is expected to be between 1.1 and 0.9 during the forecast period.

Banks expect a strong increase in issuances of asset-backed securities (ABS) in the years to come, with EUR 55 bn in 2025, EUR 51 bn in 2026 and EUR 47 bn in 2027 (compared to EUR 11 bn in 2024). This may also be due to ongoing regulatory and policy initiatives to facilitate and promote securitisations. For each year of the forecast period, banks plan to issue ABS significantly above maturing volume, leading to a net issuance volume of EUR 42 bn over the forecast period. The share of retained ABS in 2024 was 16 times the volume of issued ABS and is expected to stay close to 33 times throughout the forecast period. Issuance volume of other secured long-term debt is expected to stay close to the current level of EUR 11 bn throughout the forecast period.

Banks’ planned issuance volume for 2025 can be compared with actual bond issuances recorded in the first four months of 2025 (see Chapter on Funding - state of play, incl. Figure 25). While the coverage of banks and issuances differs for the two data sets, a comparison of trends in actual versus planned bond issuances can provide an indication on the feasibility of banks’ issuance plans. Primary market data shows that banks placed a somewhat lower volume of bonds across all bond segments in the first months of 2025 compared to the same period in 2024. If full-year 2025 plans are to be met, bond markets will need to show high activity levels for the remainder of the year. This is particularly true for covered bond markets, given the planned increase in issuance volume for 2025 (Figure 33). Planned high issuance volumes might become more difficult if financial markets show elevated levels of volatility, as was the case in recent months (see Chapter on Macroeconomic environment and market sentiment and Funding - state of play). It will therefore be important that banks make the most of windows of opportunity for their issuances.

The asset encumbrance ratio (i.e. the ratio of encumbered assets and collateral received to total assets and collateral received that can be encumbered) continued to decrease from its 2021 peak of ca. 29%. In December 2024 it stood at 24.1%, 60 bps below the 24.7% reported in December 2023. Although encumbered assets (i.e. the numerator) increased in this period by around 2%, the denominator (i.e. total assets and collateral received that can be encumbered) recorded a stronger rise (Figure 34).

Discrepancies between countries can be clearly observed. Banks report by far the most encumbered assets in Denmark, largely due to the large issuance volume of covered bonds for funding purposes. Conversely, Lithuania, Latvia and Romania are the countries with the smallest asset encumbrance ratios, at 0.2%, 0.8%, and 1% respectively. The asset encumbrance ratio fell the most YoY for Greece, from 13.7% to 7.2%, which might be explained by final TLTRO repayments (Figure 35).

Debt securities are the most frequently encumbered instruments, followed by loans and advances. These two categories have exhibited opposite trends over the past two years. Since December 2020, the encumbrance of debt securities has increased, while loans and advances have declined as a source of encumbrance. Starting in 2023, both instrument categories saw accelerated trends, with debt securities surpassing loans and advances as the primary source of encumbrance since 2024 (Figure 36). These dynamics presumably represent the progressive decrease in central bank funding while other reasons for encumbrance gain prominence, for which debt securities are required as collateral.

The total volume of encumbrance is on the rise, with a 2% increase from December 2023 to December 2024. Together with the decline in the asset encumbrance ratio, this might also indicate that instruments that can less often be encumbered – such as loans – might be the assets that are now available for encumbrance, and less so debt securities. This might imply that the ‘quality’ of the assets available for encumbrance might decline: they cannot be encumbered for all purposes, such as repos, which is an instrument that can be used relatively quickly in case of a sudden funding needs. However, there are also instruments for which loans, for example, would be the required assets, such as covered bonds. A further analysis shows that the fair value – as a ratio of carrying amount – of non-encumbered debt securities slightly declined in 2024, by 20 bps to 97.5%. This confirms that there do not seem to be major hidden losses as of YE 2024 – which would need to be considered when using such assets for encumbrance – and that they barely increased during the year. However, yield rises during spring 2025 have presumably negatively affected these fair values, but they presumably have partially reverted again in the meantime (see macro Chapter on sovereign yield developments, for example).

In the EU/EEA on average, the share of non-encumbered assets over total assets is high and YoY has gone up by almost 1.3 pp. to 83.2%, which corresponds to around EUR 25 tn. The amount of central bank funding-eligible encumbered assets over total assets has also increased by 50 bps to 17.1% as a share of total assets, corresponding to EUR 5tn. However, there are quite significant discrepancies among countries in both indicators. For example, the Netherlands stands at 89.7% of non-encumbered assets and 18.4% of central bank funding-eligible non-encumbered assets, while Italy’s non-encumbered asset ratio is 80.5% and 21.4% for central bank funding-eligible non-encumbered assets. More generally speaking, southern European countries tend to hold higher central bank eligible non-encumbered assets, measured as share of total assets, while for northern countries this share tends to be lower. For the latter group of countries, the share of non-encumbered assets over total assets also more broadly tends to be lower than for other countries.

Sources of asset encumbrance, i.e. balance sheet liabilities for which collateral is posted, rose by around 2% YoY, from around EUR 8.1 tn in 2023 to around EUR 8.3 tn in 2024. The main sources of asset encumbrance remained relatively stable in 2024. Repos continue to be the primary source of encumbrance, accounting for 34% of the total encumbrance, having increased by 2.5 pp. YoY. They are followed by covered bonds at 23.4%, whose share rose slightly by 20 bps YoY. The share of central bank funding has been steadily decreasing, showing a YoY decline of 6.1 pp., which comes in parallel to the declining volume and final repayments of TLTRO.

Liquidity positions and NSFR^[37]

The decline in the liquidity buffer (HQLA) drives LCR lower

The liquidity positions of EU/EEA banks remained solid and well above minimum regulatory requirements. The weighted average LCR of EU/EEA banks decreased to 163% as of December 2024, down from the level observed as of December 2023 (168%). This decline was attributed to a reduction in liquid assets while net outflows remained constant. In December 2024, the share of liquid assets to total assets reached 20.2% (20.7% as of December 2023), while the net outflow ratio remained stable at 12.3% (Figure 39). The decrease in liquid assets was primarily due to the decline in central bank reserves, which was not fully compensated by the increase reported in Level 1 sovereigns, Level 1 covered bonds and Level 2 assets. While net outflows remained constant, gross outflows increased by 0.3% of total assets, due to an increase in outflows from operational deposits, non-operational deposits and secured lending. The latter was likely due to demands from counterparties for additional collateral to mitigate valuation risks amid moves in interest rates. These outflows were partially offset by a slight decline in outflows from retail deposits. This reflects the decline in outflows from deposits exempted from the calculation of the outflows, consisting mostly of term deposits.

As central bank reserves are gradually drained from the system, EU/EEA banks are reshuffling their liquidity buffers by increasing their holdings of government bonds, Level 1 covered bonds and Level 2 assets. This also helped banks to lock in interest income at times when sovereign bonds have provided higher yields. Despite the changes observed in the composition of the aggregate liquidity buffer, cash and central bank reserves continued to dominate HQLA. As of December 2024, they accounted for 52% of all HQLAs, down from 61% in December 2023. Conversely, government assets and Level 1 covered bonds increased their share of total liquid assets to 37% and 7%, respectively, by December 2024, up from 30% and 5% in December 2023. Such assets also ensure an adequate stock of available collateral for the provision of liquidity in the repo market, for example, or for other funding and similar purposes (see also Chapter on  Asset encumbrance). In parallel to the build-up of the buffer of government bonds, EU banks’ central bank reserves have steadily decreased, reaching their lowest level since September 2020 by December 2024. The change in the HQLA composition, which is also due to declining liquidity in the systems overall, suggests that banks will have to manage their liquidity buffers more actively to ensure that they can meet their short-term financing needs.

Weighted average LCRs in foreign currencies are in general above 100%

Apart from the aggregate LCR figures, the EU/EEA banks also report their LCR in significant foreign currencies^[38]. The LCR value in EUR (for banks domiciled in non-EA countries) was 156%. On an annual basis, the weighted average LCR in EUR shows a decreasing trend, with values close to the overall LCR. On average, the LCR in GBP stood at 132% as of December 2024. However, while even the lowest quartile of the distribution of EUR LCR is above 100%, the lowest quartile of GBP LCR is below 100%. The average LCR in USD was consistently below 100% until December 2023. It has improved since then, reaching more than 100% and has remained steadily above that level (111% in December 2024). The median USD LCR is also above 100%, while only the first quartile remains below 100%. Low levels of LCR in foreign currency may create vulnerabilities in periods of high volatility, and therefore banks should manage this risk appropriately. In addition, some central banks provide liquidity swaps in some currencies that can, for instance, be used in times of market stress (Figure 41).

NSFR shows a comfortable position for banks across all jurisdictions

EU/EEA banks’ average NSFR continued its previous rise throughout H1 2024, not least because banks substituted part of the maturing TLTRO funding with market-based funding. After its rise in H1 2024, it declined during H2 2024, reaching 127.1%, a slightly higher level compared to the one observed in December 2023 (127%). It implicitly confirms prior assessments indicating that banks did not encounter significant difficulties in replacing TLTRO funding with other stable sources of financing. As of December 2024, all banks in the sample recorded NSFR levels exceeding 100% (Figure 42).

[*] ASF refers to available stable funding, and RSF to required stable funding.

Despite the comfortable NSFR levels, on average, the ratios by currencies are partially lower. The average NSFR in USD, for instance, stood at 98% as of December 2024. The number of banks with an NSFR in USD below 100% represented 37% of the total sample as of December 2024. However, the average USD NSFR levels are still higher than the levels observed before the second half of 2022.

Retail deposits constitute nearly half of the banks’ total Available Stable Funding (ASF), not only due to the high relevance of deposits in banks’ liability mix, but also to their consideration as a stable source of funding in line with the NSFR (see also Chapter on Funding - state of play, but also their relevance for banks’ profitability, as covered in Chapter on Profitability). The second largest component is liabilities with undetermined counterparties, accounting for 14.6% of the total ASF^[40]. This is followed by capital at 13%, funding from non-financial customers at 12.3%, and funding from financial customers and central banks at 8%. Other components, including funding from operational deposits, account for the remaining 3.8% of total ASF. On the denominator side of the ratio, loans are the dominant component, comprising over three quarters of the total Required Stable Funding (RSF) (Figure 43).

Banks’ funding plans point to a declining LCR

Funding plan data indicate that the LCR is expected to decline this year by 7 pp. This is mainly due to a rise in net outflows, whereas HQLAs are expected to remain stable. The rise in net outflows might not least be due to a continuation of some of the trends seen last year, namely the switch-out of term deposits to overnight ones (see also Chapter on The role of deposits exempted from the calculation of the outflows in the evolution of EU banks’ LCR). The NSFR is planned to remain more or less stable over the forecasted horizon (Figure 44).