that use internal models ( irb ), will be most affected, with the impact being restricted to an 11. 3 % increase in rwas for medium - sized banks and of only 5. 5 % for the smallest banks. the main impact will stem from the application of the regulatory floor for those risk - weighted assets calculated using the internal ratings - based approach. as indicated, the lower use of irb models by our banks means they will not be affected by this concept. however, other changes, such as the new operational risk and credit valuation adjustment ( cva ) frameworks, or the introduction of changes in the standardised approach, will indeed affect our banks, which should prepare themselves to absorb the new requirements. 8 / 15 mrel another challenge banks face stems from the introduction of the new eligible liabilities requirements, known as mrel. as you will be aware, the introduction of mrel is the consequence of the change in paradigm in crisis resolution. we have now moved from the bail - out to the bail - in. the aim is to ensure that banks have sufficient unsecured liabilities on their balance sheet, whether own funds or “ bailinable ” debt, if you will allow me to use this expression, so as to avoid the use of public funds in the event of failure. the single resolution board ( srb ) has set mrel objectives for each significant institution at the european level. it has also informed them of the maximum time available to cover these requirements, which must be met through organic growth of specific liabilities and new issues. it is essential that each institution should plan the issues to be made appropriately. it is worth recalling here that the characteristics of these liabilities make them rather unsuitable for distribution among retail customers. as we have witnessed in some cases in the recent past, the holding of these securities by individuals entails problems in a context of crisis, turning them even into an obstacle for the institution ’ s “ resolvability ”. and that is exactly the opposite of what the rule originally sought. the banco de espana is determined to prevent this type of past situation from recurring. we should not make the same mistakes again. for these reasons, the challenge of covering these issues is greater for smaller - sized banks, which have a scant presence on the markets and are more geared to the retail segment. i think it is important that banks, in particular those with less access to the markets, should take advantage of those windows in which investors

’ appetite for this type of asset increases, so as to bring forward as far as possible the issuance calendar. one final aspect i wish to mention is the cost of these issues and of liabilities in general. the latest banco de espana financial stability report offers the findings of a study on european banks which conclude that the higher the level of the cet1 capital ratio, the lower debt issuance costs are. 9 / 15 this effect increases as debt instruments become more akin to capital instruments. as can be seen in the chart, if the cet1 ratio increases by 1 pp, a 0. 3 % reduction may be expected in the cost of issuing instruments eligible as tier 1. the effect is smaller, although significant, by around 0. 13 - 0. 16 % for tier 2 instruments or for senior debt. the findings are, in my opinion, perfectly logical and rational. evidently, a higher capital ratio is a guarantee for those debt - holders situated lower in the hierarchy of credit tranches. as a result, investors are prepared to buy debt at lower rates than those that are demanded of institutions showing lower cet1 levels. as i pointed out, showing a high level of capital is not a disadvantage. in addition to mrel eligibility, a high level of capital evidently enables the bank to reduce its funding costs, likewise improving its external rating and its access to markets. improving profitability apart from improved solvency, there are other levers that can help improve profitability. first, headway in reducing non - earning assets is important. spanish banks have managed to significantly reduce their portfolios of npls and foreclosures, although we remain above the figures posted by other european union banks and the level continues to be clearly above what it was pre - crisis. as their name suggests, these assets are “ unproductive “. but, moreover, maintaining them entails high costs in terms of human, financial and – in the case of property – tax and upkeep resources. evidently, their disposal allows costs to be cut and resources to be freed up and used for other productive activities. in this setting of low margins and high competition, bank mergers are an alternative for gaining competitiveness. mergers – or, i should rather say, their absence in light of the recent past – are always prominent in press headlines. in this respect, let me reiterate that mergers may be a means for securing gains in efficiency and profitability, but they are very complex operations