Article 80 of the Capital Requirements Regulation provides for the continuing review of the quality of own funds and provides that the European Banking Authority (EBA) “shall monitor the quality of own funds instruments issued by institutions across the Union.” In addition, the same article provides that, “competent authorities shall, without delay, upon request by the EBA, forward all information that the EBA deems relevant concerning new capital instruments issued by institutions across the Union.”
The EBA has now published a report which is intended to inform external stakeholders about its continuing work in terms of monitoring of the issuances of Additional Tier 1 (AT1) capital instruments and to present the results of this monitoring.
- illustrates the EBA’s views on clauses that it recommends to be avoided in the terms and conditions of AT1 instruments;
- seeks to clarify the EBA’s position on acceptable triggers for regulatory calls and on the conditions for the inclusion of tax gross-up provisions in the terms and conditions of AT1 instruments;
- details the triggers for loss absorption, in particular as concerns the Common Equity Tier 1 (on a consolidated, sub-consolidated or individual level) that should be the basis for setting the triggers for AT1 instruments issued within a banking group; and
- discuss the rationale for disallowing contingent clauses where payments become mandatory if they lose the status of AT1 instruments.
The report is in draft form and the EBA will be holding a public hearing on 18 May 2015. The EBA expects to publish the final report by the end of May 2015.
View EBA updates its monitoring of Additional Tier 1 capital instruments, 4 May 2015