July 20, 2018

EBA published a new updated list of common equity tier 1 (CET1) instruments of EU institutions, along with the third updated report on the monitoring of additional tier 1 (AT1) instruments. The list of CET1 instruments is accompanied by an updated CET1 report, which includes information on the underlying objectives of the monitoring as well as on the consequences of including or excluding instruments in, or from, the CET1 list.

CET 1 list and report. Since the first publication of the list on May 20, 2014, EBA has included 13 new forms of instruments issued after the entry into force of the Capital Requirements Regulation (CRR) and assessed their terms and conditions against the regulatory provisions with the aim of identifying any discrepancy with the eligibility criteria. In cooperation with competent authorities, EBA is also conducting a review of some pre-CRR instruments. In several cases, EBA requested amendments to the terms and conditions of the instruments, mainly relating to the eligibility criteria flexibility of payments and permanence. The CET1 report includes some background information on the monitoring work done to establish the CET1 list. Its aim is to provide external stakeholders with further guidance on the content and objectives of the CET1 list. The main results of the monitoring and assessment of CET1 instruments are summarized in a “lessons learnt” section. This section highlights areas where EBA believed it was necessary to amend the terms and conditions of the instruments or the national laws of a given jurisdiction or the by-laws/statutes of institutions to make a given form of instrument eligible as CET1 capital. The report will be updated regularly to reflect the findings from the assessment of different forms of CET1 instruments, either pre-CRR instruments or new instruments.

AT1 report. The updated AT1 monitoring Report is based on the review of 23 new AT1 issuances from EU institutions, which took place between May 2015 and December 2017, for a total amount of EUR 11.4 billion. Since the publication of the first report, EBA has reviewed 56 issuances for a total amount of EUR 44.7 billion. Compared with the previous update, this report assessed new provisions on calls, repurchases, redemptions, cancellation of distributions, tax events, and gross-up provisions. In the report, EBA noted that after more than three years of monitoring, the standardization of the terms and conditions of AT1 issuances is still increasing, with some issuers using the provisions proposed in the EBA standard templates, which were published in October 2016, for some definitions and others using them to a greater extent. EBA believes that this increased standardization is partly due to the guidance regularly published by EBA and regularly communicated by supervisors. As a result, a lower number of observations has been added compared to the previous versions. EBA expects that forthcoming issuances will retain an even more increased level of standardization. Finally, it is to be noted that the first issuances of AT1 instruments made after the entry into force of the CRR would be callable, with the prior permission of the competent authorities, in 2018. EBA will monitor AT1 calls and the rationale for calling/not calling instruments going forward.

 

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Keywords: Europe, EU, Banking, CET 1, Additional Tier 1, CRR, Regulatory Capital, EBA

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