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    EBA Updates Regulatory Standards on Own Funds and Eligible Liabilities

    May 26, 2021

    EBA published a report on the final draft regulatory technical standards on own funds and eligible liabilities. With the revised Capital Requirements Regulation (CRR2) introducing new criteria and requirements for eligible liabilities, the amended regulatory technical standards capture several aspects of eligible liabilities as well as the changes to the own funds framework. The final standards have been sent to EC for their adoption as EU regulations that will be directly applicable throughout the EU.

    The revised regulatory technical standards:

    • Align existing provisions to changes introduced in the revised CRR in the area of own funds, with this being the case for provisions related to the regime of supervisory prior permission for the reduction of own funds
    • Specify some of the newly introduced criteria for eligible liabilities instruments derived from the own funds regime; these include the absence of direct or indirect funding for the acquisition of ownership of eligible liabilities, the absence of incentives to redeem, and the need for the resolution authority’s prior permission for the reduction of eligible liabilities. For some of these aspects, the mandates attributed to EBA explicitly require to ensure full alignment between eligible liabilities and own funds
    • Increase the calibration of the threshold for determining the predetermined amount for the general prior permission for reducing eligible liabilities instruments from 3% to 10% of the total amount of outstanding eligible liabilities instruments, post feedback received during the consultation
    • Recognize some relief for the renewal of general prior permission both for own funds and eligible liabilities and for introducing a proportionate approach for liquidation entities for which their minimum requirement for own funds and eligible liabilities (MREL) does not exceed the loss absorption amount

    EBA has updated the regulatory technical standards on own funds, in accordance with the original regulatory technical standard mandates granted to EBA under Articles 28(5), 29(6), 52(2), 76(4), 78(5), and 79(2) of the Capital Requirements Regulation (575/2013). The provisions of the regulatory technical standards related to eligible liabilities have been developed in accordance with Articles 72b(7) and 78a(3) of CRR. 

     

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    Keywords: Europe, EU, Banking, Regulatory Technical Standards, Own Funds, CRR2, BRRD, MREL, TLAC, Eligible Liabilities, G-SII, Basel, Regulatory Capital, EBA

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