EBA Proposes Revised Standards for Own Funds and Eligible Liabilities

Last year, European legislators adopted a series of measures, including the “Risk Reduction Measures Package” that complements the existing banking framework to lower risks of failure, reduce the severity of failure, and minimize costs to the tax payer. Part of these risk reduction measures consists in applying targeted adjustments to the own funds framework set out in CRR to reflect EU specificities and a few broader policy considerations. In parallel, the CRR and the Bank Recovery and Resolution Directive (BRRD) have been amended to implement, in EU, the total loss absorbing capacity (TLAC) standard agreed upon for global systemically important institutions (G-SIIs) at the G-20 table. Own funds and eligible liabilities’ requirements have been set out alongside capital requirements to reinforce loss absorption capacity for banks, both going-concern and in resolution. EBA has historically been mandated to further specify some of the conditions of the own funds regime. With the introduction of eligible liabilities instruments in CRR, EBA is mandated to specify the eligible liabilities regime, in some cases with an explicit obligation for both regimes to be fully aligned. To ensure consistency across the spectrum of instruments with similar loss absorption features, it is necessary to approach both sets of mandates together.

For this reason, EBA has chosen to deal with the own funds regime and the eligible liabilities regime in a single set of regulatory technical standards. This consultation paper puts forward draft amendments to the Commission Delegated Regulation No 241/2014 with regard to the regulatory technical standards own funds requirements for institutions, which are now also applicable to eligible liabilities instruments. The consultation paper elicits stakeholder views on the design of the new provisions. With the revised Capital Requirements Regulation (CRR) introducing new criteria and requirements for eligible liabilities, these amended regulatory technical standards capture several aspects of eligible liabilities as well as the changes to the own funds framework. The changes also relate to the provisions for the regime of supervisory prior permission for the reduction of own funds and market making. The draft amended regulatory technical standards specify some of the newly introduced criteria for eligible liabilities instruments derived from the own funds regime, including the:

• Absence of direct or indirect funding for the acquisition of ownership of eligible liabilities
• Absence of incentives to redeem
• Need for the resolution authority’s prior permission for the reduction of eligible liabilities

Related Links

• Press Release
• Consultation Paper (PDF)

Comment Due Date: August 31, 2020

Keywords: Europe, EU, Banking, CRR, BRRD, Own Funds, Eligible Liabilities, Regulatory Technical Standards, TLAC, Resolution Framework, EBA