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    EBA Opines on EC-Proposed Changes to Own Funds & Eligible Liabilities

    April 08, 2022

    The European Banking Authority (EBA) issued an opinion on amendments proposed by the European Commission to the draft regulatory technical standards for own funds and eligible liabilities.

    In the opinion, EBA expressed its disagreement with two substantive changes proposed by the European Commission to the draft regulatory standards for own funds and eligible liabilities, though it agrees with certain other amendments that do not imply a change in policy and represent non-substantive changes. The amendments with the substantive changes relate to the provisions covering the notions of direct and indirect funding and the prior permission process for certain types of liquidation entities. 

    In relation to provisions covering direct and indirect funding, EBA clarified that the direct and indirect funding rules should capture situations where the funding is provided by an entity included in the scope of prudential or accounting consolidation, regardless of whether it involves an external investor or not. The rules ensure that entities issue actual loss-absorbing capacity and prevent them from issuing instruments that might eventually expose them to their own losses. EBA also clarified that the rules are not meant to prevent normal banking transactions between a parent and its subsidiaries or between entities belonging to the same accounting or prudential group (intragroup transactions) and such undesired effect has not been reported under the regulatory technical standards on own funds. EBA states that the draft technical standards already contain, from a supervisory perspective, the necessary principles or tools needed for capturing all cases of direct or indirect funding.

    In relation to the prior permission regime for liquidation entities, EBA clarified its intention to avoid an unnecessary administrative burden for resolution authorities and liquidation entities. EBA provides resolution authorities with the opportunity to grant a general prior permission for certain liquidation entities, based on the information that is already available to them for the purpose of drawing up the resolution plan. While following a risk-based approach, under which institutions with a similar risk profile could be subject to a similar decision, the resolution authority can still, on a case-by-case basis, determine the limit of or even decide not to grant a general prior permission. Hence, EBA considers that its final draft regulatory technical standards designed a prior permission regime proportionate to the goals of the regulation and is of the opinion that no change is warranted.

     

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    Keywords: Europe, EU, Banking, Regulatory Technical Standards, Own Funds, MREL, CRR, BRRD, TLAC, Eligible Liabilities, Basel, Regulatory Capital, EBA, EC

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