EBA Report Examines Prudential Treatment of Legacy Instruments in CRR
The European Banking Authority (EBA) published a report analyzing the implementation of its Opinion on the prudential treatment of legacy instruments across the European Union.
The report found that both institutions and competent authorities have made significant efforts to implement the EBA Opinion effectively and consistently. The findings show that institutions have made significant efforts to address the issues related to legacy instruments, mainly by calling, redeeming, repurchasing, and buying back such instruments or by amending their terms and conditions; however, for a few instruments, the national transposition of Article 48(7) of the Bank Recovery and Resolution Directive (BRRD) helped mitigate the infection risk. For a limited number of instruments, actions are still ongoing or under consideration, with call options planned to be exercised in the course of 2022 or later. A few instruments will be kept in a lower category of own funds or as eligible liabilities or in the balance sheet as non-regulatory capital. EBA expects that some more actions could be undertaken or announced in the near future. The primary objective of the EBA Opinion has been to address possible challenges in the quality of institutions’ own funds and eligible liabilities posed by the end of the Capital Requirements Regulation (CRR) grandfathering period.
The report concludes that, globally, necessary actions have been taken by institutions and competent authorities to exit the Capital Requirements Regulation (CRR or Regulation 575/2013) before the CRR2 amendments grandfathering period in an appropriate manner. As a next step, competent authorities will continue to monitor the residual limited and specific cases where the actions are still in progress or where instruments would be kept in a lower category of own funds or as eligible liabilities, and report to the EBA. EBA expects competent authorities to consistently apply the existing guidance in view of the new grandfathering period generated until June 2025 via more recent amendments to the Capital Requirements Regulation (CRR2). Going forward, EBA will re-assess when time comes the need for additional scrutiny on the stock of CRR2 legacy instruments.
Related Links
Keywords: Europe, EU, Banking, Legacy Instruments, CRR, Basel, Regulatory Capital, MREL, BRRD, Grandfathering Period, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
NBB Maintains CCyB Rate at 0%, Issues Other Regulatory UpdatesRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.