On May 29, 2015, the EBA published a final report on the monitoring of Additional Tier 1 capital instruments issued by EU institutions. Under the EU Capital Requirements Regulation, the EBA must monitor the quality of own funds instruments issued by EU institutions. The report presents the EBA’s recent monitoring results and updates the EBA’s earlier report on the topic, published on May 4, 2015. The EBA has examined 15 AT1 issuances made between August 2013 and November 2014, five of which were made under a conversion mechanism and 10 under a temporary write-down mechanism, for a total amount of €21.4 billion. The report states that certain provisions or wording of existing AT1 instruments should be avoided or revised so that uncertainty and complexity is minimized. Wording used should be consistent with that in the CRR, for example, “non-objection” cannot be used as a substitute for “supervisory permission,” a term used in the CRR. Also, certain issuances include partial regulatory calls. This means that only a portion of the instruments may be called by an institution if the corresponding part of the issuance is, due to a regulatory change, no longer recognized in Tier 1 capital. The report states that only regulatory calls for the full amount of instruments are acceptable, irrespective of whether a regulatory changes triggers full or partial derecognition from AT1 capital. The EBA intends to continue monitoring certain AT1 issuances, expects that future issuances will use some level of standardization, and advises that terms and conditions should not be unjustifiably complex. The EBA will also develop standardized terms and conditions for AT1 issuances. These would be non-compulsory for institutions, but would help to ensure compliance with regulatory provisions.
The report is available at: http://www.eba.europa.eu/-/eba-updates-its-monitoring-of-additional-tier-1-capitalinstruments.