EBA advises on the definition of eligible capital

17 February 2015

The European Banking Authority (EBA) published today its Opinion on the review of the appropriateness of the definition of ‘eligible capital', in response to a call for advice received from the European Commission in December 2013. On the basis of information gathered during the first year of application of the Capital Requirements Regulation (CRR), the EBA provides its preliminary views which are relevant for the large exposures framework, as well as for investment firms and qualifying holdings.

The EBA informed that since the definition of ‘eligible capital' is subject to a transitional regime until the end of 2016, not enough experience is available on the use of this definition or any evidence that the new stricter capital base for the large exposures' regime would have a detrimental impact. The European Commission had sought advice from the EBA in relation to determining whether or not the definition of ‘eligible capital' is appropriate for defining ‘large exposures', setting ‘large exposure' limits, determining the capital requirements applicable to investment firms with limited investment services and finally determining the prudential treatment for qualifying holdings outside the financial sector.

The EBA suggested conducting a comprehensive review of the EU large exposures regime at an appropriate point in time, in order to align it with the Basel Committee on Banking Supervision (BCBS) standards on the supervisory framework for measuring and controlling large exposures. In this context, the EBA also suggested to the Commission postponing any review of the ‘eligible capital' base, until a large exposures review is carried out.

Legal basis and next steps

The EBA competence to deliver this opinion is based on Articles 8(1)(a), (2)(g) and 34(1) of Regulation (EU) No 1093/2010, as amended, as the definition of ‘eligible capital' for credit institutions and investment firms relates to the EBA's area of competence. The final Opinion has been sent today to the European Commission.