06 July 2022
The European Banking Authority (EBA) today published an analysis of how its Opinion on the prudential treatment of legacy instruments has been implemented across the EU. Since the issuance of this Opinion, the EBA has been working in close cooperation with competent authorities to monitor any action taken by institutions to mitigate the infection risk related to such legacy instruments. Overall, the EBA found that both institutions and competent authorities have made significant efforts to implement the EBA Opinion in an effective and consistent manner.
Overall, 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. In addition, in a few jurisdictions, the transposition of Article 48(7) of the Bank Recovery and Resolution Directive (BRRD) helped mitigating the infection risk, by ensuring all claims resulting from own funds items have, in national laws governing normal insolvency proceedings, a lower priority ranking than any claim that does not result from an own funds item. 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. Some more actions could be undertaken or announced in the near future.
Competent authorities will continue to monitor the residual limited and specific cases, and the implementation of the actions planned in 2022 and beyond and report to the EBA. In this context, the EBA’s communication highlights its expectations going forward and invites institutions and competent authorities to apply consistently the existing guidance in view of the new grandfathering period generated until June 2025 via more recent amendments to the Capital Requirements Regulation (CRR2). Against this background, the EBA will re-assess when time comes the need for additional scrutiny on the stock of CRR2 legacy instruments.
In view of the end of the grandfathering period on 31 December 2021, the EBA, in close cooperation with competent authorities, monitored in accordance with Article 80 CRR the actions taken by institutions regarding legacy instruments, placing particular focus on the use of the proposed options across and within jurisdictions with a view to ensuring consistent application. Given the feedback received by institutions, the EBA decided to provide additional guidance on issues raised through the publication of its AT1 monitoring report.