08 December 2021
The European Banking Authority (EBA) published today an updated list of Common Equity Tier 1 (CET1) instruments of EU institutions. This list is accompanied by an updated CET1 Report, which includes information on the underlying objectives of the monitoring as well as on the consequences of including or excluding instruments in or from the CET1 list. The EBA's monitoring of capital instruments contributes to the enhancement of the quality of institutions' capital across the EU. The EBA will continue to update the Report on a regular basis to give account of new developments in CET1 issuances and practices.
Since the first publication of the list on 28 May 2014, the EBA has included 18 new forms of instruments issued after the entry into force of the Capital Requirements Regulation (CRR) and assessed their terms and conditions against the regulatory provisions with the aim of identifying any discrepancy with the eligibility criteria. Instruments issued by UK institutions have been removed due to the UK departure from the EU, additional instruments from a couple of EU jurisdictions have been added or removed as well. In total the list encompasses 111 types of CET1 instruments.
In cooperation with competent authorities, the EBA is also conducting a review of pre-CRR CET1 instruments. In several cases, the EBA requested amendments to the terms and conditions of the instruments, mainly relating to the eligibility criteria flexibility of payments and permanence.
The CET1 Report includes some background information on the monitoring work done to establish the CET1 list so as to provide external stakeholders with further guidance on the content and objectives of such list. The main results of the monitoring and assessment of CET1 instruments are summarised in a ‘lessons learnt' section. The latest update includes, in particular, additional guidance in the context of (in)direct funding, refusal of redemption, redeemable shares, incentives for minimum dividends and minimum dividends.
The Report will be updated on a regular basis to reflect the EBA's findings from the assessment of different forms of CET1 instruments, either pre-CRR or new instruments.
Article 26(3) of the CRR mandates the EBA to establish, maintain and publish a list of all the forms of capital instruments in each Member State that qualify as CET1. In addition, Article 80(1) mandates the Authority to monitor the quality of own funds instruments and notify the Commission immediately where there is significant evidence of those instruments not meeting the criteria set out in Article 28 or, where applicable, Article 29.
As part of the banking package, and taking as a basis the EBA ‘Opinion on own funds' in the context of the CRR review published on 23 May 2017, the own funds provisions of the CRR have been amended including the EBA powers in relation to the CET1 list. In particular, the CRR2 provides for the EBA to be consulted ex ante for new forms of instruments that are not yet included in the CET1 list in order for them to be classified as CET1 instruments.