CEBS publishes a quantitative survey of eligible own funds
The Committee of European Banking Supervisors (CEBS) is publishing today a quantitative analysis of the capital instruments that are eligible for prudential purposes in the application of the European Banking Directives.
It is the fourth contribution of CEBS to the European Commission's current review of the definition of Own Funds. It complements the CEBS survey of the implementation of the current rules across Member States, its analysis of the capital instruments recently created by the industry, and a quantitative analysis of hybrid capital instruments eligible as original own funds published here.
CEBS has analysed preliminary year end 2006 data from a representative sample of institutions in the European Economic Area (EEA) countries. The data was collected in accordance with a common taxonomy and methodology.
On an aggregate basis, original own funds, which are capital elements of the highest quality represent 64% of regulatory capital of European credit institutions and investment firms (before deductions from total own funds). Additional own funds represents 34%. Ancillary own funds account for only 2% of total own funds and are present in a limited number of countries. The overall structure of own funds varies across Member States.
The elements deductible from total own funds (i.e. mainly holdings in unconsolidated institutions, and participations in insurance undertakings) represent 7,4% of total own funds after application of prudential filters.
In terms of quality, 'Core Tier 1' (i.e. original own funds minus hybrids) account for approximately 52,5% of total own funds. Hybrids account for 11,5%. Tier 2 amounts to 54 % of Tier 1; Lower Tier 2 represents 34% of Tier 1.
As a result of the application of prudential filters, eligible own funds slightly decrease mainly due to the shift of IFRS-related valuation differences from Tier 1 to Tier 2. The most important adjustment in absolute terms relates to the positive valuation differences related to available for sale equities. CEBS recommended filters are generally complied with, with a very limited number of exceptions.
CEBS has now been asked by the European Commission to check whether further convergence can be achieved on Hybrid capital elements eligible as original own funds and to report back to the Commission by end 2007. CEBS is keen to engage with all interested parties to gather their views on this issue.
Franca Rosa Congiu