The EBA responds to a law firm on the treatment of some legacy instruments of Banque Fédérative du Crédit Mutuel

The European Banking Authority (EBA) published today a response to the letter received from a law firm on 18 June 2024, regarding the intention of Banque Fédérative du Crédit Mutuel (BFCM), based in France, to keep some legacy instruments in its balance sheet without any regulatory value.

The EBA has carefully assessed the aspects related to ranking and subordination. While the instruments have been rightfully disqualified from all layers of capital and eligible liabilities under applicable grandfathering provisions, they still rank pari passu with fully eligible own funds instruments, creating undue complexity within the balance sheet of the issuer and raising concerns in terms of ranking. Therefore, it is the EBA’s view that BFCM should target the redemption of these instruments.

In addition, the EBA recalls that the options contained in the EBA Opinion on legacy instruments were meant for institutions to explore how to dispose of remaining legacy instruments to clean their capital structure and ensure a clear subordination ranking within and between regulatory stacks, while preventing unnecessary complexity. Keeping legacy instruments in the balance sheet was considered to be a last resort option, in cases where the other options provided in the Opinion were not available for institutions. In this regard, it has always been the EBA’s expectation that legacy instruments should be phased out.

Note to the editors

In October 2020, the EBA published its Opinion on the prudential treatment of so-called ‘Legacy instruments’ in the context of the end of the grandfathering period in December 2021. On 7 July 2022, the EBA published the outcome of the implementation of its Opinion.