2014_986 Application transitional provisions: Deduction half from Tier 1 and half from Tier 2

Question ID:

2014_986

Legal Act:

Regulation (EU) No 575/2013 (CRR)

Topic:

Own funds

Article:

11, 472

Paragraph:

COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:

Not applicable

Article/Paragraph:

472 (6) and (11) CRR

Disclose name of institution / entity:

Type of submitter:

Credit institution

Subject Matter:

Application transitional provisions: Deduction half from Tier 1 and half from Tier 2

Question:

The residual amount of specific items (e.g. point (d) of Article 36(1) CRR) shall be deducted half from Tier 1 items and half from Tier 2 items during transitional provisions (see for example 472 (6) and (11) CRR). Please specify the calculation logic to be considered by CRR users.

Background on the question:

For specific items an applicable percentage must be deducted from CET1 capital under the transitional provisions only. The residual amount shall be deducted half from Tier 1 items and half from Tier 2. Against this background, the exact calculation logic is not specified. This might lead to different interpretations when applying the transitional provision in regards to Tier 1 (see example A and B). - Option A: Adjustment to AT1 of 50% (Tier 1 total: 50%) and to T2 of 50%. Here, only AT1 and T2 items are considered. - Option B: Adjustment to CET1 of 25%, to AT1 of 25% (Tier 1 total: 50%) and to T2 of 50%. Here, CET1, AT1 and T2 items are considered. The key question is therefore, whether or not Tier 1 includes CET1 capital.

Date of submission:

19/03/2014

Published as Final Q&A:

11/07/2014

Final Answer:

Where the residual amount of a deduction or deductions is applied to Tier 1 capital and there is insufficient Additional Tier 1 capital to absorb this amount, then the excess shall be deducted from Common Equity Tier 1 capital in accordance with Article 36(1)(j) of the Regulation (EU) No. 575/2013 (CRR).

Additionally, should there be deductions to Tier 2 capital and there is insufficient Tier 2 capital to absorb this amount, then the excess shall be deducted to Additional Tier 1 in accordance with Article 56(e) of the CRR. As referred in the previous paragraph, if there is insufficient Additional Tier 1, these deductions should be deducted from Common Equity Tier 1 capital.

Status:

Final Q&A

Answer prepared by:

Answer prepared by the EBA.

Note to Q&A:

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.