In relation to the calculations mentioned in Article 81 CRR, does the information relating to a subsidiary have to be calculated before or after the consolidation process of that subsidiary in the group?
Article 81 CRR establishes that minority interests shall comprise the sum of Common Equity Tier 1 instruments, the share premium accounts related to those instruments, retained earnings and other reserves of a subsidiary.
From a prudential perspective the own fund requirements should be calculated in the basis of the consolidated situation of the parent company (Art 11 CRR). The scope of the prudential consolidation is further defined in Article 18 CRR. The minority interests are a concept that by its sole definition arises after the consolidation process of a subsidiary (full consolidation) as required under Article 18 CRR. In this vein, it should be clarified if the calculations mentioned in Article 81 CRR should be performed before or after the consolidation process of that subsidiary in the group.
Article 84 CRR provides the calculation methodology for minority interests in a subsidiary referred to in Article 81 CRR that can be included in the consolidated Common Equity Tier 1 capital.
For the purpose of this calculation, Article 84(1)(a) CRR refers to the ‘Common Equity Tier 1 capital of the subsidiary’ but not to the Common Equity Tier 1 capital of the subsidiary that is included at the consolidated level after the consolidation adjustments.
Therefore, the sum of Common Equity Tier 1 items
instruments with their associated share premium account, retained earnings and other reserves of a subsidiary referred in Article 81(1) CRR should refer to the amount before consolidation. This answer is without prejudice to the proposals to amend the rules on capital requirements (CRR/CRD IV Review).
Update 26.03.2021: This Q&A has been updated in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).