Question ID
2013_47
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
489, 490
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Type of submitter
Credit institution
Subject matter
Treatment of non-grandfathered amount of bonds
Question

1. As of January 1, 2014, if an innovative Tier 1 security has more than 5 years to the first call date (e.g., a first call in 2020), does the non-grandfathered amount of bonds (i.e. 100%-80% = 20% in 2014) have any regulatory value? Could this be Tier 2 until 2015, given it will have at least 5 years to the first call date as per Article 63 Regulation (EU) No 575/2013 (CRR)? 2. In a similar vein, can the non-grandfathered part of non-innovative Tier 1 with no incentive to redeem count as Tier 2, either pre- or post-first call date?

Background on the question

Understanding how the non-grandfathered amount of a step-up Tier 1 and non-step Tier 1 would be accounted for.

Submission date
Final publishing date
Final answer

In answer to the first point of the submitter, if an innovative Tier 1 security has more than 5 years to the first call date and is accompanied by a step up, then the security is not fully compliant under Article 63 of Regulation (EU) No. 575/2013 (CRR) and will therefore not be included in Tier 2 in its own right.

In answer to the second point of the submitter, if a non-innovative Tier 1 security has more than 5 years to the first call date and the instrument otherwise complies with all the criteria under Article 63 of the CRR, then the instrument may be included in Tier 2 in its own right.

If the instrument does not comply with Article 63 of CRR, the provisions of Article 487(2), for including items excluded from grandfathering in Additional Tier 1 in other elements of own funds, may nonetheless apply.

The existence of dividend pusher and stopper clauses may interfere with an institution's flexibility to cancel distributions on other classes of capital instruments (as described in Q&A 2013_21).

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.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.