Question ID
2023_6748
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
36(1)(f) and 428o(a)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
-
Type of submitter
Credit institution
Subject matter
Treasury shares – how to report them in Own Funds and in the NSFR
Question

  1. In CA1 (own funds), should treasury shares (holdings of own shares that were bought back with the prior permission from the CA) be reported in as ‘(-) Direct holdings of CET1 instruments’ (row 80) or should they be reported as part of the ‘Accumulated other comprehensive income’ (row 180) or ‘Other reserves’ (row 200) if they are already included in one of these accounts according to the accounting rules?
  2. In case treasury shares are to be reported as a deduction in row 80 in CA1 (hence this deduction is reversed in the NSFR own funds - see Q&A 2021_6016), should treasury shares require any stable funding?
Background on the question

Question 1

Under IFRS, treasury shares are already reflected in ‘Accumulated other comprehensive income’ or ‘Other reserves’ (hence CET1 items are already reduced due a reduction of ACI/Other reseves in accounting). According to the BCBS standard CAP 30.18: “All of a bank’s investments in its own common shares, whether held directly or indirectly, will be deducted in the calculation of Common Equity Tier 1 (unless already derecognised under the relevant accounting standards)”. No such derogation is provided in the reporting instructions for CA1 in the EU, however reporting instructions for rows 180 and 200 require alignment with accounting numbers. Hence if banks were to follow the reporting instructions, the treasury shares should be deducted twice. There is no harmonized practice on how to report treasury shares: 1) some banks exclude treasury shares from the reported accounting equity in CA01 (row 180/200) and report it separately in row 80; 2) other banks assume that since treasury shares are already reflected in equity (row 180/200), there is no need to report it in row 80.

Question 2

In case treasury shares should be reported as ‘(-) Direct holdings of CET1 instruments’ (row 80) in CA1, in the NSFR, banks are required to reverse this own funds deduction (see CRR Article 428o and Q&A 2021_6016). As indicated in Q&A 2021_5772, assets and off-balance sheet items not deducted from own funds in the NSFR might require stable funding. Given that treasury shares are neither assets, nor off-balance sheet items, can it be concluded that treasury shares do not require any stable funding, if they are not reflected in own funds (a deduction is reversed in the NSFR)?

Submission date
Final publishing date
Final answer

Question 1:

According to IAS 32.33-34, treasury shares shall be deducted from equity. According to Art. 36 (1) f) CRR direct holdings by an institution of own Common Equity Tier 1 instruments shall be deducted from Common Equity Tier 1 items. The COREP C 01.00 instructions for row 0080 ‘(-) Direct holdings of CET1 instruments’ clarify that treasury shares are reported within this row (and not in row 0200). The deduction shall be reported only once in C 01.00 (in row 0080), implying that other rows of section ID 1.1.1 where the amount of accounting equity would be reflected net of treasury shares shall be adjusted accordingly.

Question 2:

In any case, a consistent treatment of assets and liabilities has to be ensured. According to Article 428i and 428p(1) CRR, the available and required stable funding shall be the accounting value of liabilities, own funds, assets and, where applicable, off-balance sheet items multiplied by the ASF or RSF factors to be applied, unless otherwise specified in Chapter 3 and 4 of Tittle IV CRR.

If the own shares are not included in a bank’s assets and are deducted from equity (IAS 32.33-34), the accounting value applied to the CET1 items according to Article 428i CRR is the net value. Thus, in the context of NSFR, the amount of own shares should not be considered as a deduction for the purpose of Article 428o(a)-(c) CRR and must not be included in the reporting on available stable funding. Correspondingly, such own share are not included in the reporting on required stable funding and do not trigger any stable funding requirements in the NSFR under CRR.

In the case where treasury shares are accounted for as an asset, the RSF applicable according to article 428ah(b) is 100%. The CET 1 items subject to an ASF of 100% according to 428(a) are considered before the deductions referred to in Article 428o(a)-(c) CRR and Article 36 CRR.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.

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