Skip to main content
European Banking Authority logo
  • Extranet
  • Log in
  • About us
    Back

    About us

    The EBA is an independent EU Authority.  We play a key role in safeguarding the integrity and robustness of the EU banking sector to support financial stability in the EU.

    Learn more
      • Mission, values and tasks
      • Organisation and governance
        • Governance structure and decision making
        • EBA within the EU institutional framework
        • Internal organisation
        • Accountability
      • Legal and policy framework
        • EBA regulation and institutional framework
        • Compliance with EBA regulatory products
      • Sustainable EBA
      • Diversity and inclusion
      • Careers
        • Vacancies
        • Meet our team
      • Budget
      • Procurement
    Close menu panel
  • Activities
    Back

    Activities

    To contribute to the stability and effectiveness of the European financial system, the EBA develops harmonised rules for financial institutions, promotes convergence of supervisory practices, monitors, and advises on the impact of financial innovation and the transition to sustainable finance.

    Start here
      • Single Rulebook
      • Implementing Basel III in Europe
      • Supervisory convergence
        • Supervisory convergence
        • Supervisory disclosure
        • Peer Reviews
        • Mediation
        • Breach of Union Law
        • Colleges
        • Training
      • Direct supervision and oversight
        • Markets in Crypto-assets
        • Digital operational resilience Act
      • Information for consumers
        • National competent authorities for consumer protection
        • How to complain
        • Personal finance at the EU level
        • Warnings
        • Financial education
        • National registers and national authorities responsible for handling complaints related to credit servicers
        • Frauds and scams
      • Research Workshops
      • Ad hoc activities
        • Our response to Covid-19
        • Brexit
    Close menu panel
  • Risk and data analysis
    Back

    Risk and data analysis

    To ensure the orderly functioning and stability of the financial system in the European Union, we monitor and analyse risks and vulnerabilities relevant for the regulation of banks and investment firms. We also facilitate information sharing among authorities and institutions through supervisory reporting and data disclosure.

    Learn more
      • Risk analysis
        • 2024 EU wide transparency exercise
        • EU-wide stress testing
        • Risk monitoring
        • Thematic analysis
      • Remuneration and diversity analysis
      • Reporting frameworks
        • Reporting Time Traveller
        • DPM data dictionary
      • Data
        • Registers and other list of institutions
        • Guides on data
        • Aggregate statistical data
        • Secondary reporting: data from Competent Authorities to the EBA
        • Data analytics tools
    Close menu panel
  • Publications and media
    Back

    Publications and media

    Communicating to all our audiences in the most effective way and using the most appropriate channels is crucial for us. Through our publications, announcements, and participation in external events, we are committed to reaching out to all our stakeholders to report about our policies, activities, and initiatives.

    Learn more
      • Publications
        • Guidelines
        • Regulatory Technical Standards
        • Implementing Technical Standards
        • Reports
        • Consultation papers
        • Opinions
        • Decisions
        • Staff papers
        • Annual reports
      • Press releases
      • Speeches
      • Interviews
      • Events
      • Media centre
        • Media gallery
        • Media resources
    Close menu panel

Breadcrumb

  1. Home
  2. Single Rulebook Q&A
  3. 2023_6793 Capital instruments eligible as Tier 2 Capital
Question ID
2023_6793
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
63
Subparagraph
(a)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
Annex II, Part II, C01.00 – OWN FUNDS (CA1)
Type of submitter
Credit institution
Subject matter
Capital instruments eligible as Tier 2 Capital
Question

Under the CRR, capital instruments and subordinated loans shall only qualify as Tier 2 instruments provided that the conditions outlined in Article 63 are met. This includes the condition that “the instruments are directly issued by an institution and fully paid up” as per Article 63(a). As further outlined in Annex II instruction to row 0771, such capital instruments also include subordinated loans insofar that they fulfil the eligibility criteria.

We would like to request clarification on the eligibility criteria of Article 63(a) in the context of an amendment in the regulation’s text of Article 64, effected via CRR II (Regulation 2019/876).

This clarification is sought with the aim of determining whether the “accrued interest” on subordinated debt may be eligible for inclusion as Tier 2 capital, having regard to Article 63(a) and Article 64 in particular.

Background on the question

The query primarily stems from an amendment in the Regulation’s text which was observed in Article 64 ‘Amortisation of Tier 2 instruments’ between CRR I (Regulation 575/2013) and CRR II (Regulation 2019/876), namely:

 

CRR I

The extent to which Tier 2 instruments qualify as Tier 2 items during the final five years of maturity of the instruments is calculated by multiplying the result derived from the calculation in point (a) by the amount referred to in point (b) as follows:

a) the nominal amount of the instruments or subordinated loans on the first day of the final five year period of their contractual maturity divided by the number of calendar days in that period;

b) the number of remaining calendar days of contractual maturity of the instruments or subordinated loans.

 

CRR II

  1. The full amount of Tier 2 instruments with a residual maturity of more than five years shall qualify as Tier 2 items.
  2. The extent to which Tier 2 instruments qualify as Tier 2 items during the final five years of maturity of the instruments is calculated by multiplying the result derived from the calculation referred to in point (a) by the amount referred to in point (b) as follows:

(a) the carrying amount of the instruments on the first day of the final five-year period of their contractual maturity divided by the number of days in that period;

(b) the number of remaining days of contractual maturity of the instruments.

 

We had previously enquired with our NCA on the implications of the change in wording, particularly from “nominal amount” to “full amount” or “carrying amount”, and in response been informed of the following:

“At the November 2019 SGOF meeting, it was concluded that the reference to “full amount” and “carrying amount” in paragraphs 1 and 2 of Article 64 (CRR2 version) should be considered as having the same meaning. All in all, it was concluded that the starting point is the accounting value, whatever this value might be.”

 

Considering the example of subordinated debt, and having regard to the Bank’s published financial statements, the “carrying amount” (i.e. accounting value) of the subordinated debt may be interpreted to incorporate both the principal element and the accrued interest, since both elements are presented within the same line item on the balance sheet.

Therefore, in view that the CRR II text refers to the “full amount”, we would like to confirm whether, for the purposes of reporting Own Funds under CRR II, this term is intended to capture both of the following elements as eligible Tier 2 capital:

(i) Principal amount; and

(ii) Accrued interest.

On the other hand, we acknowledge that the preconditions to determine eligibility of an instrument as Tier 2 capital include that: such instrument is “fully paid up” in line with Article 63(a); and has an original maturity of at least five years, as per Article 63(g).

To this end, it is our understanding that under the CRR, accrued interest is not “fully paid up” in nature since it is not available for the Bank’s unrestricted use, and therefore, fails to meet the eligibility criteria of Article 63(a). Moreover, due to its short-term nature, it does not meet the criteria outlined in Article 63(g).

Submission date
05/05/2023
Rejected publishing date
16/08/2023
Rationale for rejection

This question has been rejected because the issue it deals with is already explained or addressed in the regulatory framework. In particular, please see paragraph 140 and 141 of the EBA Report on the monitoring of Additional Tier 1, Tier 2 and TLAC-/MREL-eligible liabilities instruments of EU institutions the EBA is investigating the prudential treatment, including alignment of accounting and prudential valuations of non-CET1 instruments including aspects such as the exclusion from the carrying value of certain accounting items (e.g., accrued interest, hedge adjustments).

For further information on the purpose of this tool and on how to submit questions, please see “Additional background and guidance for asking questions”.

Status
Rejected question

Footer

EUROPEAN BANKING AUTHORITY

Our mission is to contribute to the stability and effectiveness of the European financial system through simple, consistent, transparent, fair regulation and supervision that benefits all EU citizens.


UE logoAn agency of the EU

EU Agencies Network logoEU Agencies Network

EMAS logoSustainable EBA

Contact us

  • Contacts
  • Ask a general question
  • Send a press query
  • Ask a regulatory question
  • File a complaint
  • Whistleblower reports

Stay up to date with our work

  • Subscribe to our email alerts
  • News & press RSS feed

Follow us on Social media

  • Bluesky
  • LinkedIn
  • X
  • YouTube

Find out about us

  • The EBA at a glance
  • Vacancies
  • Privacy policy
  • Legal notice
  • Cookies policy
  • Frauds and scams

Explore related sites

  • EIOPA
  • ESMA
  • ESRB
  • CEBS archive