EBA欧洲银行-16122013-Public-hearing-on-Own-funds-part-IV_14页_666kb

EBA Technical Standards on Own Funds - Part Four Summary

Core Content

The European Banking Authority (EBA) has published a Consultation Paper (CP) on draft Regulatory Technical Standards (RTS) related to Own Funds Part Four, aiming to harmonize the treatment of preferential distributions and multiple distributions under the Capital Requirements Regulation (CRR). The goal is to reduce divergences in national implementation, which have led to legal uncertainty, regulatory competition, and the exploitation of loopholes, thereby distorting competition and complicating cross-border operations within the Single Market.

Main Objectives

The main objectives of the draft RTS are:

• To ensure sufficient flexibility in payment for all Common Equity Tier 1 (CET1) instruments.
• To prevent disproportionate drag on own funds by setting harmonized criteria for instruments with multiple distributions.
• To ensure that the multiplicity of instruments does not hinder the recapitalization of institutions.
• To align with the diverse capital structures across Europe, particularly for cooperative institutions.

Key Information

1. Own Funds Part Four - Preferential Distributions

• Definition: Preferential distributions occur when CET1 instrument holders are at an advantage compared to other CET1 holders, especially regarding the timing and order of distribution payments.
• Scope: Instruments where distributions exceed the limits for multiple distributions are also considered preferential.
• Objective: Ensure that all CET1 instruments have flexibility in payments.
• Clarification: Distributions not complying with the provisions for multiple distributions are considered preferential.

2. Own Funds Part Four - Multiple Distributions

• Legal Scope: The EBA is seeking clarification from the EU Commission on whether non-joint stock companies (NJS) are within the scope of the RTS.
• Terms: The CRR uses terms such as "multiple distributions", "dividend multiple", and "differentiated distributions".
• Approach: Two distinct approaches are developed for joint stock (JS) companies and NJS companies.

3. Joint Stock Companies

• Limits:
  • Distributions on instruments with a dividend multiple must not exceed 125% of the distribution on voting CET1 instruments.
  • The total distributions on CET1 instruments must not exceed 105% of the amount that would have been paid if non-voting instruments received the same distributions as voting instruments.
• Requirements: The multiple must be predetermined and fixed for all non-voting shares.
• Consequence: If these criteria are not met, the full amount of voting instruments would be disqualified.

4. Non-Joint Stock Companies

• Legal Framework: The legal structure of NJS companies, such as cooperative societies, may differ from JS companies.
• Cooperative Shares:
  • Typically issued at par value.
  • Return is limited to dividend payments.
  • No access to reserves in liquidation, no dilution effect, and no possibility to sell except through redemption by the institution.
• Dividend Cap: Dividend payments on voting shares may be subject to a legal cap, which could limit the ability of cooperative societies to raise capital.
• Decision Tree: The application of limits from JS companies to NJS companies will depend on a series of tests and conditions, as outlined in the decision tree.

Conclusion

The EBA is working to establish harmonized and clear rules for the treatment of CET1 instruments in terms of distributions. These standards are crucial for ensuring fair competition, legal certainty, and effective capital management across the EU banking sector. The consultation ends on 24 January 2014, and the final draft RTS will be submitted to the EU Commission once the scope for NJS companies is clarified.