EBA欧洲银行-EBA-RTS-2013-01-draft-RTS-on-Own-Funds-Part-1_84页_1mb

EBA FINAL Draft Regulatory Technical Standards on Own Funds [Part 1] under Regulation (EU) No 575/2013 (CRR)

Core Content Overview

The EBA has developed draft Regulatory Technical Standards (RTS) on own funds under Regulation (EU) No 575/2013 (CRR), which aims to implement the Basel III framework in the EU. These RTS are designed to ensure consistency, transparency, and prudential soundness in the application of capital requirements across the EU.

Main Features of the RTS

• Common Equity Tier 1 (CET1) Capital: The RTS define how foreseeable charges or dividends should be deducted from CET1 capital, including the use of a hierarchy for evaluating deductions based on decisions, dividend policies, and historical payout ratios. It also addresses the features of capital instruments for mutuals, cooperative societies, and similar institutions, as well as the nature of indirect funding and limitations on redemption.

• Additional Tier 1 (AT1) Capital: The RTS outline the form and nature of incentives to redeem AT1 instruments, the conversion or write-down/write-up of the principal amount, and the use of special purpose entities (SPEs). It emphasizes the need for timely activation of loss absorbency mechanisms and restricts the use of SPEs for indirect issuance of own funds due to prudential uncertainty.

• Deductions from Own Funds: The RTS cover deductions from CET1, AT1, and Tier 2 capital, including current year losses, deferred tax assets, defined benefit pension fund assets, and foreseeable tax charges. A uniform approach is required for these deductions to prevent regulatory arbitrage.

• General Requirements: The RTS include rules on indirect holdings arising from index holdings, supervisory permission for reducing own funds, and the need for a detailed and comprehensive process for granting such permissions.

• Transitional Provisions: These provisions allow for a smooth transition to the new regulatory framework, aligning with national rules that transposed the previous EU regulatory regime (Directives 2006/48/EC and 2006/49/EC). Grandfathering provisions permit certain excess instruments from higher tiers to be included in lower tiers, provided there is sufficient allowance in the lower tier and they can be reclassified later if needed.

Key Regulatory Rationale and Objectives

• The RTS are based on the Omnibus Directive, which amended the CRD and established the need for the EBA to develop draft technical standards.
• The CRR/CRD IV texts aim to raise the quality and quantity of regulatory capital by incorporating Basel III principles.
• The EBA has drawn on CEBS guidelines and national laws to develop the RTS, ensuring alignment with existing frameworks.
• The RTS seek to prevent regulatory arbitrage, ensure harmonization, and enhance the resilience of banks and financial institutions by setting clear rules on capital instruments and their treatment.

Key Provisions and Rules

Foreseeable Dividends and Charges

• The amount of foreseeable dividends to be deducted from interim or year-end profits is determined by the institution based on the dividend policy, or in the absence of such a policy, on the historical payout ratio.
• Exceptional dividends can be excluded from the calculation if they are not part of the regular policy.
• Foreseeable charges include taxes and obligations that are likely to reduce profits, and must be deducted from own funds unless adjusted for value.
• Profits after foreseeable charges may be fully included in CET1 capital if the institution meets the conditions in Article 26(2)(a) of the CRR.
• Dividend payout ratio is calculated using the average of the previous three years or the prior year, with the upper end of a payout range used if applicable.

Indirect Funding of Capital Instruments

• Indirect funding is defined as funding that is not direct, and includes funding from entities with control or from entities included in the institution's consolidation scope, protection schemes, or supplementary supervision.
• External entities that are protected by guarantees or credit derivatives may also be considered as indirect funders.
• Institutions must ensure that loans or guarantees are not used to directly or indirectly subscribe to their own capital instruments.
• Mutuals, cooperatives, and similar institutions may have limitations on redemption of capital instruments if required by national law or statutes, provided such limitations are documented and reported to the competent authority.

Redemption Limitations

• Institutions may defer or limit redemption of capital instruments for an unlimited period, provided they are based on the prudential situation.
• The extent of limitations must be determined by the institution, taking into account its financial, liquidity, and solvency position, as well as capital buffers.
• Competent authorities may impose further limitations on redemption, even if the contractual or legal provisions allow for it.
• Any decision to limit redemption must be documented internally and reported to the competent authority with the reasons for such decisions.

Prudential Filters and Deductions

• Losses for the current financial year must be deducted from CET1 capital.
• Deferred tax assets and defined benefit pension fund assets are subject to specific prudential filters to ensure they do not distort capital calculations.
• Indirect holdings from index holdings must be treated with conservatism, and the extent of such conservatism is determined by the competent authority.

Supervisory Permission and Temporary Waivers

• Supervisory permission is required for any reduction in own funds, and the competent authority must be provided with all relevant information.
• Temporary waivers for deductions from own funds may be granted for financial assistance operation plans, and the duration of such waivers should not exceed the duration of the plans.

Conclusion

The EBA's draft RTS on own funds are comprehensive and aim to ensure a consistent, transparent, and prudential application of capital requirements across the EU. They address key areas such as CET1 and AT1 capital, deductions, indirect funding, redemption limitations, and transitional arrangements, while also incorporating feedback from stakeholders and aligning with international standards. The ultimate goal is to enhance the stability and resilience of the banking sector in the EU.