EBA欧洲银行-CP17_ZKA_20页_1mb

ZKA Position Paper Summary: CEBS CP17 on Hybrid Capital as Tier 1

Core Content

The Zentraler Kreditausschuss (ZKA), representing the German banking industry, has submitted detailed comments on the CEBS CP17 consultation paper, which proposes a common EU definition of Tier 1 hybrid instruments. The ZKA supports the objective of harmonising the eligibility of hybrid instruments as Tier 1 capital across the EU but urges CEBS to limit its scope strictly to the SPR guidelines and avoid introducing overly detailed or restrictive rules that could create competitive distortions and complicate national implementation.

Main Views

• Harmonisation Objective: The ZKA supports the harmonisation of Tier 1 capital rules across the EU, as outlined in the SPR guidelines, to ensure a level playing field for European banks compared to their international counterparts.
• Scope of CEBS Work: It is argued that CEBS should focus solely on the recognition of hybrid instruments as Tier 1 capital and not extend its work to broader definitions of "own funds" or other regulatory aspects, which should be addressed at the Basel Committee level.
• Substance Over Form: The principle of "substance over form" should be applied, meaning that the actual economic characteristics of instruments, rather than their legal form, should determine their eligibility as Tier 1 capital.
• Avoiding Over-Regulation: The ZKA believes that introducing new mechanisms such as mandatory write-downs or conversions into equity would be impractical and unnecessary, and could lead to distortions in the market.

Key Information

1. Permanence

• Maturity: The ZKA argues that long-maturity instruments should be considered as permanently available, provided they meet certain conditions. Lock-in clauses could be used to ensure this.
• Call Right: CEBS proposes that instruments can only be called after 5 or 10 years, but the ZKA believes this is too restrictive. A common approval process for repayment should be established to ensure consistency across the EU.
• Incentives to Redeem: The ZKA opposes the creation of a separate category of "innovative instruments" based on incentives to redeem, as it is not necessary and could lead to competitive distortions.

2. Loss Absorption

• Interconnected Criteria: Loss absorption, permanence, and flexibility of payment are closely linked, and the ZKA believes that the loss absorption criterion is sufficiently addressed by the other two.
• Mandatory Write-Downs: The ZKA strongly opposes the inclusion of mandatory write-down mechanisms or alternative loss absorption methods, as they are impractical, difficult to implement, and not aligned with the SPR guidelines.
• Clarification Needed: CEBS should clarify the definition of "loss" and whether it refers to individual or group accounts, as this is critical for consistent application across the EU.

3. Flexibility of Payment

• Discretion Over Distributions: The ZKA believes that complete discretion over coupon payments for an unlimited period is not necessary and is inconsistent with market expectations. Investors expect timely and regular payments, and the flexibility should be limited to crisis situations.
• Trigger for Waiving Payments: The breach of minimum capital requirements is a suitable trigger for suspending coupon payments. However, allowing national supervisors to define their own triggers is discouraged as it undermines harmonisation.
• Dividend Payments: The ZKA supports the requirement that dividend payments should not be made if coupon payments are suspended, as this aligns with the principle of maintaining the bank as a going concern.

4. Regulatory Limits

• 50% Tier 1 Limit: The ZKA supports the 50% limit for hybrid instruments in Tier 1 capital, as it aligns with the SPR guidelines and avoids unnecessary complexity.
• 15% Innovative Instruments Threshold: The ZKA recommends dropping the 15% threshold for "innovative instruments" since it is no longer relevant and could create an artificial distinction.
• Calculation Basis: The percentage of hybrid instruments in Tier 1 should be measured at the time of issuance, not at any other time, to ensure consistency.

5. Grandfathering Rules

• 30-Year Amortisation Plan: The ZKA welcomes the proposed 30-year amortisation plan for grandfathering eligible instruments. It should apply to all hybrid instruments without differentiating between those with and without incentives to redeem.

Conclusion

The ZKA advocates for a cautious and limited approach to CEBS's proposals, ensuring that the regulatory framework remains consistent with the SPR guidelines and does not introduce unnecessary complexity or competitive disadvantages. The paper serves as a comprehensive critique of the current proposals and offers alternative approaches that would support a more flexible and harmonised capital framework.