EBA欧洲银行-Guidelines-on-Hybrids_Feedback-document_29页_336kb

Summary of Feedback Document on CP 27

Introduction

On 22 June 2009, the Committee of European Banking Supervisors (CEBS) launched a public consultation on draft implementation guidelines for Hybrid Capital Instruments. These guidelines were structured into five main sections: permanence, flexibility of payments, loss absorbency, limits, and hybrid instruments issued through SPVs. The consultation period concluded on 23 September 2009, during which 19 responses were received, all published on the CEBS website. This document summarizes the key points from the consultation and outlines CEBS's responses and proposed amendments.

General Comments

Respondents largely supported CEBS's objectives and the opportunity to comment on the guidelines. However, some expressed concerns about the prescriptive nature of the guidelines, arguing that a more principles-based approach would better support a level playing field and avoid putting EU banks at a competitive disadvantage.

• A number of respondents found the guidance on buy-backs too prescriptive and suggested greater flexibility.
• There were concerns that mandatory replacement of repurchased instruments could limit capital management flexibility.
• Some respondents felt that the data submission requirements for calls or redemptions were excessive, particularly the 3-5 year time horizon for data development.

Permanence

Key Points

• Clarification was requested on how to calculate the "incentive to redeem" (whether at the issue date or during the instrument's life).
• Some respondents felt that fixing a conversion ratio at 150% was too rigid and suggested a cap on dilution instead.
• There were concerns that buy-backs could be triggered at any time, similar to common equity, and that mandatory replacement should not be required for those within the first five years.
• The time horizon for data submission was considered too long by many respondents.

CEBS's Response

• CEBS clarified that the step-up calculation is based on the issue date and that the conversion ratio is intended to limit dilution.
• CEBS maintains that buy-backs are prudentially similar to redemptions and thus should be subject to supervisory approval and minimum 5-year duration before they can occur.
• A 10% limit on repurchased instruments held at any time was agreed upon, but CEBS introduced an additional 3% limit on the total amount of all outstanding hybrid instruments. Institutions must comply with the lower of the two limits.
• CEBS will monitor issuance and may adjust the guidelines in the future based on market developments.

Flexibility of Payments

Key Points

• Some respondents disputed the idea that supervisors should have fully discretionary power to cancel dividends and coupons.
• There were concerns about differing interpretations by national authorities, which could threaten the level playing field.
• A few respondents wanted to amend the conditions for dividend pushers and stoppers, especially in cases where dividends are paid in shares.
• Concerns were raised about the fiscal consequences of the guidelines on ACSME mechanisms and their impact on own funds.

CEBS's Response

• CEBS believes that supervisors should have the ability to intervene when necessary, particularly in the case of capital requirement breaches.
• Dividend pushers and stoppers are considered limitations on flexibility, and their use should be restricted.
• CEBS agreed that hybrid distributions should not be triggered via a "dividend pusher" when payments are made exclusively in shares.

Loss Absorbency

Key Points

• Some respondents argued that mandatory and contractual mechanisms like write-downs or conversions were too prescriptive.
• They believed that existing terms in hybrid Tier 1 capital are sufficiently flexible and appropriate for recapitalization.
• Concerns were raised that write-downs could be disadvantageous to hybrid holders compared to equity holders.
• There was a general preference for institutional discretion in determining the trigger points for loss absorbency mechanisms.

CEBS's Response

• CEBS emphasized that loss absorbency should not be limited to preventing insolvency but should be aligned with equity holders in terms of loss sharing.
• It acknowledged that different levels of subordination are acceptable, provided that transparency is ensured.
• The trigger point for write-downs should be at the discretion of the institution and its supervisor.

Limits

Key Points

• Some respondents suggested that instruments with redemption incentives should be allowed within the 35% or 50% limits, if not called.
• There were calls to classify certain convertible instruments as Core Tier 1 without limits.
• Mixed views were expressed on the definition of "emergency situations".

CEBS's Response

• CEBS clarified that instruments converting into capital in emergency situations can be included in the 50% bucket, provided they meet other requirements.
• It identified minimum cases for emergency situations to ensure consistency in application, while leaving room for supervisory discretion.

Hybrid Instruments Issued Through an SPV

Key Points

• Very few comments were received on this section.
• The focus was on consolidation and legal risk mitigation in foreign jurisdictions.

CEBS's Response

• CEBS agreed to amend the wording for greater clarity on consolidation aspects.

Specific Comments

• Some respondents requested further clarification on transitional measures for grandfathered instruments.

CEBS's Response

• CEBS may provide guidance on how grandfathered instruments should be treated in the new limit structure.

Feedback Table Summary

Conclusion

The feedback document highlights the mixed reception of the CEBS guidelines on hybrid capital instruments, with a strong emphasis on flexibility, transparency, and prudential consistency. While many respondents supported the objectives, they raised concerns about prescriptive rules and buy-back restrictions, urging for more principles-based and market-oriented approaches. CEBS responded by maintaining a prudential approach, emphasizing the need for supervision, and introducing compromises such as the 10% and 3% repurchase limits. The final guidelines aim to balance regulatory requirements with market flexibility and institutional discretion.