EBA欧洲银行-EBA-BS-2011-173-Recommendation-FINAL_22页_793kb

EBA Recommendation on Temporary Capital Buffers to Restore Market Confidence (EBA/REC/2011/1)

Core Content

This EBA Recommendation, issued on 8 December 2011, outlines the creation and supervisory oversight of temporary capital buffers for European credit institutions to restore market confidence during the financial crisis. It is based on the legal bases of Article 16(1), Article 21(2)(b), and Article 31 of Regulation (EU) No 1093/2010, and applies to 71 banks that participated in the 2011 EU-wide stress test, excluding small non-cross-border banks.

The main objective is to ensure that these banks increase their Core Tier 1 capital ratio to 9% by 30 June 2012, after adjusting for prudential filters and conservative valuations of sovereign debt exposures. The EBA emphasizes that the buffers should not be used to cover losses, but rather to reassure markets about the banks' ability to withstand shocks.

Main Views and Key Information

1. Capital Target and Timing

• Banks must achieve a Core Tier 1 ratio of 9% by 30 June 2012.
• The capital target is calculated based on risk-weighted assets (RWA) as of 30 September 2011, using market prices and bond yields from that date.
• The buffer against sovereign exposures is fixed and will not be revised based on later market valuations.

2. Capital Buffer Calculation

• Buffer AFS: Prudential filters on EEA sovereign exposures in the Available-for-Sale (AFS) portfolio are removed. Banks must build a buffer of Core Tier 1 capital to offset potential losses.
• Buffer HTM: EEA sovereign debt in the Held-to-Maturity (HTM) and Loans and Receivables (L&R) portfolios is conservatively valued. The buffer is the difference between the book value and the revalued amount.
• Total Buffer (BufferSOV): The sum of Buffer AFS and Buffer HTM is capped at zero, meaning banks cannot end up with a negative buffer.

3. Capital Shortfall Definition

• Capital shortfall is defined as the difference between the 9% Core Tier 1 target and the actual Core Tier 1 capital, plus the buffer:
  $$
  \text{Shortfall}{\text{Sep 2011}} = (0.09 \times \text{RWA}{\text{Sep 2011}} - \text{CT}{\text{Sep 2011}}) + (\text{BufferSOV}{\text{Sep 2011}})
  $$
• By June 2012, the shortfall should be zero.

4. Capital Plan Submission

• Banks identified as having a capital shortfall must submit their capital plans to national supervisors by 20 January 2012.
• These plans must outline measures to meet the 9% target and the sovereign buffer.
• Supervisors are expected to consult with the EBA and other relevant competent authorities before approving these plans.

5. Use of Private Funding

• Banks are encouraged to use private sources of funding first to build the capital buffer, such as:
  • Retained earnings
  • Reduced bonus payments
  • New issuances of common equity
  • Contingent capital
• Asset sales are allowed only if they do not disrupt lending to the real economy.

6. RWA Calculation and Floor Requirements

• RWA is calculated as 12.5 × total capital requirements.
• Banks using advanced risk measurement approaches (IRB and AMA) must apply Basel 1 floors (80%).
• Two approaches are outlined for computing the transitional floor capital requirement:
  • Approach 1:
    $$
    \text{Transitional floor capital requirement} = \max[(80% \times (\text{CapReqB1} - \text{MktRiskCapReqB1} + \text{MktRiskCapReqCRD3}) - \text{Total Minimum Own Funds CRD3}), 0]
    $$
  • Approach 2:
    $$
    \text{Transitional floor capital requirement} = \max[(80% \times (\text{CapReqB1} - \text{MktRiskCapReqB1} + \text{MktRiskCapReqCRD3}) - \text{Total Own Funds}), 0]
    $$
• RWA Floor = 12.5 × Transitional floor capital requirement

7. Sovereign Debt Exposures

• Sovereign debt exposures include those to central, regional, and local governments of EEA countries.
• Central bank deposits are excluded from the definition.
• Exposures with government guarantees are included, but only if the guarantees are full or partial.

8. Tax Treatment

• For HTM and L&R holdings, the buffer is computed gross of taxes.
• For AFS holdings, the buffer is computed net of taxes, in line with CEBS guidance.

9. Prudential Filters

• Prudential filters on AFS assets are removed in the context of the capital exercise.
• CEBS guidelines (2004) outline how unrealised losses and gains are treated:
  • Equities: Unrealised losses are deducted after tax, gains are partially included.
  • Loans and receivables: Unrealised gains and losses (except impairment) are neutralised.
  • Other AFS assets: Two methods are available for valuation.

10. Supervisory Oversight and Compliance

• Competent authorities must notify the EBA of their compliance or intention to comply with the recommendation by 8 February 2012.
• The EBA expects all competent authorities to incorporate the recommendation into their supervisory practices.
• The EBA will reconsider the need and size of buffers once coordinated EU action has driven sovereign bond valuations away from distressed levels.

Annexes

• Annex I: Lists the competent authorities responsible for supervising the 71 credit institutions.
• Annex II: Details the methodology for identifying capital shortfalls.
• Annex III: Provides the common termsheet for convertible instruments that can be used in the capital buffer.

Conclusion

The EBA Recommendation aims to restore market confidence in the banking sector by setting a temporary capital buffer target. It emphasizes harmonized valuation methods, private capital raising, and supervisory coordination to ensure that the buffer is built without disrupting real economy lending. The 9% Core Tier 1 ratio is the central benchmark, and the EBA will monitor the implementation and reconsider the buffer requirements once the financial situation stabilizes.