EUROPEAN UNION: EBA Updates its Monitoring of Additional Tier 1 Capital Instruments

Tuesday May 5 2015

The European Banking Authority (EBA) has published an update of its first report on the monitoring of Additional Tier 1 (AT1) capital instruments issued by EU institutions and released on 7th October 2014. This update is partly based on the review of new AT1 issuances and includes some final conclusions of the EBA on issues previously flagged as being under investigation. The EBA expects to gather further insight on the basis of future issuances.

The EBA has reviewed fifteen AT1 issuances, which took place between August 2013 and November 2014. This report notably illustrates the EBA`s views on clauses that it recommends be avoided in the terms and conditions of AT1 instruments.

In particular, the report clarifies the EBA`s position on acceptable triggers for regulatory calls and on the conditions for the inclusion of tax gross-up provisions in the terms and conditions of AT1 instruments.

In addition, the report further details the triggers for loss absorption, in particular as concerns the Common Equity Tier 1 (CET1) (on a consolidated, sub-consolidated or individual level) that should be the basis for setting the triggers for AT1 instruments issued within a banking group. Finally, the report elaborates on the rationale for disallowing contingent clauses where payments become mandatory if they lose the status of AT1 instruments.

The report is published as a draft final report. The EBA will exchange views with institutions and market participants on the report and will hold a public hearing on the 18th May 2015. The EBA expects to publish the final report by the end of May 2015.

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