EBA updates on the monitoring of total loss-absorbing capacity and minimum requirement for own funds and eligible liabilities instruments

The European Banking Authority (EBA) today published an updated total loss-absorbing capacity and minimum requirement for own funds and eligible liabilities (TLAC/MREL) monitoring Report. Following the first TLAC-MREL monitoring Report, the EBA has observed that its recommendations have been, overall, well implemented. However, it has identified the need for a few new notable provisions to be recommended and for some others to be avoided. This Report provides policy views based on TLAC/MREL instruments assessed up to February 2022 with a view to continue strengthening the quality of the instruments and to have more standardised information across the EU.

The EBA has observed convergence and standardisation in terms of legal drafting of the notes and programmes, deriving also from the actual implementation of the EBA recommendations from the first TLAC/MREL monitoring Report and the ESG recommendations in the latest AT1 monitoring report. Therefore, the updated Report integrates only a few new recommendations.

However, in light of the new observations on certain features of the issuances, new parts have been included in this Report, namely on make-whole clauses (to be disallowed), clean up calls (to be allowed) and substitution and variation clauses (for which prior approval is needed in certain circumstances). Furthermore, some sections have been updated based on new analyses, such as the one related to the netting & set-off waivers and dual governing law / bail-in. On the other hand, the observations on environmental, social and governance (ESG) instruments included in the previous report have been removed since the recommendations were published in the latest AT1 monitoring report. Finally, alignment with the AT1 Report findings/recommendations has been introduced where needed, including on regulatory & tax calls and supervisory approval for early redemptions.

Going forward, the EBA will continue to monitor the quality of the TLAC/MREL instruments issued also with the objective of covering as many jurisdictions as possible and enriching the observations and recommendations.

Legal basis and background

The EBA has developed the Report in accordance with Article 80(1) of the Capital Requirements Regulation (CRR), which specifies that the ‘EBA shall monitor the quality of own funds and eligible liabilities instruments issued by institutions across the Union and shall notify the Commission immediately where there is significant evidence that those instruments do not meet the respective eligibility criteria set out in this Regulation’.

This Report is based on a sample of senior non-preferred (SNP) issuances, some senior holding company (Holdco) issuances and senior preferred MREL eligible instruments. Since the last report, the EBA analysed 25 transactions issued in 16 jurisdictions for a total amount of approximately EUR 15.3 billion.