EBA issues first monitoring report on TLAC-MREL instruments accompanied by 15 recommendations

The European Banking Authority (EBA) published today its first monitoring Report on minimum requirement for own funds and eligible liabilities (MREL) and total loss absorbing capacity (TLAC) instruments. The purpose of this Report is to inform stakeholders about the implementation review performed by the EBA on TLAC / MREL instruments so far and to present its views and current recommendations on specific features commonly seen in these instruments. This Report follows the same approach of the reports regularly published on CET1 and AT1 monitoring of issuances.

 The Report is based on the review of 27 transactions issued in 14 jurisdictions for a total amount of EUR 22,75bn. In particular, the Report includes EUR 21bn of senior non-preferred (SNP) issuances and EUR 1,75bn of senior holding company (HoldCo) issuances.

The Report covers five main areas of assessment relevant to determine the quality of the TLAC / MREL instruments, namely: availability, subordination, capacity for loss absorption, maturity and other aspects including governing law, tax and regulatory calls, and tax gross-up clauses. The Report contains 15 recommendations in total, four in the area of subordination, seven in the area of capacity for loss absorption, three in the area of maturity and one on tax gross-up.

In addition, the Report stresses the areas where further work from the EBA is ongoing. In particular, the Report highlights the importance to provide further guidance on the interaction between the clauses used for environmental, social and governance (ESG) capital issuances and the eligibility criteria for eligible liabilities instruments.

Consistent with the other work performed by the EBA on the monitoring of capital issuances, the review is not intended to be fully comprehensive. Going forward, the EBA will continue to monitor the quality of the TLAC/MREL instruments issued and exchange views with institutions and market participants on the results of this monitoring.

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’.