Question ID
2013_21
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
52
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Type of submitter
Competent authority
Subject matter
Deferral of Tier 2 coupons
Question

Can Tier 2 instruments include terms according to which coupons would be mandatorily deferred or cancelled if coupons were not paid on Additional Tier 1 instruments?

Background on the question

Some existing Tier 2 instruments include such terms. Institutions may therefore raise the issue of consistent treatment. In addition, coupons deferral for Tier 2 instruments may become more common for ratings purposes as certain rating agencies may give more equity credit for Tier 2 instruments with coupons deferral.

Submission date
Final publishing date
Final answer

If Tier 2 instruments include such terms, this would undermine coupon flexibility on Additional Tier 1 instruments (as a decision to cancel Additional Tier 1 coupons would automatically lead to the deferral or cancellation of coupons on Tier 2 instruments). The criterion referred to in Article 52 (1) (l) (v) of Regulation (EU) No 575/2013 (CRR), which requires that "the cancellation of distributions imposes no restrictions on the institution" would then not be met by outstanding Additional Tier 1 instruments of the institution. Those instruments would then have to be disqualified from regulatory Tier 1 capital, although Tier 2 instruments including the above mentioned terms would themselves be eligible as regulatory Tier 2 capital. 

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.