Question ID
2013_48
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
489
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Type of submitter
Credit institution
Subject matter
Treatment of Tier 1 securities with calls every 5 years (as opposed to quarterly calls)
Question

Could a Tier 1 security with an incentive to redeem and a first call date post January 1, 2014 (say, in 2016) and which is callable every 5 years after the first call date count as Tier 2 if not called at the first call date? This question is partly based on the answer to the question 2013_15, where the EBA gives clarity on the fact that non-called Tier 1 cannot count as Tier 2 post the first call date, as they are callable every quarter on so do not comply with Tier 2 requirement - which is not the case here.

Background on the question

This question is partly based on the answer to the question 2013_15, where the EBA gives clarity on the fact that non-called step-up Tier 1 cannot count as Tier 2 post the first call date, as they are callable every quarter on so do not comply with Tier 2 requirement - which is not the case in this specific case.

Submission date
Final publishing date
Final answer

Under Article 489(5) of Regulation (EU) No 575/2013 (CRR), instruments referred to in Article 484(4), with a call and an incentive to redeem and where the institution was able to exercise a call with an incentive to redeem on or after 1 January 2013, shall not qualify as Additional Tier 1 from the date of their effective maturity if the conditions laid down in Article 52 of the CRR are not met from that date.

For the instruments which do not qualify as Additional Tier 1 items under Article 489(5), the CRR does not provide for their inclusion in grandfathered Tier 2 items. In order for those instruments to be included in fully eligible Tier 2 items, all conditions of Article 63 of the CRR have to be met. The frequency of subsequent calls is not a relevant criterion in that regard. This is because a capital instrument with an incentive to redeem is still considered to have an incentive to redeem where it has future calls, even if it is not called at the first call date.

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.