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  1. Home
  2. Single Rulebook Q&A
  3. 2018_4145 Non-CET1 Instruments absorbing losses at the same time as CET1 instruments
Question ID
2018_4145
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
28
Paragraph
1
Subparagraph
i
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Type of submitter
Investment firm
Subject matter
Non-CET1 Instruments absorbing losses at the same time as CET1 instruments
Question

Article 28(1)(i) requires that "(i) compared to all the capital instruments issued by the institution, the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other Common Equity Tier 1 instruments;". Would it be permitted to have a non-CET1 instrument that absorbs losses at the same time as a proposed CET1 instrument, as long as they both absorbed losses (joint) first? And would it be permitted for a non-CET1 instrument to absorb losses to the same proportion as a proposed CET1 instrument, as long as they were both absorbing the same proportionate greatest share?

Background on the question

It makes logical and practical sense that losses should be absorbed by the most loss absorbing form of capital first (i.e. CET1), and that this most junior layer of capital should absorb the greatest proportion of those losses. However it appears unclear whether it is permitted for a non-CET1 instrument to share those losses at both the same time (joint first) and in the same proportion (jointly greatest). This has relevance in the structuring of new non-CET1 instruments that could be used to reduce the losses that fall on CET1 instrument, by sharing in them simultaneously. Thus for any absolute quantum of losses, some would be diverted to a non-CET1 instrument.

Submission date
19/07/2018
Rejected publishing date
11/02/2022
Rationale for rejection

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.

Status
Rejected question

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