Question ID
2014_1415
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
86
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
86
Name of institution / submitter
CREDIT AGRICOLE
Country of incorporation / residence
FRANCE
Type of submitter
Credit institution
Subject matter
Significance of the term ‘without prejudice’ in Article 86 of Regulation (EU) No 575/2013 (CRR)
Question

Article 86 of Regulation (EU) No 575/2013 (CRR) sets out a general principle of limitation of minority interests / external resources on Additional Tier 1 capital. This article explicitly provides that this limitation is ‘without prejudice to Article 84(5) and (6)’. Article 84 of the CRR sets a principle of limitation of minority interests in the computation of consolidated Common Equity Tier 1 (CET1) capital. However, the exception under Article 84(6) CRR allows institutions to recognise all minority interests when included in the scope of an Institutional Protection Scheme (IPS) completed with a cross-guarantee scheme. Does the term ‘without prejudice’ mean that the exception for CET1 capital provided for in Article 84(6) can be applied by analogy to the instruments of Article 86 in order to avoid a partial recognition on the Additional Tier 1 capital.

Background on the question

Economically, all capital holders of an Institutional Protection Scheme (IPS) entity can be called up to absorb losses of every member of the IPS network; the minority interests of each IPS entity have agreed in advance that their share of excess capital can be used to help an IPS entity outside the scope of the entity itself. Taking into account this relationship between IPS members, in the event of a CET1 shortfall, in order to absorb very high losses in another entity, Additional Tier 1 write-down clauses would be activated for all Additional Tier 1 holders to restore the capital ratios. The rationale of the Basel deduction of excess minority interests is thus inappropriate for Additional Tier 1 holders in this field.

Submission date
Final publishing date
Final answer

The term 'without prejudice' only clarifies that, in the application of Article 84(5) or Article 84(6) of Regulation (EU) No 575/2013 for the calculation of minority interests included in consolidated Common Equity Tier 1 (CET1) capital, it is the total amount of minority interests recognised in consolidated CET1 capital by application of Article 84(5) or Article 84(6) which has to be subtracted from the qualifying Tier 1 capital of the subsidiary included in consolidated Additional Tier 1 (AT1) capital.

As there is no special treatment for cross-guarantee schemes concerning the calculation of qualifying AT1 (Article 85) or qualifying Tier 2 (Article 87) capital to be included in consolidated capital, the waivers of Article 84(5) and Article 84(6) cannot be applied by analogy to AT1 or Tier 2 instruments.

 

DISCLAIMER:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.

Status
Final Q&A
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Note to Q&A

Update 26.03.2021: This Q&A has not yet been reviewed by the European Commission in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).

Disclaimer

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