An institution (Bank) has issued AT1 instruments and/or T2 instruments to external investors (outside the prudential consolidation). By virtue of Article 11(2) of the CRR, Bank is subject to consolidated supervision on the basis of the consolidated situation of its immediate parent financial holding company (Holding). Holding itself is not an institution. It holds only shares in Bank and has no other operations or risk exposures. Note that Bank, rather than Holding, is expected to be the point of entry in resolution. Based on a literal reading of the CRR, there should be no restriction on the inclusion of AT1/T2 instruments at a consolidated level, as Bank is not a subsidiary of an institution, as required by Articles 82 and 85-88 of the CRR. In the past, the EBA has on several occasions taken the view that the restrictions on inclusion should be applied in the case of issuances out of banks which are supervised on a consolidated basis under Article 11(2) of the CRR (e.g. answer to respondents as part of consulting on the RTS Own Funds - “discussion Groups headed by non-operating holding company”; paragraph 90 of the second update of the EBA AT1 Monitoring Report; EBA Q&A 2013_385). Even though the text of the CRR would not seem to support this approach, the economic rationale behind the EBA’s position is understandable where the parent financial holding company would be exposed to other, additional risks of its own. However, this is not the case here where Holding is an “empty” non-operating holding company, holding only shares in Bank. From an economic perspective, in this situation there would be no basis to prevent full consolidated inclusion of AT1/T2 instruments issued by Bank. The rationale behind the rules preventing full inclusion (“haircut”) of Articles 81 and further of the CRR, is that externally placed own funds instruments will not be available to absorb losses at the consolidated level; they would serve to meet only the risks of the subsidiary itself. This makes sense where the parent holding company is exposed to other risks, e.g. other share investments, but not where – as is the case here – the immediate consolidating parent is a non-operating “empty” holding company with no other assets or risk exposures of its own. It is acknowledged that the CRR does not distinguish between holding companies that are empty or almost empty and those that are not, and holding companies that sit somewhere in between. Although this presents a complication in answering the question, this does not take away from the fact that in this particular case neither the legal text nor its economic rationale supports the application of a haircut.