The CRR/CRD IV proposals (the so-called Capital Requirements Regulation -‘CRR’- and the so-called Capital Requirements Directive –‘CRD’) set out prudential requirements which are expected to be applicable as of 1 January, 2013. The CRR proposals related to own funds translate the proposals from the Basel Committee on Banking Supervision into EU law. Both reforms raise both the quality and quantity of the regulatory capital base.
Main features of the RTS
These technical standards cover all areas of own funds, from features for instrument of the highest quality (CET1 instruments) to instruments of a lower quality (Tier 2 instruments).
Various provisions of the RTS will contribute to increasing the permanence of capital instruments as well as the loss absorbency features of hybrid instruments.
The requirements contained in the draft RTS are mainly directed at institutions, although some of them are directed at competent authorities.
The RTS cover, in particular, the following areas:
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Common Equity Tier 1 capital, in particular foreseeable charges or dividends, features of capital instruments of mutuals, cooperative societies or similar institutions, applicable forms and nature of indirect funding of capital instruments, limitations on redemption of own funds instruments;
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additional Tier 1 capital, in particular the form and nature of incentives to redeem, the conversion or write-down of the principal amount, the use of special purpose entities;
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deductions from Common Equity Tier 1 capital and from own funds in general including deductions of capital instruments of financial institutions and insurance/reinsurance undertakings, losses of the current financial year, deferred tax assets, defined benefits pension fund assets, foreseeable tax charges;
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general requirements like indirect holdings arising from index holdings, supervisory consent for reducing own funds;
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transitional provisions for own funds in terms of grandfathering.
The consultation runs until 4th July, 2012.
Full consultation paper
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