CEBS published a consultation paper on its proposals for a common EU definition of Tier 1 hybrids to provide guidelines for a common and clear interpretation across the EU of the international standards issued by the BIS. Hybrid capital instruments may mix features of both debt and equity and can be considered as eligible as original own funds ('Tier 1') in the EEA provided that they meet certain criteria.
CEBS proposes that hybrid capital instruments should only be eligible as Tier 1 capital if they simultaneously meet all of the following requirements:
- they must be issued and fully paid up, publicly disclosed and easily understandable.
- they must be undated.
- they must also be able to absorb losses on a going concern basis, in stressed situations and in liquidation and they must allow the cancellation of payments.
CEBS considers that common shareholders' funds must always cover at least and at all times 70% of the institution's required Tier 1 capital. In addition, when an institution operates above the required Tier 1 capital, CEBS proposes that common shareholders' funds must represent at least and at all times 50 % of the total Tier 1 capital after deductions.
Deadline for comments is 22 February 2008.
Press releases
Consultation paper CP 17
Annex I
Annex II
Annex III
© Graham Bishop
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