Guidelines on the interrelationship BRRD_CRR (EBA-GL-2017-02)

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD EBA/GL/2017/02 05 April 2017 Final Guidelines concerning the interrelationship between the BRRD sequence of writedown and conversion and CRR/CRD

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD Contents

1. Executive summary 3
2. Background and rationale 4
3. EBA Guidelines concerning clarification of the interrelationship between the provisions laid
   down in BRRD and CRR/CRD 6
4. Accompanying documents 12
   4.1 Cost–benefit analysis/impact assessment 12
   4.2 Views of the Banking Stakeholder Group (BSG) 15
   4.3 Feedback on the public consultation 15

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD

1. Executive summary
   Article 48 of Directive 2014/59/EU (the Bank Recovery and Resolution Directive, BRRD) specifies
   the sequence in which the power to write down or convert liabilities in resolution should be applied. This sequence provides that capital instruments as defined in Regulation 575/2013/EU (the Capital Requirements Regulation, CRR) should bear losses first, before other liabilities.
   Article 60 of the BRRD contains a similar provision about the power to write down or convert
   capital instruments at the point of nonviability (the PONV conversion power). To ensure that absorption of losses by capital instruments is effective, and that resolution authorities and other stakeholders have a clear understanding of how this sequence should be applied, Article 48(6) of the BRRD mandates the EBA to issue guidelines clarifying the interrelationship between the provisions of the BRRD and the provisions of the CRR and CRD, as far as this affects the writedown sequence. These guidelines provide general guiding rules, based on the resolution principles established by
   Article 34 of the BRRD, which should be applied in cases where there is potential ambiguity about
   which category of the writedown sequence a particular instrument belongs to, and discuss their application to particular cases. The two guiding rules are that:

• when applying the bail-in tool or the PONV conversion power, the resolution authority
  should treat capital instruments which belong to the same category of the sequence established by Article 48 or Article 60 of the BRRD and which rank equally in insolvency in the same way, whatever their other qualities; and
• the resolution authority should apply the same treatment to instruments which are
  partially included in the calculation of own funds as to instruments which are fully included. These guiding rules are applied to two particular cases where there is potential ambiguity in the interrelationship between the provisions of the BRRD and the CRR/CRD:
• Additional Tier 1 instruments grandfathered under Article 52 of the CRR should be treated
  in the same way as Additional Tier 1 instruments which meet all of the conditions of the CRR.
• Tier 2 instruments which are only partially included in the calculation of own funds
  because they are subject to the amortisation regime of Article 64 of the CRR should be treated in the same way as Tier 2 instruments fully included in the calculation of own funds.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD
2. Background and rationale
Article 48 of the Bank Recovery and Resolution Directive (BRRD) establishes the sequence in
which resolution authorities should apply the power to write down or convert obligations (the bail-in power) of an entity under resolution. Obligations should be reduced in the following order:
a) Common Equity Tier 1; b) Additional Tier 1 instruments; c) Tier 2 instruments; d) Other subordinated debt, in accordance with the normal insolvency hierarchy; e) Other eligible liabilities, in accordance with the normal insolvency hierarchy.
Article 60 of the BRRD similarly provides that, when the power to write down or convert capital
instruments at the point of non-viability (the PONV conversion power) is applied, either in conjunction with a resolution tool or independently, Common Equity Tier 1 (CET1) should be reduced first, then Additional Tier 1 (AT1) instruments, and then Tier 2 (T2) instruments. The CRR and CRD allow for some potential ambiguities about the classification of instruments between the categories of the writedown sequence. For example, some instruments are partially excluded from the calculation of own funds. The EBA is mandated under Article 48(6) of the BRRD to issue guidelines clarifying the interrelationship between this writedown sequence and the provisions of the CRR and CRD. The aim of these guidelines is to assist resolution authorities, and other stakeholders such as banks and investors, in determining the appropriate treatment of obligations in cases where there may be ambiguity as to which of categories a) to e) certain instruments belong to when it comes to writedown or conversion action. This must be done in a way which is consistent with the provisions of the CRR and CRD, and the requirements, principles and objectives of the BRRD. To that end the guidelines identify guiding rules which may be applied in any case, and also discuss their application to a number of particular types of instruments. The guiding rules identified in these guidelines are based on the resolution principles set out in
Article 34 of the BRRD. These require that, in addition to the specific provisions of Article 48,
resolution authorities should ensure that shareholders bear first losses, that creditors shall be treated equitably and bear losses in accordance with their order of priority in insolvency (unless otherwise provided in the BRRD), and that no creditor shall incur greater losses than if the institution had entered normal insolvency proceedings.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD The first guiding rule is that when applying the bail-in tool or the PONV conversion power, except where exclusions in accordance with Article 44 of the BRRD are made, the resolution authority should treat capital instruments which rank equally in insolvency in the same way, whatever their other qualities. This rule is applied to the case of grandfathered AT1 instruments which do not meet the conditions for AT1 under the CRR, such as including a contractual writedown or conversion clause. Since they nevertheless qualify as AT1 instruments, they should be treated in the same way as any outstanding fully CRR compliant AT1 instruments which have not yet been written down or converted in accordance with their contractual provisions. The second guiding rule is that the resolution authority should apply the same treatment to instruments which are partially included in the calculation of own funds as to instruments which are fully included. This rule is applied to the case of Tier 2 instruments subject to the amortisation regime of the CRR. For Tier 2 instruments with less than 5 years of residual maturity, the amount which can be included in own funds is reduced to zero on a straight-line basis. The guidelines clarify that the amortised amount of such instruments should be treated in the same way as the amount included in own funds. This is necessary to ensure the equitable treatment of creditors in accordance with the insolvency hierarchy.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD
3. EBA Guidelines concerning
clarification of the interrelationship between the provisions laid down in BRRD and CRR/CRD Status of these Guidelines

1. This document contains guidelines issued pursuant to Article 16 of Regulation (EU)
   No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC as subsequently amended by Regulation (EU) No 1022/2013 (the EBA Regulation). In accordance with Article 16(3) of the EBA Regulation, competent authorities and financial institutions must make every effort to comply with the guidelines.
2. Guidelines set out the EBA’s view of appropriate supervisory practices within the
   European System of Financial Supervision or of how Union law should be applied in a particular area. The EBA therefore expects all competent authorities and financial institutions to whom guidelines are addressed to comply with guidelines. Competent authorities to whom guidelines apply should comply by incorporating them into their supervisory practices as appropriate (e.g. by amending their legal framework or their supervisory processes), including where guidelines are directed primarily at institutions. Reporting Requirements
3. According to Article 16(3) of the EBA Regulation, competent authorities must notify the
   EBA as to whether they comply or intend to comply with these guidelines, or otherwise with reasons for non-compliance, by two months after publication of the final translation. In the absence of any notification by this deadline, competent authorities will be considered by the EBA to be non-compliant. Notifications should be sent by submitting the form provided at Section 5 to compliance@eba.europa.eu with the reference ‘EBA/GL/2017/02’. Notifications should be submitted by persons with appropriate authority to report compliance on behalf of their competent authorities.
4. Notifications will be published on the EBA website, in line with Article 16(3).

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD Title I – Subject matter and scope
1. Subject matter
1. Pursuant to Article 48(6) of Directive 2014/59/EU, these guidelines address the
interrelationship between Regulation (EU) No 575/2013 and Directive 2013/36/EU with Directive 2014/59/EU for the purposes of the sequence of writedown and conversion. The guidelines clarify this interrelationship for the purposes of Article 48 of Directive 2014/59/EU, which governs the sequence of writedown and conversion when the bail-in tool is applied. They are also relevant to Article 60 of Directive 2014/59/EU regarding the sequence of writedown and conversion of capital instruments at the point of non-viability (PONV). ‘Capital instruments’ for the purpose of these guidelines is taken to mean instruments which qualify as CET1, AT1 or T2 instruments for the purposes of Regulation (EU) No 575/2013.
2. Article 48 of Directive 2014/59/EU provides that Member States shall ensure that, when
applying the bail-in tool, resolution authorities exercise the write down and conversion powers, subject to any exclusions under Article 44(2) and (3) of Directive 2014/59/EU, in the following order: CET1 items; then AT1 instruments; then T2 instruments; then other subordinated debt that is not AT1 or T2 instruments in accordance with the hierarchy of claims in normal insolvency law; then the rest of eligible liabilities in accordance with the hierarchy of claims in normal insolvency law.
3. Article 48(2) of Directive 2014/59/EU states that resolution authorities shall allocate the
losses equally between shares or other instruments of ownership and eligible liabilities of the same rank except where discretionary exclusions from bail-in under Article 44(3) of Directive 2014/59/EU result in a different allocation of losses amongst liabilities of the same rank. In this case, the level of writedown or conversion applied to other eligible liabilities may be increased under Article 44(3), provided that the level of writedown and conversion complies with the no creditor worse off safeguard (NCWO) referred to in Article 34(1), (g) of that directive.
4. According to Article 48(3) of Directive 2014/59/EU, before applying the write down or
conversion power to other eligible liabilities or liabilities ranking pari passu, resolution authorities shall convert or reduce the principal amount of AT1 and T2 instruments and of other subordinated liabilities when those liabilities have not already been converted and their terms provide for: (a) the principal amount of the instrument to be reduced on the occurrence of any event that refers to the financial situation, solvency or levels of own funds of the institution; or (b) the conversion of the instruments to shares or other instruments of ownership on the occurrence of any such event.
5. Article 48(4) of Directive 2014/59/EU provides that when resolution authorities reduce, but
not to zero, the principal amount of an instrument according to paragraph 3 of that Article, they shall respect the creditor hierarchy and apply the write down and conversion powers to the residual amount of that principal in accordance with the regime of paragraph 1.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD Furthermore, Article 48(5) provides that when deciding on whether liabilities are to be written down or converted into equity, resolution authorities shall not convert one class of liabilities, while a class of liabilities that is subordinated to that class remains substantially unconverted into equity or not written down, unless otherwise permitted under Article 44(2) and (3) of Directive 2014/59/EU.
6. The provisions contained in Article 48, in particular the first paragraph thereof, create a
number of interrelationships with the regime set forth in Regulation (EU) No 575/2013 and Directive 2014/59/EU that need to be clarified. In particular, this interrelationship concerns the capital instruments (in particular AT1 and T2 classes) for purposes of the sequence of writedown and conversion. Points (69), (73) and (74) of Article 2(1) of Directive 2014/59/EU define such instruments as those meeting the conditions laid down in Articles 52 and 63 of Regulation (EU) No 575/2013 but do not specify the treatment applicable to instruments of the same class or issuance, but under a different regime for the purposes of calculating the institution’s own funds.
2. Scope and level of application
7. These guidelines are addressed to resolution authorities when they are applying the bail-in
tool or the power to write down or convert capital instruments at the point of non-viability to an institution or to an entity referred to in Article 1(1), (b), (c) or (d) of Directive 2014/59/EU. Title II – Guidelines concerning the treatment applicable to instruments provided for in Regulation (EU) No 575/2013 and in Directive 2013/36/EU for the purposes of the sequence of writedown and conversion
8. These guidelines set out below relates only to the interrelationship between Regulation (EU)
No 575/2013 and Directive 2013/36/EU with Directive 2014/59/EU with regard to the sequence of writedown and conversion in case of application of the bail-in tool or the PONV conversion power. They do not address any other interrelationship of Directive 2014/59/EU with Regulation (EU) No 575/2013 and Directive 2013/36/EU.
9. They serve to clarify how resolution authorities should take into account the contractual
features of instruments issued by the entity subject to use of the bail-in or PONV power which qualify as additional T1 or T2 instruments according to the framework laid down in Regulation (EU) No 575/2013 and Directive 2013/36/EU when determining the order of the writedown or conversion. In some cases the latter framework recognises instruments as capital instruments, but due to particular contractual features they are fully or partially excluded from the calculation of ‘own funds’. Resolution authorities should ensure that the treatment of instruments in the same category of the sequence of writedown and conversion described in Article 48(1) or Article 60(1) of Directive 2014/59/EU is compliant with the creditor hierarchy in normal insolvency proceedings.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD
10. Guiding rule 1: When applying the bail-in tool or the writedown and conversion power at
PONV the resolution authority should treat capital instruments which belong to the same category of the sequence established by Article 48 or Article 60 of the BRRD and which rank equally in insolvency in the same way, whatever their other characteristics or untriggered contractual terms governing writedown and conversion. In particular they should be written down to the same extent or subject to the same terms of conversion. If a contractual trigger event which would result in writedown or conversion of an instrument occurs before or at the same time as the application of either power, the assessment of the creditor hierarchy should reflect the effects of that writedown or conversion.
11. Guiding rule 2: When determining the order and amount of writedown or conversion the
resolution authority should apply the same treatment to all instruments eligible as own funds according to Part 2 or Part 10, Title 1, Chapter 2 of Regulation (EU) No 575/2013, independently of whether they are fully or partially excluded from counting towards an institution’s own funds. In particular they should be written down to the same extent or subject to the same terms of conversion.
12. Set out below is guidance on how resolution authorities should apply these guiding rules in
particular cases.
Applying guiding rule 1: issued AT1 instruments which fully meet the conditions of Article 52 of Regulation (EU) No 575/2013 and instruments grandfathered according to Part 10, Title 1,
Chapter 2 of that regulation with the same ranking in the creditor hierarchy are subject to the
same treatment for the purposes of the sequence of the writedown and conversion. In particular they should be written down to the same extent or subject to the same terms of conversion.
13. In order to be included as own funds, AT1 instruments should meet the conditions of
Article 52 of Regulation (EU) No 575/2013. Article 52 provides that AT1 instruments should
contain contractual provisions according to which, upon the occurrence of a trigger event, the principal amount of the instruments is written down on a permanent or temporary basis or the instruments is converted to CET1. For the purposes of this provision, Article 54(1), (a) of Regulation (EU) No 575/2013 further requires that AT1 instruments be converted when the CET1 ratio decreases to 5.125%, or higher if specified in the provisions governing the instrument. The provisions of the instrument may include more than one trigger, and must specify either the rate of conversion and limit on permitted amount of conversion, or a range within which the instruments will convert to CET1 (Article 54(1), (b) and (c) of Regulation (EU) No 575/2013).
14. Directive 2006/48/EC does not provide for the same condition for the purposes of the
eligibility of instruments as own funds.
15. According to the provisions of Part 10, Title 1, Chapter 2 of Regulation (EU) No 575/2013
(grandfathering of capital instruments), items eligible as own funds under national transposition measures for Directive 2006/48/EC are eligible to be calculated in own funds for the purposes of Regulation (EU) No 575/2013 even though they do not meet all the conditions provided for in Articles 52 and following of Regulation (EU) No 575/2013. Thus, grandfathered instruments which do not provide for the contractual trigger of Article 54 of

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD Regulation (EU) No 575/2013 are included in own funds in accordance with the limits laid down in the regulation.
16. According to guiding rule 1 and in order to ensure respect for the creditor hierarchy, the
resolution authority should treat all AT1 instruments which rank equally in insolvency in the same way for the purposes of writedown and conversion (unless otherwise specified in Directive 2014/59/EU) without considering other differences between the loss-absorbing capacity of these AT1 instruments resulting from their contractual clauses. Therefore, in case of application of the bail-in tool or the writedown or conversion power at PONV, the resolution authority should treat equally AT1 instruments issued according to Regulation (EU) No 575/2013 and grandfathered AT1 instruments.
17. Grandfathered instruments according to Regulation (EU) No 575/2013 are included in own
funds according to the limits of Regulation (EU) No 575/2013 (Part 10, Chapter 2), according to which these items are progressively excluded from own funds ( ). Applying both guiding rule 1 and guiding rule 2, in the sequence of the writedown and conversion, AT1 items compliant with the rules of Regulation (EU) No 575/2013 and grandfathered instruments including any amount that is progressively excluded from own funds because of the limits set out in Part 10, Chapter 2 of Regulation (EU) No 575/2013 (in particular Article 486) should be subject to the same treatment. Applying guiding rule 2: T2 instruments under the amortisation regime should be subject to the same treatment as T2 instruments fully included in own funds.
18. According to the amortisation regime laid down in Article 64 Regulation (EU) No 575/2013,
the value of a T2 instrument that can be included in own funds is its nominal value amortised on a straight line basis in the final 5 years before maturity. The amount subject to amortisation is not included in own funds, even if the T2 instrument is eligible according to
Article 63 of Regulation (EU) No 575/2013. When determining the order and amount of
writedown or conversion the resolution authority should treat in the same way T2 instruments included in the same class and should not apply a discriminatory treatment to issuance of the same T2 instruments.
19. The amortised amount of the T2 instruments should also be subject to the same treatment as
the amount of the T2 instruments included in own funds when the amortisation regime is applied to a grandfathered instrument. In this case, applying guiding rules 1 and 2 and in line with the creditor hierarchy, the full nominal amount of a grandfathered T2 instrument subject to the amortisation regime should be subject to the same treatment as equally ranking T2 instruments in order to determine the sequence and amount of writedown and conversion.
20. Additionally, AT1 instruments should be treated in the same way regardless of whether or not
they are affected by the limits set out in Article 486 of Regulation (EU) No 575/2013.

(
) For the purposes of these guidelines, all the amounts of items calculated as own funds according to the limits provided for in Part 10, Chapter 2 of the CRR are subject to the same treatment.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD Title III – Final provisions and implementation
21. These guidelines should be implemented into national resolution practices by relevant
resolution authorities 6 months after publication.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD
4. Accompanying documents
4.1 Cost–benefit analysis/impact assessment
Introduction
The EBA is mandated under Article 48(6) of the BRRD to issue guidelines on clarifying the interrelationship between the writedown sequence specified in Article 48 and the provisions of the CRR and CRD.
Article 16(2) of the EBA Regulation provides that the EBA should carry out an analysis of ‘the
potential related costs and benefits’ of any guidelines it develops. This analysis should provide an overview of the findings regarding the problem to be dealt with, the solutions proposed and the potential impact of these options. This annex presents the impact assessment with cost–benefit analysis of the provisions included in the guidelines. Given the nature of the guidelines, the impact assessment is high-level and qualitative in nature. Problem definition The mandate of Article 48(6) requires the EBA to issue guidelines clarifying the interrelationship between the provisions of Article 48, which govern the sequence of writedown or conversion in bail-in, and the provisions of the CRR and CRD. The sequence provided for in Article 48 distinguishes between the treatment of CET1, AT1, T2, other subordinated liabilities and other eligible liabilities. Since the first three of these categories are defined by reference to the CRR, the main interrelationship which needs to be addressed is to ensure that all obligations of the institution or entity under resolution which may be subject to writedown or conversion can be clearly assigned to one, and only one, of these categories. Similar considerations apply to the sequence provided in Article 60 of the BRRD for the PONV writedown or conversion power, which may be applied either in conjunction with a resolution power or independently. Regulatory and specific objectives The specification of the treatment of capital instruments in the writedown sequence in the BRRD serves two main regulatory objectives:

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD a) First, to ensure that capital instruments are able to meet their primary purpose of absorbing losses in the sequence envisaged in the CRR/CRD when a resolution power, or the PONV writedown and conversion power, is applied. b) Second, to allow institutions and investors to form clear expectations about the treatment of capital instruments in resolution, enabling efficient pricing and market discipline. These objectives must be met while ensuring appropriate protection for the property rights of shareholders and creditors of the institutions, as provided for in the resolution principles and safeguards of the BRRD. The specific objective of these guidelines is to enable resolution authorities, and other stakeholders, to resolve any potential ambiguities arising from the interrelationship between the provisions of the BRRD and the CRR/CRD as to which category of the writedown sequence applies in any given case. They do not aim to address other relationships between the BRRD and the CRR/CRD, which do not affect the sequence of application of bail-in. And they do not aim to address ambiguities in the writedown sequence which do not arise from the CRR/CRD, arising for instance from the interpretation of contractual language. Options considered Three options for the general approach to developing these guidelines were considered. Option 1: Provide only general criteria and guiding rules. Option 2: Provide only clarification on specifically identified issues. Option 3: Provide both. The EBA has considered whether it would be more appropriate to provide general criteria for resolution authorities to apply in the circumstances of individual resolution cases, or to provide a more specific discussion of how particular types of instruments would be affected by the writedown sequence. Option 1 could be expected to deliver objective b) less well, giving only a relatively small benefit to investors and institutions, as the additional clarity would be limited. Investors may need considerable understanding of the resolution framework in order to understand clearly how these criteria would be applied. This may result in a higher risk premium being applied to institutions’ funding costs than if investors had full information, and/or to unexpected adjustments in risk premia if resolution actions were unexpected. Option 2 could be expected to deliver objective a) less well. Limiting the scope of the guidelines to particular types of instruments could increase the likelihood that resolution authorities encounter types of instruments not covered by the guidelines, whose position in the writedown sequence is to some extent ambiguous. They may then be more cautious about exercising their powers to write down or convert those instruments. This risk could be mitigated by including a more

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD comprehensive categorisation of instruments in the guidelines, at the cost of increasing the complexity of the guidelines, and failing to be future-proof. The EBA’s view is that the best way of balancing these concerns is to combine the two approaches, providing general criteria which resolution authorities may apply in any circumstances, and specific discussion of how these criteria apply to the most common specific issues. Resolution authorities are also expected to benefit from symmetric information, and more effective and efficient cooperation across jurisdictions. Option 3 is therefore selected as the preferred option.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD
4.2 Views of the Banking Stakeholder Group (BSG)
No opinion was provided by the BSG on these draft guidelines.
4.3 Feedback on the public consultation
The EBA publicly consulted on the draft guidelines.
The consultation period lasted for 3 months and ended on 3 January 2015. Four responses were received, all of which were published on the EBA website. This paper presents a summary of the key points and other comments arising from the consultation, the analysis and discussion triggered by these comments and the actions taken to address them if deemed necessary. In many cases several industry bodies made similar comments or the same body repeated its comments in the response to different questions. In such cases, the comments and EBA analysis are included in the section of this paper where the EBA considers them most appropriate. Changes to the draft guidelines have been incorporated as a result of the responses received during the public consultation. Summary of key issues and the EBA’s response Respondents generally thought that the guidelines provided helpful clarification on how the BRRD writedown sequence should be applied by resolution authorities. Several respondents suggested additional minor clarifications, which have been taken on board. Some respondents argued that the creditor hierarchy in insolvency should be the resolution authority’s overriding consideration. While this could reduce the risk of breaches of the NCWO which require compensation, it is not compatible with the clear ordering of the writedown sequence by category of capital instruments provided in Article 48 of the BRRD. One respondent thought that grandfathered capital instruments should not be treated as if in the same step of that sequence as fully CRR compliant instruments. The EBA’s view is that this could significantly increase the risk of breaches of the property rights safeguards, and inappropriately provide for better treatment of grandfathered instruments.

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD Summary of responses to the consultation and the EBA’s analysis Comments Summary of responses received EBA analysis Amendments to the proposals General comments Several respondents thought it should be clarified that where some AT1 instruments are counted only towards T2 capital because of the CRR portfolio cap on AT1, these should be treated fully as AT1 for the purposes of bail-in. The EBA views this as a special case of guiding rule 2, in particular as the cap affects only aggregate AT1 and not specified instruments. Amend paragraph 19 to clarify that pari passu treatment of partially grandfathered instruments is a consequence of both guiding rules. Add: Applying guiding rule 2: All AT1 instruments should be treated in the same way regardless of whether or not they qualify as AT1 items pursuant to the limits set out in
Article 486 of
Regulation (EU)
No 575/2013.
Several respondents sought clarification that the bail-in hierarchy applies at legal entity level. Agree – the bail-in and PONV powers both apply to specific legal entities. In paragraph 9 add ‘features of instruments issued by the entity subject

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD to the use of the bail-in or PONV power’. Several respondents thought that the insolvency hierarchy should be the overriding consideration, and so that other subordinated instruments which rank pari passu with capital instruments should be treated in the same way as those capital instruments. While this would, as identified by the respondents, reduce the possibility of breaching the NCWO, it would conflict with the provisions of Article 48 of the BRRD, in particular the distinction made in
Article 48(1)(d) and (e).
None.
One respondent thought that only instruments which fully satisfy all of the CRR eligibility criteria for CET1, AT1 or T2 capital should be treated as belonging to the relevant step of the bail-in sequence, not grandfathered instruments.
Article 484 of the CRR makes it clear that
grandfathered instruments are to be treated as CET, AT1 or T2 items. Adopting the same treatment for the purpose of the BRRD bail-in sequence promotes consistency between the supervisory and resolution regimes and avoids the perverse result of providing additional protection to grandfathered capital instruments. None. Responses to questions in Consultation Paper EBA/CP/2014/29 Question 1. Should the Guidelines also provide further clarification on the treatment of instruments which contain different contractual triggers for conversion to shares or other instruments of ownership, or does the BRRD (in particular
Article 47(2)) provide
sufficient clarity?
Two respondents thought that there was some ambiguity about whether capital instruments with contractual writedown or conversion features which had not yet been triggered should be bailed-in (a) on the same terms as other instruments in the same tier of capital and with the same position in the insolvency hierarchy or (b) after other subordinated debt but before other eligible liabilities. The EBA’s view is that interpretation (a) is the better one. In guiding rule 1, change to ‘treat capital instruments which rank equally in insolvency equally, whatever their other characteristics or untriggered contractual terms governing writedown and conversion.’

GUIDELINES ON INTERRELATIONSHIP BRRD AND CRR-CRD