The EBA updates on the monitoring of Additional Tier 1, Tier 2 and TLAC/MREL eligible liabilities instruments of European Union institutions

EBA published an updated report focusing on the monitoring of AT1, Tier 2, and TLAC and MREL instruments within EU institutions. This comprehensive report amalgamates information from previously separate reports while introducing new recommendations pertaining to specific contractual clauses.
The EBA highlights a discernible trend towards convergence and standardization in the drafting of terms and conditions for these instruments. This standardization is attributed to the successful implementation of prior EBA recommendations, promoting consistency and uniformity across the EU financial landscape.
Among the notable recommendations outlined in the report, the EBA deems certain TLAC/MREL disqualification event clauses acceptable. However, it advises against the usage of risk-adjusted capital Tier 2 instruments, recommending institutions to exercise caution in this area. Furthermore, the report allows for alignment event clauses but specifies certain conditions for their applicability. The EBA also emphasizes the importance of ensuring that interest rate reset mechanisms do not inadvertently incentivize premature redemption of these financial instruments.
In response to market volatility concerns, the report introduces a degree of supervisory flexibility for small issuers, particularly during periods of heightened market turbulence. This adaptive approach aims to provide issuers with some leeway while maintaining prudential oversight.
Finally, the report also delves into ongoing EBA investigations focused on the prudential valuation of non-CET1 instruments.