EACB comments on EBA Draft Regulatory Technical Standards on own funds and eligible liabilities (EBA/CP/2020/05)

General comments
The EACB welcomes the opportunity to comment on the draft EBA RTS own funds and eligible liabilities amending Delegated Regulation (EU) 241/2014 (RTS own funds). We appreciate that the EBA maintained unchanged, including the 2% threshold for prior permissions, the mechanism for redemption of capital instruments of cooperative banks and mutuals, as it recognized also bysupervisors to be working well and being well tailored to specificities of cooperatives and mutuals. We also appreciate the aim to seek to minimize administrative burden and ensure a framework that is clear overall. However, we are concerned about the proposed introduction of identical requirements for own funds and eligible liabilities without any consideration for the inherent differences of the instruments and their respective functions. We also would stress that particularly in terms of scope a number of adjustments would be especially needed.
Considering the different respective preconditions and functions of own funds and eligible liabilities instruments, we find that the proposed identical requirements would be unsuitable and, causing operational concerns and affecting the funding and resolvability of institutions. The purpose of liabilities held for the fulfilment of MREL requirements is ultimately to ensure resolvability, while the own funds of an institution are intended to ensure financial stability and resilience both for the institutions and the financial system as a whole. This being so, they have fundamentally different maturities and also attract different kinds of investors. Beside MREL requirements, preferred-senior instruments are typically issued also for funding and liquidity management purposes and thus have considerably shorter maturities than the minimum five years for own funds instruments. In addition, issuers need to fulfil the expectations of investors, including a potential wish for early repayment. This means that, for market reasons, the issuer must have full flexibility to manage issuances – as well as repurchases – in order to successfully maintain investor confidence. Against this background, it is obvious that such operational aspects to eligible liabilities instruments should be the exclusive responsibility of the issuers themselves; it is the institutions which has the knowledge needed to assess funding and liquidity needs, investor preferences and the market outlook. Distorting the functioning of the liabilities’ market and the ability of institutions to obtain funding from a varied pool of investors would substantially counteract the objective of ensuring resolvability. Should the requirements for eligible liabilities nevertheless come to closely resemble those for own funds, those requirements should in any case be adjusted in order to ensure that the nature and function of, and the market specificities, of eligible liabilities instruments are taken into account.