EBA · 2013_547 Final Q&A

Subordinated Debt holdings

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
99
Topic
Supervisory reporting - FINREP (incl. FB&NPE)
Submitted by
Credit institution
Submitted
2013-11-21
Answered
2014-03-21
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

The definition of subordinated assets appears very broad - it seems to include any asset which is not highest in the order of priority. [Para 45 refers to a detailed definition in para 54: “Subordinated debt” instruments provide a subsidiary claim on the issuing institution that can only be exercised after all claims with a higher status have been satisfied”] Can the definition be interepreted as being any asset which has specific element of subordination according to its own terms and conditions rather than being a requirement to relate to all other assets?

Background

According to the current definition it would appear that where an entity issues covered bonds,which have a prior claim over part of the entity's assets,that would appear to make all other claims on that entity subordinated.

Answer

The definition of 'subordinated debt' (paragraph 54 of Part 2 of Annex V) establishes that these instruments provide a subsidiary claim 'on the issuing institution' ; therefore, the instruments to be ranked are exclusively those that provide a claim on the issuer as a whole. It follows that those instruments that provide a prior claim over only a part of the institutions' assets (such as covered bonds) should not be considered as higher status claims for the purposes to determine which instruments are 'subordinated debt'. Having said that, the presence of specific elements of subordination in the terms and conditions of an asset is usually the first and main source in order to determine its subordinate nature.

Original source: European Banking Authority, Q&A ID 2013_547

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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