This week, the EBA held a public hearing on the 4 May report on AT1 issuances, see my previous posts on this. Click here for the PowerPoint that the EBA prepared. Apparently no surprises. On the hot topic of Contingent Clauses, the EBA reports that it “confirms its previous reserves, and recommends disallowing contingent clauses”. A recommendation, … fair enough.

However, according to someone present at the meeting, it was not simple hand waving or neglect from the EBA on Contingent Clauses.

Cleverly fighting words with words, an EBA representative told the audience that a close look at the relevant article of the CRR – Art. 52 1. (l) (iii) – reveals that the provisions governing the instruments give the institution full discretion at all times to cancel the distributions on the instruments for an unlimited period and on a non-cumulative basis.

At all times therefore, may extend into the regulatory afterlife on an AT1 instrument.

This gives the EBA some credible leverage, as it now only takes at little bit of cooperation from the EC to take this up in case it chooses to do so.

Clever!