X1PART TWO OWN FUNDS AND ELIGIBLE LIABILITIES

TITLE IELEMENTS OF OWN FUNDS

F1CHAPTER 5a Eligible liabilities

Section 2 Deductions from eligible liabilities items

Article 72e Deductions from eligible liabilities items

1.

Institutions that are subject to Article 92a shall deduct the following from eligible liabilities items:

(a)

direct, indirect and synthetic holdings by the institution of own eligible liabilities instruments, including own liabilities that that institution could be obliged to purchase as a result of existing contractual obligations;

(b)

direct, indirect and synthetic holdings by the institution of eligible liabilities instruments of G-SII entities with which the institution has reciprocal cross holdings that the competent authority considers to have been designed to artificially inflate the loss absorption and recapitalisation capacity of the resolution entity;

(c)

the applicable amount determined in accordance with Article 72i of direct, indirect and synthetic holdings of eligible liabilities instruments of G-SII entities, where the institution does not have a significant investment in those entities;

(d)

direct, indirect and synthetic holdings by the institution of eligible liabilities instruments of G-SII entities, where the institution has a significant investment in those entities, excluding underwriting positions held for five business days or fewer.

2.

For the purposes of this Section, all instruments ranking pari passu with eligible liabilities instruments shall be treated as eligible liabilities instruments, with the exception of instruments ranking pari passu with instruments recognised as eligible liabilities pursuant to Article 72b(3) and (4).

3.

For the purposes of this Section, institutions may calculate the amount of holdings of the eligible liabilities instruments referred to in Article 72b(3) as follows:

h=∑iHi×liLi

where:

  • h

    the amount of holdings of the eligible liabilities instruments referred to in Article 72b(3);

  • i

    the index denoting the issuing institution;

  • H i

    the total amount of holdings of eligible liabilities of the issuing institution i referred to in Article 72b(3);

  • l i

    the amount of liabilities included in eligible liabilities items by the issuing institution i within the limits specified in Article 72b(3) according to the latest disclosures by the issuing institution; and

  • L i

    the total amount of the outstanding liabilities of the issuing institution i referred to in Article 72b(3) according to the latest disclosures by the issuer.

4.

Where F2a UK parent institution or a parent institution in the United Kingdom that is subject to Article 92a has direct, indirect or synthetic holdings of own funds instruments or eligible liabilities instruments of one or more subsidiaries which do not belong to the same resolution group as that parent institution, the resolution authority F3after duly considering the opinion of a relevant foreign resolution authority within the meaning of section 83ZE(10) of the Banking Act 2009, may permit the parent institution to deduct such holdings by deducting a lower amount specified by the resolution authority of that parent institution. That adjusted amount shall be at least equal to the amount (m) calculated as follows:

  • m i = max{0; OP i + LP i – max{0; β · [O i + L i – r i · aRWA i ]}}

    where:

    • i

      the index denoting the subsidiary;

    • OP i

      the amount of own funds instruments issued by subsidiary i and held by the parent institution;

    • LP i

      the amount of eligible liabilities items issued by subsidiary i and held by the parent institution;

    • β

      percentage of own funds instruments and eligible liabilities items issued by subsidiary i and held by the parent undertaking;

    • O i

      the amount of own funds of subsidiary i, not taking into account the deduction calculated in accordance with this paragraph;

    • L i

      the amount of eligible liabilities of subsidiary i, not taking into account the deduction calculated in accordance with this paragraph;

    • r i

      the ratio applicable to subsidiary i at the level of its resolution group in accordance with point (a) of Article 92a(1) of this Regulation F4...; and

    • aRWA i

      the total risk exposure amount of the G-SII entity i calculated in accordance with Article 92(3) and (4), taking into account the adjustments set out in Article 12a.

Where the parent institution is allowed to deduct the adjusted amount in accordance with the first subparagraph, the difference between the amount of holdings of own funds instruments and eligible liabilities instruments referred to in the first subparagraph and that adjusted amount shall be deducted by the subsidiary.