Direct contributions to reserves from shareholders as CET1 capital

The CRR contains rules for firms' own funds. CET1 capital is a part of own funds and the items that are recognised as CET1 capital are specified in Article 26(1) of the CRR.

In February this year, the EBA published an answer clarifying the conditions a direct contribution should meet to fulfil the requirements in Article 26(1) of the CRR, Single Rulebook Q&A 2024_7256 Direct contributions to reserves from shareholders (see link below).

In its answer, the EBA lists the conditions that a direct contribution should be subject to in order to meet the requirement set out in the last subparagraph of Article 26(1). The article specifies that items shall be recognised as CET1 capital only where they are available to the institution for unrestricted and immediate use to cover risks or losses as soon as these occur. The clarification means that a contribution may form part of CET1 capital under certain conditions listed in the answer from the EBA. Those conditions include that a contribution should be made as a non-refundable contribution and that there should not be any direct or indirect benefits of any kind, such as dividends. Certain forms of contribution, such as those known as conditional contributions (in Swedish "villkorade aktieägartillskott"), may typically have terms that conflict with these conditions.

The clarification may affect firms with direct contributions to reserves from shareholders in their CET1 capital, for example credit institutions, investment firms and payment institutions. FI may follow up the firms' application in its ongoing supervision.