CHAPTER 4

Tier 2 items shall consist of the following: capital instruments and subordinated loans where the conditions laid down in Article 63 are met; the share premium accounts related to instruments referred to in point (a); for institutions calculating risk-weighted exposure amounts in accordance with Chapter 2 of Title II of Part Three, general credit risk adjustments, gross of tax effects, of up to 1,25 % of risk-weighted exposure amounts calculated in accordance with Chapter 2 of Title II of Part Three; for institutions calculating risk-weighted exposure amounts under Chapter 3 of Title II of Part Three, positive amounts, gross of tax effects, resulting from the calculation laid down in Articles 158 and 159 up to 0,6 % of risk weighted exposure amounts calculated under Chapter 3 of Title II of Part Three. Items included under point (a) shall not qualify as Common Equity Tier 1 or Additional Tier 1 items. Capital instruments and subordinated loans shall qualify as Tier 2 instruments provided the following conditions are met: the instruments are issued or the subordinated loans are raised, as applicable, and fully paid-up; the instruments are not purchased or the subordinated loans are not granted, as applicable, by any of the following: the institution or its subsidiaries; an undertaking in which the institution has participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of that undertaking; the purchase of the instruments or the granting of the subordinated loans, as applicable, is not funded directly or indirectly by the institution; the claim on the principal amount of the instruments under the provisions governing the instruments or the claim of the principal amount of the subordinated loans under the provisions governing the subordinated loans, as applicable, is wholly subordinated to claims of all non-subordinated creditors; the instruments or subordinated loans, as applicable, are not secured, or subject to a guarantee that enhances the seniority of the claim by any of the following: the institution or its subsidiaries; the parent undertaking of the institution or its subsidiaries; the parent financial holding company or its subsidiaries; the mixed activity holding company or its subsidiaries; the mixed financial holding company or its subsidiaries; any undertaking that has close links with entities referred to in points (i) to (v); the instruments or subordinated loans, as applicable, are not subject to any arrangement that otherwise enhances the seniority of the claim under the instruments or subordinated loans respectively; the instruments or subordinated loans, as applicable, have an original maturity of at least five years; the provisions governing the instruments or subordinated loans, as applicable, do not include any incentive for their principal amount to be redeemed or repaid, as applicable by the institution prior to their maturity; where the instruments or subordinated loans, as applicable, include one or more call options or early repayment options, as applicable, the options are exercisable at the sole discretion of the issuer or debtor, as applicable; the instruments or subordinated loans, as applicable, may be called, redeemed or repurchased or repaid early only where the conditions laid down in Article 77 are met, and not before five years after the date of issuance or raising, as applicable, except where the conditions laid down in Article 78(4) are met; the provisions governing the instruments or subordinated loans, as applicable, do not indicate explicitly or implicitly that the instruments or subordinated loans, as applicable, would or might be called, redeemed, repurchased or repaid early, as applicable by the institution other than in the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication; the provisions governing the instruments or subordinated loans, as applicable, do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the insolvency or liquidation of the institution; the level of interest or dividend payments, as applicable, due on the instruments or subordinated loans, as applicable, will not be amended on the basis of the credit standing of the institution or its parent undertaking; where the instruments are not issued directly by an institution, or where the subordinated loans are not raised directly by an institution, as applicable, both of the following conditions shall be met: the instruments are issued or subordinated loans are raised, as applicable, through an entity, which is part of the consolidation pursuant to Chapter 2 of Title II of Part One; the proceeds are immediately available to the institution without limitation in a form that satisfies the conditions laid down in this paragraph. The extent to which Tier 2 instruments qualify as Tier 2 items during the final five years of maturity of the instruments is calculated by multiplying the result derived from the calculation in point (a) by the amount referred to in point (b) as follows: the nominal amount of the instruments or subordinated loans on the first day of the final five year period of their contractual maturity divided by the number of calendar days in that period; the number of remaining calendar days of contractual maturity of the instruments or subordinated loans. Where in the case of a Tier 2 instrument the conditions laid down in Article 63 cease to be met, the following shall apply: that instrument shall immediately cease to qualify as a Tier 2 instrument; the part of the share premium accounts that relate to that instrument shall immediately cease to qualify as Tier 2 items. The following shall be deducted from Tier 2 items: direct, indirect and synthetic holdings by an institution of own Tier 2 instruments, including own Tier 2 instruments that an institution could be obliged to purchase as a result of existing contractual obligations; direct, indirect and synthetic holdings of the Tier 2 instruments of financial sector entities with which the institution has reciprocal cross holdings that the competent authority considers to have been designed to inflate artificially the own funds of the institution; the applicable amount determined in accordance with Article 70 of direct, indirect and synthetic holdings of the Tier 2 instruments of financial sector entities, where an institution does not have a significant investment in those entities; direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities where the institution has a significant investment in those entities, excluding underwriting positions held for fewer than five working days. For the purposes of point (a) of Article 66, institutions shall calculate holdings on the basis of the gross long positions subject to the following exceptions: institutions may calculate the amount of holdings on the basis of the net long position provided that both the following conditions are met: the long and short positions are in the same underlying exposure and the short positions involve no counterparty risk; either both the long and the short positions are held in the trading book or both are held in the non-trading book; institutions shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to own Tier 2 instruments in those indices; institutions may net gross long positions in own Tier 2 instruments resulting from holdings of index securities against short positions in own Tier 2 instruments resulting from short positions in the underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met: the long and short positions are in the same underlying indices; either both the long and the short positions are held in the trading book or both are held in the non-trading book. Institutions shall make the deductions required by points (b), (c) and (d) of Article 66 in accordance with the following provisions: holdings of Tier 2 instruments shall be calculated on the basis of the gross long positions; holdings of Tier 2 own-fund insurance items and Tier 3 own-fund insurance items shall be treated as holdings of Tier 2 instruments for the purposes of deduction. Institutions shall make the deductions required by points (c) and (d) of Article 66 in accordance with the following: they may calculate direct, indirect and synthetic holdings of Tier 2 instruments of the financial sector entities on the basis of the net long position in the same underlying exposure provided that both the following conditions are met: the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; either both the long position and the short position are held in the trading book or both are held in the non-trading book; they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by looking through to the underlying exposure to the capital instruments of the financial sector entities in those indices. For the purposes of point (c) of Article 66, institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph: the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities exceeds 10 % of the Common Equity Tier 1 items of the institution calculated after applying the following: Article 32 to 35; points (a) to (g), points (k)(ii) to (v) and point (l) of Article 36(1), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences; Articles 44 and 45; the amount of direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities divided by the aggregate amount of all direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities. Institutions shall exclude underwriting positions held for five working days or fewer from the amount referred to in point (a) of paragraph 1 and from the calculation of the factor referred to in point (b) of paragraph 1. The amount to be deducted pursuant to paragraph 1 shall be apportioned across each Tier 2 instrument held. Institutions shall determine the portion of holdings of Tier 2 instruments that is deducted by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph: the total amount of holdings required to be deducted pursuant to paragraph 1; the amount specified in point (i) divided by the amount specified in point (ii): the total amount of the Tier 2 instrument; the aggregate amount of direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities in which the institution does not have a significant investment. The amount of holdings referred to in point (c) of Article 66(1) that is equal to or less than 10 % of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a)(i) to (iii) of paragraph 1 shall not be deducted and shall be subject to the applicable risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and the requirements laid down in Title IV of Part Three, as applicable. Institutions shall determine the portion of holdings of own funds instruments that is risk weighted by dividing the amount specified in point (a) by the amount specified in point (b): the amount of holdings required to be risk weighted pursuant to paragraph 4; the amount specified in point (i) divided by the amount specified in point (ii): the total amount of the Common Equity Tier 1 instruments; the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities in which the institution does not have a significant investment. The Tier 2 capital of an institution shall consist of the Tier 2 items of the institution after the deductions referred to in Article 66 and the application of Article 79.

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Source: EUR-Lex (Cellar) · retrieved 2026-09-25 · Text as adopted (Official Journal); later amendments are not incorporated in this text.