Thread by @jeuasommenulle

Important development in bank capital today with #Unicredit's business plan announced. The plan itself is only relevant to Unicredit investors but a snippet inside is crucial for all banks. Quick thread..

Bank capital requirements include basic requirements, buffers (which are hotly debated these days) and so-called pillar 2 requirements which are effectively bank by bank requirements based on the bank's risk profile

Ever since the SSM became the boss, those requirements have been more transparent (something) made necessary by the MDA rules. But transparency has a drawback: it shows the massive inconsistencies of the past !

So investors realised that in some countries (most of the Eurozone) the pillar 2 requirements was a CET1 requirement- the strongest form of capital

In others (UK) it could be CET1,AT1 or Tier 2 capital. So clearly not a level playing field. The EC realised that and decided to harmonise the rules and set the Pillar 2 requirements as a mix of CET1 AT1 and T2.

Buuuuut rules in the Eu are always the result of messy compromises and here the compromise was that the supervisor (= the SSM) could disregard that rule (with justification- LOL).

And the rules were not even final when Mrs Nouy head of the SSM clarified (many times) that she didn't give a **** and Pillar 2 would be CET1

Enter Mr Enria new head of the SSM... And Unicredit' s new business plan presented this morning. In which they make clear that Pillar 2 would be CET1 AT1 and T2. This means in practice :
A) a big CET1 relief for banks (80bps for Unicredit)
B) a massive need of new AT1/T2

Banks RWA are 20tn in the EU. You'll be able to calculate easily how much capital relief we are talking about.

See also my thread of last week on unicaja & liberbank.
It's happening ! Capital relief!

I should clarify: this is the first time a bank has said this. And I can't believe they've said it without SSM informal blessing. So it's really a big policy change imho