EBA final Guidelines: TCB capital endowment instruments under CRD6

On 2 March 2026, the European Banking Authority (the EBA) published its Final Report (EBA/GL/2026/03) on Guidelines on instruments available for third-country branches (TCBs) for unrestricted and immediate use to cover risks or losses under Article 48e(2)(c) of Directive 2013/36/EU (CRD6). The EBA consulted  on the draft guidelines in July 2025 consultation, please see our article on that here: EBA consults on instruments for TCBs capital endowment under CRD6 | Simmons & Simmons.

The Final Report incorporates targeted clarifications in response to industry feedback, while largely confirming the EBA's overall approach. Below we highlight the principal changes and their implications for TCBs and their groups.

We cover this update in our CRD6 Manager product. See more details of that here: CRD6 Manager | Simmons & Simmons

Executive summary

The final Guidelines largely confirm the EBA's approach as set out in the July 2025 consultation, with one notable clarification regarding the use of third-country government bonds. The EBA has added guidance that TCBs should assess the currency of their own funding (rather than that of the head undertaking) when determining whether non-EU government bonds qualify under Article 114(7) CRR. Beyond this, the EBA has declined industry requests to expand the list of eligible instruments to include covered bonds or head office guarantees, and has confirmed that capital endowment assets cannot be counted towards the minimum liquidity requirement. Requests for flexibility in the calculation methodology have also been rejected as falling outside the EBA's mandate. The Guidelines will apply from 11 January 2027.

1. Clarification on third-country government bonds

Draft Guidelines (July 2025): The draft specified that debt securities issued or guaranteed by central, regional or local governments or central banks of third countries could be used, provided they would receive a 0% risk weight under Articles 114(7) and 115(4) CRR. Several respondents raised concerns that the strict conditions under Article 114(7) CRR-particularly the requirement that exposures be funded in the domestic currency-may preclude the use of non-EU government bonds in many cases. Respondents requested clarification that TCBs being part of the same legal entity as the head undertaking can be considered as funded in the domestic currency of the head undertaking.

Final Guidelines (March 2026): The EBA has added a new clarification at paragraph 13 of the final Guidelines: TCBs should consider the currency of their own funding to determine if the capital endowment assets are denominated and funded in the domestic currency in accordance with Article 114(7) CRR. This clarifies that the relevant funding assessment is at the TCB level, not at the head undertaking level. The list of jurisdictions for which the equivalence assessment was concluded positively is already provided by Commission Implementing Decision (EU) No 2021/1753, Annex IV.

Implication: TCBs wishing to use third-country government bonds to meet the capital endowment requirement should assess whether such instruments are denominated in the same currency as the TCB's own funding. This is the only substantive change to the Guidelines following the consultation. While this clarification provides helpful guidance, it may still present practical challenges for some TCBs depending on their funding structure.

2. Covered bonds and head office guarantees remain ineligible

Draft Guidelines (July 2025): The draft limited eligible instruments to those with a 0% risk weight under the standardised approach for credit risk. The EBA considered and rejected the inclusion of covered bonds and collateral from reverse repos, noting that covered bonds do not receive a 0% risk weight and are subject to haircuts under the LCR framework, whilst the sale of collateral from reverse repos would create a new liability and not improve loss absorption capacity.

Final Guidelines (March 2026): The EBA confirms this position. Respondents suggested including covered bonds and legally enforceable head office guarantees, but the EBA has declined both requests. In respect of head office guarantees, the EBA notes that they are unsuitable because: (i) they cannot be easily converted to cash if the head undertaking faces liquidity or insolvency issues; (ii) they cannot be deposited in an escrow account; and (iii) the failure of a TCB is expected to follow the failure of its head undertaking, rendering the guarantee ineffective when most needed.

Implication: TCBs must plan to meet the capital endowment requirement using only the instruments explicitly permitted; cash, cash-equivalent instruments, EU Member State sovereign debt, and other 0% risk-weighted debt securities from eligible issuers. Competent authorities may impose a more rigorous regime than the Guidelines prescribe, but not a laxer one.

3. No change to treatment of capital endowment assets for liquidity purposes

Draft Guidelines (July 2025): The draft clarified that assets used to meet the capital endowment requirement cannot be counted towards the minimum liquidity requirement under Article 48f CRD6, as they must be held in an escrow account and are therefore encumbered.

Final Guidelines (March 2026): The EBA confirms this position despite industry pushback. Respondents argued that the requirement to encumber otherwise liquid assets places a disproportionate burden on TCBs, noting that: (i) EU-authorised credit institutions do not face such a requirement; (ii) TCB depositors are already protected by the deposit guarantee scheme; and (iii) TCBs may be covered by group TLAC requirements. The EBA maintains that if capital endowment assets were available for other purposes (such as meeting liquidity requirements), they would be unlikely to be available in case of resolution or winding-up of the TCB.

Implication: TCBs must maintain separate pools of assets to meet both capital endowment and liquidity requirements. This may increase the overall quantum of assets TCBs must hold in the EU and impact balance sheet efficiency.

4. No flexibility on calculation methodology

Consultation responses: Several respondents requested exclusions from the denominator of the capital endowment calculation, including: intragroup borrowing (to avoid circularity), market-oriented instruments (CDs, CPs, bonds), deposits maturing within 30 days, interbank exposures, and repos. Respondents also asked whether competent authorities could grant waivers or adjustments based on a TCB's actual risk profile, or whether intragroup transactions could be excluded for classification purposes.

EBA position (March 2026): The EBA confirms that these matters fall outside its mandate under Article 48e(4) CRD6, which relates only to specifying eligible "other instruments". The Level 1 text does not specify exclusions, and proportionality is already addressed through the class 1/class 2 TCB distinction in Article 48a CRD6. Competent authorities may impose a more rigorous regime than the Guidelines prescribe, but not a laxer one.

Implication: TCBs seeking relief from the calculation methodology will need to engage with the legislative process or their national competent authorities. The Guidelines do not provide flexibility in this regard.

5. No major changes to core requirements

The EBA has confirmed the list of eligible instruments and operational conditions substantially as consulted upon.

Eligible instruments under Article 48e(2)(c): Debt securities guaranteed by EU central governments or ESCB central banks; debt securities issued or guaranteed by regional or local authorities of Member States (where Article 115(2) CRR conditions are met); debt securities from equivalent third countries with 0% risk weight (per Articles 114(7) and 115(4) CRR); debt securities from public sector entities with 0% risk weight (per Article 116(4) CRR); debt securities from multilateral development banks (per Article 117(2) CRR); and debt securities from international organisations (per Article 118 CRR).

Operational conditions: Instruments must be listed on a recognised exchange and be easily monetisable at any time; instruments must not be issued by the head undertaking, its subsidiaries, or a securitisation special purpose entity with which the head undertaking has close links; market value must be used to determine compliance with the requirement; assets must be deposited in an escrow account and free from encumbrance (except as needed for resolution or winding-up purposes); TCBs must monitor geographical location, concentration risk, and currency consistency of assets relative to liabilities; and TCBs must implement arrangements, strategies, processes and mechanisms for continuous compliance.

Next steps

Firms should:

• Review and, where necessary, update capital endowment policies and procedures to reflect the finalised requirements, particularly the clarified requirements for using third-country government bonds;

• Where TCBs intend to use third-country government bonds, confirm that such instruments are denominated in the same currency as the TCB's own funding;

• Ensure adequate assets are available to meet both capital endowment and liquidity requirements separately, recognising that capital endowment assets cannot count towards liquidity coverage;

• Implement robust arrangements for escrow account management, market valuation, concentration risk monitoring, and continuous compliance; and

• Monitor national implementation-competent authorities must notify the EBA of compliance within two months of publication of the translated Guidelines.

The Guidelines will apply from 11 January 2027.

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