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HomeBusinessEBRD publishes a report on callable capital

EBRD publishes a report on callable capital

By Rezo Bitsadze

  • EBRD publishes a report on a callable capital review it conducted recently
  • Report shows the bank’s financial strength and prudent capital adequacy policies
  • Exercise is part of the bank’s action on G20-sponsored Independent Review of Capital Adequacy Frameworks

LONDON, England – The European Bank for Reconstruction and Development (EBRD) has published a report summarising the outcomes of a review it undertook with several of its shareholders, which together hold a large majority of the bank’s callable capital subscriptions.

The review is part of the EBRD’s and other multilateral development banks’ (MDBs) efforts to implement the recommendations of the G20-sponsored Independent Review of Capital Adequacy Frameworks.

Similar exercises were also undertaken by the African Development Bank, the Asian Development Bank, the Inter-American Development Bank and the International Bank for Reconstruction and Development, who are publishing similar reports.

The EBRD’s report covered three workstreams:

  1. A review of the Agreement Establishing the EBRD pertaining to callable capital, which focused on the legal considerations and mechanisms around making a call on the callable capital shares.
  2. An illustrative “reverse stress test” which considered the extreme hypothetical scenarios that would give rise to the financial circumstances that could trigger a call on callable capital.
  3. A summary of shareholder’s reviews by many member countries outlining their legal, accounting and budgetary processes for responding to a call on callable capital.

Several important conclusions have been reached following the review. Shareholders consider callable capital subscriptions to be legally binding commitments. The process clarifications from shareholders also demonstrate the strength of their obligations and well-defined process to respond to a call on callable capital.

As a result of prior appropriation of funds or accelerated process mechanisms, several shareholders could respond to a call at very short notice, while others expect to be able to make payments within several months. The reverse stress test highlights the bank’s considerable financial strength and prudent capital adequacy policies, illustrating that a call on the EBRD’s callable capital is an extremely unlikely event. Lastly, the decision to make a call sits with the bank’s board of directors.

The EBRD, jointly with other MDBs, continues to engage with Credit Rating Agencies (CRAs) to review and enhance the credit rating criteria used to assess multilateral lending institutions. The additional information and analysis in this report bring greater clarity and transparency to callable capital which may better inform CRAs’ assessment of the value of callable capital.

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