This document is an excerpt from the EUR-Lex website
Document 52011PC0452
PROPOSAL FOR A REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on prudential requirements for credit institutions and investment firms (Text with EEA relevance)
PROPOSAL FOR A REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on prudential requirements for credit institutions and investment firms (Text with EEA relevance)
PROPOSAL FOR A REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on prudential requirements for credit institutions and investment firms (Text with EEA relevance)
/* COM/2011/0452 final - COD/2011/0202 */
PROPOSAL FOR AREGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on prudential requirements for credit institutions and investement firms (Text with EEA relevance) /* COM/2011/0452 final - COD/2011/0202 */
EXPLANATORY
MEMORANDUM
1.
Context of the proposed act
1.1.
Reasons for and objectives of the proposal
The extent of the financial crisis has
exposed unacceptable risks pertaining to the current regulation of financial
institutions. According to IMF estimates, crisis-related losses incurred by
European credit institutions between 2007 and 2010 are close to €1 trillion or
8% of the EU GDP. In order to restore stability in the
banking sector and ensure that credit continues to flow to the real economy,
both the EU and its Member States adopted a broad range of unprecedented
measures with the taxpayer ultimately footing the related bill. In this
context, by October 2010 the Commission has approved €4.6 trillion of state aid
measures to financial institutions of which more than €2 trillion were
effectively used in 2008 and 2009. The level of fiscal support provided to
credit institutions needs to be matched with a robust reform addressing the
regulatory shortcomings exposed during the crisis. In this regard, the
Commission already proposed a number of amendments to banking legislation that
entered into force in 2009 (CRD II) and 2010 (CRD III). This proposal contains
globally developed and agreed elements of credit institution capital and
liquidity standards known as Basel III and harmonises other provisions of the
current legislation. The regulatory choices made are explained in detail in
Section 5 below. Directive 2006/48/EC of the European
Parliament and of the Council of 14 June 2006 relating to the taking up and
pursuit of the business of credit institutions and Directive contains
provisions closely related to the access to the activity of the business of
credit institutions (such as provisions governing the authorisation of the
business, the the exercise of the freedom of establishment, the powers of
supervisory authorities of home and host Member States in this regard, and the
supervisory review of credit institutions). These elements are covered by the
proposal for a Directive on the access to the activity of the business of
credit institutions and the prudential supervision of credit institutions and
investment firms with which the present proposal forms a package. However,
Directive 2006/48/EC and in particular its annexes also set out prudential
rules. In order to approximate further the legislative provisions that result
from the transposition of Directives 2006/48/EC and 2006/49/EC into national
law and in order to ensure that the same prudential rules directly apply to
them, which is essential for the functioning of the internal market, these
prudential rules are subject of this proposal for a Regulation. For sake of clarity, this proposal also
unifies prudential requirements on credit institutions and investment firms,
the latter of which are dealt with by Directive 2006/49/EC.
1.1.1.
Problems addressed –
new elements under Basel III
The proposal is designed to tackle
regulatory shortcomings in the following areas: Management of liquidity risk (Part Six): Existing liquidity risk management practices were shown by the
crisis to be inadequate in fully grasping risks linked to
originate-to-distribute securitization, use of complex financial instruments
and reliance on wholesale funding with short term maturity instruments. This
contributed to a demise of several financial institutions and strongly
undermined financial health of many others, threatening the financial stability
and necessitating public support. While a number of Member States currently
impose some form of quantitative regulatory standard for liquidity, no
harmonised sufficiently explicit regulatory treatment on the appropriate levels
of short-term and long-term liquidity exists at EU level. Diversity in current
national standards hampers communication between supervisory authorities and
imposes additional reporting costs on cross-border institutions. Definition of capital (Part Two Title
I): Institutions entered the crisis with capital of
insufficient quantity and quality. Given the risks they faced, many
institutions did not posses sufficient amounts of the highest quality capital
instruments that can absorb losses effectively as they arise and help to preserve
an institution as a going concern. Hybrid Tier 1 capital instruments (hybrids),
which had previously been considered to be loss absorbent on a going concern
basis were found not to be effective in practice. Tier 2 capital instruments
were not able to perform their function of absorbing losses once an institution
became insolvent because institutions were often not permitted to fail. The
quality of capital instruments required to absorb unexpected losses from risks
in the trading book was found to be as high as that for risks in the
non-trading book, and Tier 3 capital instruments we found not to be of
sufficiently high quality. To safeguard financial stability, governments
provided unprecedented support to the banking sector in many countries. Insufficient
harmonisation in the EU of the definition of capital was a catalyst for this
situation, with different Member States taking significantly different
approaches to the elements of capital that should be excluded or excluded from
own funds. In combination with the fact that regulatory ratios did not
accurately reflect an institution's true ability to absorb losses, this
undermined the ability of the market to assess accurately and consistently the
solvency of EU institutions. This in turn amplified financial instability in
the EU. Counterparty credit risk (Part Three
Title II Chapter 6): The crisis revealed a number
of shortcomings in the current regulatory treatment of counterparty credit risk
arising from derivatives, repo and securities financing activities. It showed
that the existing provisions did not ensure appropriate management and adequate
capitalisation for this type of risk. The current rules also did not provide
sufficient incentives to move bilaterally cleared over-the-counter derivative contracts
to multilateral clearing through central counterparties. Options, discretions and harmonisation
(entire Regulation): In 2000, seven banking
directives were replaced by a single Directive. This directive was recast in
2006 while introducing the Basel II framework in the EU. As a result, its
current provisions include a significant number of options and discretions.
Moreover, Member States have been permitted to impose stricter rules than those
of the Directive. As a result, there is a high level of divergence which is
particularly burdensome for firms operating cross-border. It also gives rise to
the lack of legal clarity and an uneven playing field.
1.1.2.
Objectives of the proposal
The overarching goal of this initiative is
to ensure that the effectiveness of institution capital regulation in the EU is
strengthened and its adverse impacts on depositor protection and
pro-cyclicality of the financial system are contained while maintaining the
competitive position of the EU banking industry.
1.2.
General context
The financial crisis prompted a broad EU
and international effort to develop effective policies to tackle the underlying
problems. A High Level Group chaired by Mr. de Larosière proposed
recommendations for reforming European financial supervision and regulation.
They were further elaborated in a Commission Communication in March 2009. This
proposal contains numerous policy revisions that are listed in the detailed
action plan included in this Communication. On a global level, the G-20 Declaration of
2 April 2009 conveyed the commitment to address the crisis with internationally
consistent efforts to, improve the quantity and quality of capital in the
banking system, introduce a supplementary non-risk based measure to contain the
build-up of leverage, develop a framework for stronger liquidity buffers at
financial institutions and implement the recommendations of the Financial
Stability Board (FSB) to mitigate the pro-cyclicality. In response to the mandate given by the
G-20, in September 2009 the Group of Central Bank Governors and Heads of
Supervision (GHOS), the oversight body of the Basel Committee on Banking
Supervision (BCBS)[1],
agreed on a number of measures to strengthen the regulation of the banking
sector. These measures were endorsed by FSB and the G-20 leaders at their
Pittsburgh Summit of 24-25 September 2009. In December 2010, BCBS issued detailed
rules of new global regulatory standards on credit institution capital adequacy
and liquidity that collectively are referred to as Basel III. This proposal
directly relates to the regulatory standards included in Basel III. The Commission, in its capacity of an
observer to the BCBS, was working very closely with the BCBS on developing
these standards, including on assessing their impact. Consequently, the
proposed measures faithfully follow the substance of the Basel III principles.
In order to achieve the dual objective of improving the resilience of the
global financial system and ensuring a level playing field, it is imperative
that the more robust set of prudential requirements be applied consistently
across the world. At the same time, in the process of
developing this legislative proposal, the Commission has made particular
efforts in making sure that certain major European specificities and issues are
appropriately addressed. In this context, it is
worth recalling that in the EU, unlike some other major economies, the
application of the regulatory principles agreed globally under the auspices of
the BCBS is not restricted to only international active banks. These standards
are in the EU applied across the whole banking sector, covering all credit
institutions and in general also investment firms. As explained further in
section 4.2, the EU has always considered that only such approach would provide
for a true level playing field in the EU, while maximising the associated
financial stability benefits. This is one of the reasons why certain
adaptations of the Basel III principles, which would appropriately address the
European specificities and issues, appear to be warranted. However, these
adaptations remain consistent with the nature and objectives of the Basel III
reform. In a wider context, it should be noted that
one of the priorities of the Commission in the reform of EU financial services
regulation has been to ensure that the banking sector is able to fulfil its
fundamental purpose, namely lending to the real economy and providing services
to citizens and businesses in Europe. In this respect, the Commission has
adopted on 18 July a Recommendation on access to a basic payment account[2].
2.
Results of the consultations with the interested
parties and of the impact assessments
2.1.
Consultation with interested parties
The Commission services have closely
followed and participated in the work of international forums, particularly
BCBS, which was in charge of developing the Basel III framework. The European
Banking Committee (EBC) and the Committee of European Banking Supervisors (CEBS),
and its successor from 2011 the European Banking Authority (EBA), have been extensively
involved and consulted. Their views have contributed to the preparation of this
proposal and the accompanying impact assessment.
2.1.1.
CEBS
CEBS conducted a comprehensive quantitative
impact study (QIS) on the impact of this legislative proposal on the EU banking
industry. 246 credit institutions participated in the study. CEBS also
conducted extensive public consultations and in October 2008 submitted a
technical advice in the area of national options and discretions.
2.1.2.
CRD Working Group
In the area of national options and
discretions, between 2008 and 2011 the Commission services held six meetings of
the Capital Requirements Directive Working Group (CRDWG), whose members are
nominated by EBC. In addition, sub-groups of the CRDWG in the areas of liquidity,
capital definition, leverage ratio and counterparty credit risk have also
conducted work at an even more technical level.
2.1.3.
Other public consultations
The Commission conducted four public
consultations in 2009, 2010 and 2011, covering all elements of this proposal.
In April 2010 the Commission services conducted an open public hearing on this
proposal that was attended by all the stakeholder groups. Responses to the public consultations and
views expressed at the public hearing are reflected throughout the accompanying
impact assessment report. Individual responses are available on the
Commission's website. In addition, the Commission conducted
separate consultations with the industry, including the Group of Experts in
Banking Issues (GEBI) set up by the Commission and various EU banking industry
associations and individual institutions.
2.2.
Impact assessment
Altogether, 27 policy options have been
assessed and compared with a view to addressing the various issues identified[3]. The below table lists the individual
options considered within each policy set and ranks them in terms of their
relative effectiveness[4]
and efficiency[5]
with regard to achieving relevant longer term policy objectives. Preferred
options, identified on the basis of this ranking, are highlighted and discussed
in the rest of this section. Policy Option Set || Policy Options || Policy Option Comparison Criteria Effectiveness || Efficiency Enhance adequacy of capital requirements || Enhance bank risk management || Prevent regulatory arbitrage opportunities || Enhance legal clarity || Reduce compliance burden || Enhance level playing field || Enhance supervisory cooperation and convergence || Align prudential requirements for SIFIs with the risks they pose || Reduce cyclicality of provisioning and capital requirements Liquidity -Liquidity Coverage ratio || Retain current approach || 3 || 3 || || || || || || || || 3 Introduce LCR as specified in Feb 2010 public consultation || 2 || 2 || || || || || || || || 1 Introduce LCR adopted by Basel Committee subject to observation period || 1 || 1 || || || || || || || || 2 Liquidity - Net Stable Funding ratio || Retain current approach || 3 || 3 || || || || || || || || 3 Introduce NSFR as specified in Feb 2010 public consultation || 2 || 2 || || || || || || || || 2 Introduce NSFR adopted by Basel Committee subject to observation period || 1 || 1 || || || || || || || || 1 Eligibility of capital instruments and application of regulatory adjustments || Retain current approach || 5 || 5 || 5 || || || 5 || || 5 || 5 || 5 Modify only the eligibility criteria as specified in Feb 2010 public consultation || 4 || 4 || 4 || || || 4 || || 4 || 4 || 4 Modify eligibility criteria and regulatory adjustments as specified in Feb 2010 public consultation || 1-3 || 1-3 || 1-3 || || || 2-3 || || 1 || 1-3 || 3 Modify eligibility criteria and regulatory adjustments based on Basel approach || 1-3 || 1-3 || 1-3 || || || 2-3 || || 2-3 || 1-3 || 2 Modify eligibility criteria and regulatory adjustments based on Basel approach with some adjustments for EU specificities || 1-3 || 1-3 || 1-3 || || || 1 || || 2-3 || 1-3 || 1 Counterparty credit risk (CCR) || Retain current approach || 3 || 3 || || || || || || 3 || 3 || 3 Enhance CCR requirement || 2 || 2 || || || || || || 2 || 2 || 2 Enhance CCR requirements and differentiate treatment of exposures to Central Counterparties || 1 || 1 || || || || || || 1 || 1 || 1 Leverage ratio || Retain current approach || 3 || 3 || || || || || || || 3 || 3 Introduce leverage ratio as specified in Feb 2010 public consultation || 2 || 2 || || || || || || || 2 || 2 Conduct extensive monitoring of leverage ratio || 1 || 1 || || || || || || || 1 || 1 Capital buffers || Retain current approach || 4 || 4 || || || || || || || 4 || 4 Conservation capital buffer || 1-2 || 1-3 || || || || || || || 3 || 2-3 Countercyclical capital buffer || 3 || 1-3 || || || || || || || 1-2 || 2-3 Dual capital buffer || 1-2 || 1-3 || || || || || || || 1-2 || 1 Single rule book || Retain current approach || || || 4 || 4 || 4 || 4 || 4 || || || 4 Minimum harmonization || || || 3 || 3 || 1-3 || 3 || 3 || || || 1-3 Maximum harmonization || || || 1-2 || 1 || 1-3 || 1 || 1 || || || 1-3 Maximum harmonization with some exceptions || || || 1-2 || 2 || 1-3 || 2 || 2 || || || 1-3 Choice of policy instrument || Amend the CRD || || || 2 || 2 || 2 || || 2 || || || 2 Limit scope of the CRD and propose a regulation || || || 1 || 1 || 1 || || 1 || || || 1 Scale of option ranking: 1=most effective / efficient,
5=least effective / efficient
2.2.1.
Individual policy measures
Management of liquidity risk (Part Six): To improve short-term resilience of the liquidity risk profile of
financial institutions, a Liquidity Coverage Ratio (LCR) will be introduced
after an observation and review period in 2015. LCR would require institutions
to match net liquidity outflows during a 30 day period with a buffer of 'high
quality' liquid assets. The outflows covered (the denominator) would reflect
both institution-specific and systemic shocks built upon actual circumstances
experienced in the global financial crisis. The provisions on the list of high
quality liquid assets (the numerator) to cover these outflows should ensure that
these assets are of high credit and liquidity quality. Based on the LCR
definition included in Basel III, compliance with this requirement in the EU is
expected to produce net annual GDP benefits in the range of 0.1% to 0.5%, due
to a reduction in the expected frequency of systemic crises. To address funding problems arising from
asset-liability maturity mismatches, the Commission will consider proposing a
Net Stable Funding Ratio (NSFR) after an observation and review period in 2018.
The NSFR would require institutions to maintain a sound funding structure over
one year in an extended firm-specific stress scenario such as a significant
decline in its profitability or solvency. To this end, assets currently funded
and any contingent obligations to fund would have to be matched to a certain
extent by sources of stable funding. Definition of capital (Part Two): The proposal builds upon the changes made in CRD2 to strengthen
further the criteria for eligibility of capital instruments. Furthermore, it
introduces significant harmonisation of the adjustments made to accounting
equity in order to determine the amount of regulatory capital that it is
prudent to recognise for regulatory purposes. This new harmonised definition
would significantly increase the amount of regulatory capital required to be
held by institutions. The new requirements for going concern
regulatory capital - Common Equity Tier 1 and Tier 1 capital - would be
implemented gradually between 2013 and 2015. The new prudential adjustments
would also be introduced gradually, 20% per annum from 2014, reaching 100% in
2018. Grandfathering provisions over 10 years would also apply to certain
capital instruments in order to help to ensure a smooth transition to the new
rules. Counterparty credit risk (Part Three,
Title II, Chapter 6): Requirements for management
and capitalisation of the counterparty credit risk will be strengthened.
Institutions would be subject to an additional capital charge for possible losses
associated with the deterioration in the creditworthiness of a counterparty.
This would promote sound practices in managing this risk and recognise its
hedging which would allow institutions to mitigate the impact of this capital
charge. Risk weights on exposures to financial institutions relative to the
non-financial corporate sector will be raised. This amendment is expected to
encourage diversification of counterparty risk among smaller institutions and,
overall, should contribute to less interconnectedness between large or
systemically important institutions. The proposal would also enhance incentives
for clearing over-the-counter instruments through central counterparties. These
proposals are expected to affect mostly the largest EU institutions, as
counterparty credit risk is relevant only for banks with significant
over-the-counter derivative and securities financing activities. Leverage ratio (Part Seven): In order to limit an excessive build-up of leverage on credit
institutions' and investment firms' balance sheets and thus help containing the
cyclicality of lending, the Commission also proposes to introduce a non-risk
based leverage ratio. As agreed by BCBS, it will be introduced as an instrument
for the supervisory review of institutions. The impacts of the ratio will be
monitored with a view to migrating it to a binding pillar one measure in 2018,
based on appropriate review and calibration, in line with international
agreements. Single rule book (entire Regulation): The proposal harmonises divergent national supervisory approaches
by removing options and discretions almost altogether. Some specific well
defined areas, where divergences are driven by risk assessment considerations,
market or product specificities and Member States' legal frameworks, are
exempted, allowing Member States to adopt stricter rules.
2.2.2.
Policy instrument
This proposal effectively separates
prudential requirements from the other two areas of Directive 2006/48/EC and
Directive 2006/49/EC, i.e. authorisation and ongoing supervision that would
continue to be in the form of a directive with which this proposal forms a
package. This reflects differences in subject-matter, nature and addressees.
2.2.3.
Cumulative impact of the package
To supplement its own assessment of the
impact of Basel III, the Commission reviewed a number of studies prepared by
both public and private sectors. Their main results can be summarised as
follows: This proposal together with CRD III is
estimated to increase the risk-weighted assets of large credit institutions by
24.5% and of small credit institutions by a modest 4.1%. The need to raise new
own funds due to the new requirement and the conservation buffer is estimated
to be €84 billion by 2015 and €460 billion by 2019. There are clear net long term economic
benefits of an annual increase in the EU GDP in the range of 0.3%-2%. They stem
from a reduction in the expected frequency and probability of future systemic crises. It is estimated that the proposal would
reduce the probability of a systemic banking crisis in seven MS within the
range of 29% to 89% when credit institutions recapitalise to a total capital
ratio of at least 10.5%. In addition, higher capital, including the
countercyclical capital buffer, and liquidity requirements should also reduce
the amplitude of normal business cycles. This is particularly relevant to small
and medium enterprises that are relatively more dependent on credit institution
financing throughout the economic cycle than large companies.
2.2.4.
Administrative burden
Institutions with more cross-border
activity would benefit from harmonisation of the current national provisions
the most as the ensuing administrative burden savings are expected to reduce
their burdens related to Basel III measures.
3.
Monitoring and evaluation
The proposed amendments are linked to the
Directives 2006/48/EC and 2006/49/EC preceding this Regulation. This means that
both the elements of the preceding Directive and the new elements introduced by
this Regulation will be closely monitored. The monitoring of the leverage ratio
and the new liquidity measures will be subject to particular scrutiny on the
basis of statistical data collected according to provisions in this proposal.
The monitoring and evaluation will take place both at EU (EBA/ECB – European
Central Bank) and international level (BCBS).
4.
Legal elements of the proposal
4.1.
Legal basis
Article 114(1) TFEU provides a legal basis
for a Regulation creating uniform provisions aimed at the functioning of the
internal market. Whereas the proposal for Directive [inserted by OP] governs
the access to the activity of businesses and is based on Article 53 TFEU, the
need to separate these rules from the rules on how these activities are carried
out warrants the use of a new legal basis for the latter. Prudential requirements establish criteria
for the evaluation of the risk linked to certain banking activities and of the
funds necessary to counter-balance those risks. As such, they do not regulate
access to deposit taking activities but govern the way in which such activities
are carried out in order to ensure protection of depositors and financial
stability. The proposed Regulation streamlines the prudential requirements for
credit institutions and investment firms, which are currently set out in two
different Directives (2006/48/EC and 2006/49/EC), in one legal instrument,
which considerably simplifies the applicable legal framework. As pointed out above (sections 1.1.1 and
2.2.1), the current provisions include a significant number of options and
discretions and allow Member States to impose stricter rules than those of
Directives 2006/48/EC and Directive 2006/49/EC. This results in a high level of
divergence which can not only be problematic for financial stability purposes
as set out in section 1.1.1 above, but also hampers the cross-border provision
of services and the establishment in other Member States since each time an
institution wishes to take up operations in another Member State it has to
assess a different set of rules. This creates an unlevel playing field impeding
the internal market and also hampers legal clarity. Since the previous
codifications and recasts have not led to a reduction of divergence, it is
necessary to adopt a Regulation in order to put in place uniform rules in all
Member States with the aim of ensuring the good functioning of the internal
market. Shaping prudential requirements in the form
of a Regulation would ensure that those requirements will be directly
applicable to institutions. This would ensure a level-playing field by
preventing diverging national requirements as a result of the transposition of
a Directive. The proposed Regulation would clearly demonstrate that
institutions follow the same rules in all EU markets, which would also boost
confidence in the stability of institutions across the EU. A Regulation would
also enable the EU to implement any future changes more quickly, as amendments
can apply almost immediately after adoption. That would enable the EU to meet
internationally agreed deadlines for implementation and follow significant
market developments.
4.2.
Subsidiarity
In accordance with the principles of
subsidiarity and proportionality set out in Article 5 TFEU, the objectives of
the proposed action cannot be sufficiently achieved by the Member States and
can therefore be better achieved by the EU. Its provisions do not go beyond
what is necessary to achieve the objectives pursued. Only EU action can ensure
that institutions and investment firms operating in more than one Member State are subject to the same prudential requirements and thereby ensure a level
playing field, reduce regulatory complexity, avoid unwarranted compliance costs
for cross-border activities, promote further integration in the EU market and
contribute to the elimination of regulatory arbitrage opportunities. EU action
also ensures a high level of financial stability in the EU. This is
corroborated by the fact that prudential requirements set out in the proposal have
been set out in EU legislation for more than 20 years. Article 288 TFEU leaves a choice between
different legal instruments. A Regulation is therefore subject to the principle
of subsidiarity in the same manner as other legal instruments. Subsidiarity must
be balanced with other principles in the Treaties such as the fundamental
freedoms. Directives 2006/48/EC and 2006/49/EC are formally directed at Member
States but eventually addressed towards businesses. A Regulation creates a more
level-playing field since it is directly applicable and there is no need to
assess legislation in other Member States before starting a business since the
rules are exactly the same. This is less burdensome for institutions. Delays
with regard to the transposition of Directives can also be avoided by adopting
a Regulation.
4.3.
Role of EBA and compliance with Articles 290 and
291 TFEU
In more than 50 provisions of this
proposal, EBA is requested to submit regulatory and implementing technical
standards to the Commission in order to specify the criteria set out in some
provisions of this Regulation and in order to ensure its consistent
application. The Commission is empowered to adopt them as delegated and
implementing acts. On 23 September 2009, the Commission
adopted proposals for Regulations establishing EBA, EIOPA (The European
Insurance and Occupational Pensions Authority (EIOPA), and ESMA (European
Securities and Markets Authority)[6].
In this respect the Commission wishes to recall the Statements in relation to
Articles 290 and 291 TFEU it made at the adoption of the Regulations
establishing the European Supervisory Authorities according to which: "As
regards the process for the adoption of regulatory standards, the Commission
emphasises the unique character of the financial services sector, following
from the Lamfalussy structure and explicitly recognised in Declaration 39 to
the TFEU. However, the Commission has serious doubts whether the restrictions
on its role when adopting delegated acts and implementing measures are in line
with Articles 290 and 291 TFEU."
4.4.
Interaction and consistency between elements of
the package
This Regulation forms a package with the
proposed Directive [inserted by OP]. This package would replace Directives
2006/48/EC and 2006/49/EC. This means that both the Directive and the
Regulation would each deal with both credit institutions and investment firms.
Currently, the latter are merely 'annexed' to Directive 2006/48/EC by Directive
2006/49/EC. A large part of it merely contains references to Directive 2006/48/EC.
Joining provisions applicable to both businesses in the package would therefore
improve the readability of provisions governing them. Moreover, the extensive
annexes of Directives 2006/48/EC and 2006/49/EC would be integrated into the
enacting terms, hereby further simplifying their application. Prudential regulations directly applicable
to institutions are set out in the proposal for a Regulation. In the proposal
for a Directive remain provisions concerning the authorisation of credit
institutions and the exercise of the freedom of establishment and the free
movement of services. This would not concern investment firms, as the
corresponding rights and obligations are regulated by Directive 2004/39/EC
('MiFiD'). General principles of the supervision of institutions, which are
addressed to Member States and require transposition and the exercise of
discretion, would also remain in the Directive. This encompasses in particular
the exchange of information, the distribution of tasks between home and host
country supervisors and the exercise of sanctioning powers (which would be
newly introduced). The Directive would still contain the provisions governing
the supervisory review of institutions by the competent authorities of the
Member States. These provisions supplement the general prudential requirements
set out in the Regulation for institutions by individual arrangements that are
decided by the competent authorities as a result of their ongoing supervisory
review of each individual credit institution and investment firm. The range of
such supervisory arrangements would be set out in the Directive since the
competent authorities should be able to exert their judgment as to which
arrangements should be imposed. This includes the internal processes within an
institution notably concerning the management of risks and the corporate
governance requirements that are newly introduced.
5.
Detailed explanation of the proposal and comparison
with Basel III
To ensure a balanced application of Basel
III to EU institutions, the Commission had to make several regulatory choices,
which are explained in this chapter.
5.1.
Maximum harmonisation (Entire Regulation)
Maximum harmonisation is necessary to
achieve a truly single rule book. Inappropriate and uncoordinated stricter requirements
in individual Member States might result in shifting the underlying exposures
and risks to the shadow banking sector or from one EU Member State to another. Moreover, the impact assessments conducted
by the Basel Committee and the European Commission are based on the specific
capital ratios adopted. It is uncertain what the potential impact in terms of
costs and growth would be in case of higher capital requirements in one or more
Member States, potentially expanded through a "race to the top" mechanism
across the EU. If there is a need for more stringent
prudential requirements at the EU level, there should be ways to
temporarily modify the single rule book accordingly. The Commission could adopt
a delegated act increasing for a limited period of time the level of capital
requirements, the risk weights of certain exposures, or impose stricter
prudential requirements, for all exposures or for exposures to one or more
sectors, regions or Member States, where this is necessary to address changes
in the intensity of micro-prudential and macro-prudential risks which arise
from market developments emerging after the entry into force of this
Regulation, in particular upon the recommendation or opinion of the ESRB. This proposal and the accompanying proposal
for the Directive contain already three possibilities for competent
authorities to address macro-prudential concerns at national level: –
for lending secured by immovable property,
Member States could adjust the capital requirements; –
Member States could impose additional capital
requirements to individual institutions or groups of institutions where
justified by specific circumstances under the so called 'Pillar 2'; –
Member States set the level of the
countercyclical capital buffer, reflecting the specific macroeconomic risks in
a given Member State. This would actually modify the capital requirements to a
significant extent. Member States would furthermore be allowed
to anticipate some of the new stricter rules based on Basel III during the
transitional period, i.e. implement them faster than the pace set out in Basel
III.
5.2.
Definition of capital (Part Two)
5.2.1.
Deductions of significant holdings in insurance
entities and financial conglomerates
Basel III requires internationally active
banks to deduct from their own funds significant investments in unconsolidated
insurance companies. This is aimed at ensuring that a bank is not permitted to
count in its own funds the capital used by an insurance subsidiary. For groups
which include significant banking or investment business and insurance
business, Directive 2002/87/EC on Financial Conglomerates, provides specific
rules to address such 'double counting' of capital. Directive 2002/87/EC is
based on internationally agreed principles for dealing with risk across sectors.
This proposal strengthens the way these Financial Conglomerates rules shall
apply to bank and investment firm groups, ensuring their robust and consistent
application. Any further changes that are necessary will be addressed in the
review of Directive 2002/87/EC, due in 2012.
5.2.2.
Highest quality own funds – criteria, phasing
out and grandfathering
Under Basel III, the highest quality own
funds instruments for internationally-active banks that are joint-stock
companies may comprise only "ordinary shares" that meet strict
criteria. This proposal implements these Basel III strict criteria. It does not
restrict the legal form of the highest quality element of capital issued by
institutions structured as joint stock companies to ordinary shares. The
definition of ordinary share varies according to national company law. The
strict criteria set out in this proposal will ensure that only the highest
quality instruments would be recognised as the highest quality form of
regulatory capital. Under these criteria, only instruments that are as high
quality as ordinary shares would be able to qualify for this treatment. In
order to ensure full transparency of the instruments recognised, the proposal
requires the EBA to compile, maintain and publish a list of the types of instrument
recognised. Basel III provides a 10-year phase out
period for certain instruments issued by non-joint stock companies that do not
meet the new rules. Consistent with the amendments made to own funds by
Directive 2009/111/EC, and the need to ensure consistent treatment of different
legal forms of company, this proposal (Part Ten, Title I, Chapter 2) affords
such grandfathering also to the highest quality instruments issued by joint
stock companies that are not common shares, and the related share premium
accounts. Basel III allows instruments that do not
meet the new rules that are issued before 12 September 2010 to be phased out of
regulatory capital, in order to ensure a smooth transition to the new rules.
This is known as the 'cut off date' for the transitional arrangements. All
instruments that do not meet the new rules that are issued after the cut off
date would be fully excluded from regulatory capital from 2013. This proposal
sets the cut off date on the date of the adoption of this proposal by the
Commission. This is necessary in order to avoid applying the requirements of
the proposal retroactively, which would not be legally feasible.
5.2.3.
Mutual societies, cooperative banks and similar
institutions
Basel III ensures that the new rules are capable
of being applied to the highest quality capital instruments of non-joint stock
companies - e.g. mutuals, cooperative banks and similar institutions. This
proposal specifies in greater detail the application of the Basel III
definition of capital to the highest quality capital instruments issued by
non-joint stock companies.
5.2.4.
Minority interest and certain capital
instruments issued by subsidiaries
A minority interest is the capital of
certain subsidiaries that is owned by a minority shareholder from outside the
group. Basel III recognises minority interest – and certain regulatory capital
issued by subsidiaries - only to the extent that those subsidiaries are
institutions (or subject to the same rules) and the capital is used to meet
capital requirements and the new Capital Conservation Buffer, a new capital
cushion which imposes new restrictions on the payment of dividends and certain
coupons and bonuses. The other new capital buffer – the Countercyclical Buffer–
is an important macro-prudential tool, which may be imposed by supervisors to
moderate or bolster lending in different phases of the credit cycle. This
proposal establishes robust EU processes for coordinating Member States' use of
the Countercyclical Buffer. The approach set out in this proposal to minority
interest and certain other capital issued by subsidiaries gives recognition of
the Countercyclical Buffer where used. This recognises the importance of the
buffer and the capital used to meet it, and removes a potential disincentive
for the buffer to be required. .
5.2.5.
Deduction of certain Deferred Tax Assets (DTAs)
A DTA is an asset on the balance sheet that
may be used to reduce any subsequent period's income tax expense. Basel III
specifies that certain DTAs do not require deduction from capital. This
proposal clarifies that such DTAs include those that automatically convert into
a claim on the state when a firm makes a loss would not require to be deducted,
where their ability to absorb losses when needed was ensured.
5.3.
Treatment of specific exposures (Part Three,
Title II, Chapter 2)
5.3.1.
Treatment of exposures to SMEs
Under current EU law, banks can benefit
from preferential risk weights applied to exposures to SMEs. This preferential
treatment will continue to be in place also under Basel III as well as under
the draft proposal. More beneficial capital requirements for exposures to SMEs
would require a revision to the international Basel framework in the first
place. This question is subject to a review clause in the proposal. It is crucial that risk weights of SME
lending are carefully assessed. For this reason, the EBA is requested to
analyse and report by 1 September 2012 on the current risk weights, testing the
possibilities for a reduction, taking into consideration a scenario with a
reduction by one third in relation to the current situation. In this context,
the Commission intends to report to the European Parliament and the Council on
this analysis and would put forward legislative proposals for the review of the
SMEs' risk weight, as appropriate. Moreover the Commission, consulting EBA,
will, within 24 months after the entry into force of this Regulation, report on
lending to small and medium-sized enterprises and natural persons and shall
submit this report to the European Parliament and the Council together with any
appropriate proposal.
5.3.2.
Treatment of exposures arising from trade
finance activities
BCBS is expected to finalise their view on
whether more beneficial capital requirements for trade finance should be set
only towards the end of 2011. Consequently, this is not reflected in this
proposal, but a review clause on the treatment of these exposures has been
provided for.
5.4.
Counterparty credit risk (Part Three, Title II,
Chapter 6)
In Basel III, banks will be required to
hold additional capital against the risk that the credit quality of the
counterparty could deteriorate. This proposal would introduce this new capital
charge. However, Basel III recognises losses that a bank writes down upfront
with immediate impact on the profit and loss account (incurred credit valuation
adjustments) only to a very limited extent. On the basis of the feedback to a
consultation by the Commission in February/March 2011 on this issue and with
the support of a vast majority of Member States, this proposal would allow
banks using the advanced approach for credit risk a greater, however prudent,
recognition of such losses and therefore better reflect the common practice of
provisioning for future losses exercised by many EU banks.
5.5.
Liquidity (Part Six)
5.5.1.
Liquidity Coverage Requirement
The Commission is firmly committed to
reaching a harmonised Liquidity Coverage Requirement by 2015. At the same time,
uncertainties about possible unintended consequences and the observation period
of Basel III should be taken very seriously. The following elements ensure
introducing a binding requirement only after an appropriate review: –
a general requirement to apply from 2013 for
banks to keep appropriate liquidity coverage as a first step; –
an obligation to report to national authorities
the elements needed to verify that they keep an adequate liquidity coverage on
the basis of the uniform reporting formats developed by the European Banking
Authority in order to test the Basel III criteria; –
a power for the Commission to further specify the
Liquidity Coverage Requirement in line with the conclusions from the
observation period and international developments. Avoiding the lengthy ordinary
legislative procedure (via co-decision) would allow making the maximum use of
the observation period and being able to defer calibration towards the end of
this observation period. The liquidity coverage requirement will,
within groups of credit institutions or investment firms or both, in principle
apply at the level of every individual credit institution or investment firm.
By contrast to branches, which do not have a legal personality, credit
institutions or investment firms are themselves subject to payment obligations
that may lead to liquidity outflows under stress circumstances. It cannot be
taken for granted that credit institutions or investment firms will receive
liquidity support from other credit institutions or investment firms belonging
to the same group when they experience difficulties to meet their payment
obligations. However, subject to stringent conditions, competent authorities
will be able to waive the application to individual credit institutions or
investment firms and subject those credit institutions or investment firms to a
consolidated requirement. Those stringent conditions can be found in Article 7(1)
and they ensure, inter alia, that the credit institutions or investment
firms are, in a legally enforceable manner, committed to support each other and
have the actual ability to do so. In the case of a group with credit
institutions or investment firms in several Member States, all competent
authorities of the individual credit institutions or investment firms must, in
order for the waiver of individual requirements to be available, agree together
that the conditions for the waiver are met. In such cross-border situations,
there are, in addition to the conditions in Article 7(1), further conditions in
Article 7(2). Those further conditions require that all of the individual
competent authorities must be satisfied with the liquidity management of the
group and with how much liquidity the individual credit institutions or
investment firms of the group have. In case of disagreement, each competent
authority of an individual credit institution or investment firm will decide
alone about whether the waiver would apply. There is an additional possibility for EBA
to mediate in case of disagreement between the competent authorities. The
result of the mediation is however only binding regarding the conditions in
Article 7(1). The individual competent authorities retain the last say regarding
the conditions in Article 7(2), i.e. regarding the adequacy of the group's
liquidity management and regarding the liquidity adequacy of the individual
credit institutions or investment firms.
5.5.2.
Net Stable Funding Requirement
The Commission is firmly committed to
reaching a minimum standard on the Net Stable Funding Requirement by 1 January
2018. Since Basel III sets out an observation period until 2018 in this regard,
there would be sufficient time to prepare a stable funding requirement in the
form of a co-decision proposal to be agreed between Parliament and Council
before the end of the observation period.
5.6.
Leverage (Part Seven)
The Leverage Ratio is a new regulatory tool
in the EU. In line with Basel III, the Commission does not propose a Leverage
Ratio as a binding instrument at this stage but first as an additional feature
that can be applied on individual banks at the discretion of supervisory
authorities with a view to migrating to a binding ('pillar one') measure in
2018, based on appropriate review and calibration. Reporting obligations would
allow a review and an informed decision on its introduction as a binding
requirement in 2018. In line with the Basel III, it is proposed that institutions
publish their Leverage Ratios from 2015.
5.7.
Basel I limit (Part
Thirteen)
Basel II requires more capital to be held
for riskier business than would be required under Basel I. For less risky
business, Basel II requires less capital to be held than Basel I. This is
because Basel II was designed to be more risk sensitive than Basel I. To prevent banks from being subject to
inappropriately low capital requirements, Basel II does not allow a lower
capital than 80% of the capital that would have been required under Basel I. This requirement expired at the end of 2009, but Directive 2010/76/EC reinstated
it until the end of 2011. Based on the extension of this requirement by BCBS in
July 2009, the draft proposal reinstates it until 2015. Competent
authorities may, after having consulted EBA, waive the application of the Basel I limit to an institution provided that all requirements for the use of the advanced
approaches for credit and operational risks are met.
6.
Budgetary implications
EBA will play an important role in achieving
the objective of this Regulation, as the proposals ask it to develop more than
50 binding technical standards (BTS) on various policy issues. BTS – which
would eventually be endorsed by the Commission – will be key to ensure that
provisions of highly technical nature are implemented uniformly across the EU
and that the proposed policies work as intended. For this significant workload,
EBA would need more resources than those already provided within the context of
its establishment under Regulation (EU) 1093/2010. Further details are set out
in the attached legislative financial statement. Proposal for a THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the
European Commission, After transmission of the draft legislative
act to the national Parliaments, Having regard to the opinion of the
European Economic and Social Committee[7],
Acting in accordance with the ordinary
legislative procedure, Whereas: (1)
The G20 Declaration of 2 April 2009[8]
on Strengthening of the Financial System called for internationally consistent
efforts that are aimed at strengthening transparency, accountability and
regulation by, improving the quantity and quality of capital in the banking
system once the economic recovery is assured. The declaration also called for
introducing a supplementary non-risk based measure to contain the build-up of
leverage in the banking system, and developing a framework for stronger
liquidity buffers. In response to the mandate given by the G20, in September
2009 the Group of Central Bank Governors and Heads of Supervision (GHOS),
agreed on a number of measures to strengthen the regulation of the banking sector.
These measures were endorsed by the G20 leaders at their Pittsburgh Summit of
24-25 September 2009 and were set out in detail in December 2009. In July and
September 2010, GHOS issued two further announcements on design and calibration
of these new measures, and in December 2010, the Basel Committee on Banking
Supervision (BCBS) published the final measures, that are referred to as Basel
III. (2)
The High Level Group on Financial Supervision in
the EU chaired by Jacques de Larosière invited the European Union to develop a
more harmonised set of financial regulation. In the context of the future
European supervisory architecture, the European Council of 18 and 19 June 2009
also stressed the need to establish a 'European Single Rule Book' applicable to
all credit institutions and investment firms in the Single Market. (3)
Directive 2006/48/EC of
the European Parliament and of the Council of 14 June 2006[9] relating
to the taking up and pursuit of the business of credit institutions and Directive
2006/49/EC of the European Parliament and of the Council of 14 June
2006[10] on the
capital adequacy of investment firms and credit institutions ("institutions")
have been significantly amended on several occasions. Many provisions of Directives
2006/48/EC and 2006/49/EC are applicable to both credit institutions and
investment firms. Irder to ensure a coherent application of those provisions,
it would be desirable to merge these provisions into new legislation applicable
to both credit institutions and investment firms. For sake of clarity, the
provisions of the Annexes to those Directives should be integrated into the
enacting terms of this new legislation. (4)
That new legislation should consist of two
different legal instruments, a Directive and this Regulation. Together, both
legal instruments should form the legal framework governing the access to the
activity, the supervisory framework and the prudential rules for credit
institutions and investment firms. This Regulation should therefore be read
together with the Directive. (5)
Directive [inserted by OP], based on Article 53
(1) TFEU, should contain the provisions concerning the access to the activity
of credit institutions and investment firms, the modalities for their
governance, and their supervisory framework, such as provisions governing the
authorisation of the business, the acquisition of qualifying holdings, the
exercise of the freedom of establishment and of the freedom to provide
services, the powers of supervisory authorities of home and host Member States
in this regard and the provisions governing the initial capital and the
supervisory review of credit institutions and investment firms. (6)
This Regulation should contain the prudential
requirements for credit institutions and investment firms that relate strictly
to the functioning of banking and financial services markets and are meant to
ensure the financial stability of the operators on these markets as well as a
high level of protection of investors and depositors. This directly applicable
legal act aims at contributing in a determining manner to the smooth
functioning of the internal market and should, consequently, be based on the
provisions of Article 114 TFEU, as interpreted in accordance with the
consistent case-law of the Court of Justice of the European Union . (7)
Directives 2006/48/EC and 2006/49/EC, although
having harmonised the rules of Member States in the area of prudential
supervision to a certain degree, include a significant number of options and
discretions, and Member States are still permitted to impose stricter rules
than those laid down by those Directives. This results in divergences between
national rules which are such as to obstruct the fundamental freedoms and thus
have a direct effect on the functioning of the internal market and cause
significant distortions of competition. In particular, such divergences hamper
the cross-border provision of services and the establishment in other Member
since each time different rules have to be assessed and complied with by
operators when doing business in another Member State. In addition, credit
institutions and investment firms authorized in different Member States are
often subject to different requirements, leading to significant distortions of
competition. Divergent development of national laws creates potential and
actual obstacles to the smooth functioning of the internal market due to
unequal conditions of operation and difficulties for credit institutions and
investment firms operating in different juridical systems across the Union. (8)
In order to remove the remaining obstacles to
trade and significant distortions of competition resulting from divergences
between national laws and to prevent any further likely obstacles to trade and
significant distortions of competition from arising, it is therefore necessary
to adopt a Regulation establishing uniform rules applicable in all Member
States. (9)
Shaping prudential requirements in the form of a
Regulation would ensure that those requirements will be directly applicable to
them. This would ensure uniform conditions by preventing diverging national
requirements as a result of the transposition of a Directive. This Regulation
would entail that institutions follow the same rules in all the Union, which would also boost confidence in the stability of credit institutions and investment
firms, especially in times of stress. A Regulation would also reduce regulatory
complexity and firms' compliance costs, especially for credit institutions and
investment firms operating on a cross-border basis, and contribute to
eliminating competitive distortions. With regard to the peculiarity of
immovable property markets which are characterised by economic developments and
jurisdictional differences that are specific to Member States, regions or local
areas, competent authorities should be allowed to set higher risks weights or to
apply stricter criteria based on default experience and expected market
developments to exposures secured by mortgages on immovable property in
specific areas. (10)
Member States should have the power to maintain or
introduce national provisions where this Regulation does not provide for
uniform rules provided that those national provisions are not in contradiction
with Union law or do not undermine their application. (11)
Where Member States adopt guidelines of
general scope, in particular in areas where the adoption by the Commission of
draft technical standards is pending, those guidelines shall neither contradict
Union law nor undermine its application. (12)
This Regulation does not prevent Member States
from imposing equivalent requirements on undertakings that do not fall within
its scope. (13)
The general prudential requirements set out in this
Regulation are supplemented by individual arrangements that are decided by the
competent authorities as a result of their ongoing supervisory review of each
individual credit institution and investment firm. The range of such
supervisory arrangements should be set out in a Directive since the competent
authorities should be able to exert their judgment as to which arrangements
should be imposed. (14)
This Regulation should not affect the ability of
competent authorities to impose specific requirements under the supervisory
review and evaluation process set out in Directive [inserted by OP] that should
be tailored to the specific risk profile of credit institutions and investment
firms. (15)
Regulation (EU) No 1093/2010 of the European Parliament
and of the Council of 24 November 2010 establishing a European Supervisory
Authority,[11] established the
European Banking Authority (EBA). That Regulation aims at upgrading the quality and consistency of national supervision and
strengthening oversight of cross-border groups. (16)
Regulation (EU) No 1093/2010 requires EBA to act
within the scope of Directives 2006/48/EC and 2006/49/EC. EBA is also required
to act in the field of activities of credit institutions and investment firms
in relation to issues not directly covered in those Directives, provided that
such actions are necessary to ensure the effective and consistent application
of those acts. This Regulation should take into account the role and function
of EBA and facilitate the exercise of EBA's powers set out in that Regulation. (17)
Equivalent financial requirements for
credit institutions and investment firms are necessary to
ensure similar safeguards for savers and fair conditions of competition between
comparable groups of credit institutions and investment firms (18)
Since credit institutions and
investment firms in the internal market are engaged in direct
competition, monitoring requirements should be equivalent throughout the Union. (19)
Whenever in the course of supervision it is
necessary to determine the amount of the consolidated own funds of a group of credit
institutions and investment firms, the calculation should be
effected in accordance with this Regulation. (20)
According to this Regulation
own funds requirements apply on an individual and
consolidated basis, unless competent authorities disapply supervision
on an individual basis where they deem this appropriate. Individual,
consolidated and cross-border consolidated supervision are useful tools in
overseeing credit institutions and investment firms. (21)
In order to ensure adequate solvency of credit
institutions and investment firms within a group it is essential that
the capital requirements apply on the basis of the consolidated
situation of these institutions in the group. In order to ensure that own funds
are appropriately distributed within the group and available to protect savings
where needed, the capital requirements should apply to individual
credit institutions and investment firms within a group, unless
this objective can be effectively otherwise achieved. (22)
The precise accounting technique to be used for
the calculation of own funds, their adequacy for the risk to which a credit
institution or investment firm is exposed, and for the assessment of the
concentration of exposures should take account of the provisions of Council
Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated
accounts of banks and other financial institutions[12], which incorporates certain
adaptations of the provisions of Seventh Council Directive 83/349/EEC of 13
June 1983 on consolidated accounts[13]
or of Regulation (EC) No 1606/2002 of the European Parliament and of the
Council of 19 July 2002 on the application of international accounting
standards[14],
whichever governs the accounting of the credit institutions and investment firms
under national law. (23)
For the purposes of ensuring adequate solvency
it is important to lay down capital requirements which weight assets and
off-balance-sheet items according to the degree of risk. (24)
On 26 June 2004 the BCBS adopted a
framework agreement on the international convergence of capital measurement and
capital requirements ('Basel II framework'). The provisions in Directive
2006/48/EC and 2006/49/EC that this Regulation has taken over
form an equivalent to the provisions of the Basel II framework agreement. Consequently,
by incorporating the supplementary elements of the Basel III this Regulation
forms an equivalent to the provisions of the Basel II and III agreements. (25)
It is essential to take account of the diversity
of credit institutions and investment firms in the Union
by providing alternative approaches to the calculation of capital requirements
for credit risk incorporating different levels of risk-sensitivity and
requiring different degrees of sophistication. Use of external ratings and
credit institutions and investment firms' own estimates of
individual credit risk parameters represents a significant enhancement in the
risk-sensitivity and prudential soundness of the credit risk rules. There
should be appropriate incentives for credit institutions and investment firms
to move towards the more risk-sensitive approaches. In producing the estimates
needed to apply the approaches to credit risk of this Regulation,
credit institutions and investment firms should enhance credit
risk measurement and management processes of credit institutions and
investment firms to make methods for determining credit
institutions and investment firms' regulatory own funds requirements
available that reflect the sophistication of individual credit institutions and
investment firms' processes. In this regard, the processing of
data in connection with the incurring and management of exposures to customers
should be considered to include the development and validation of credit risk
management and measurement systems. That serves not only to fulfil the
legitimate interest of credit institutions and investment firms
but also the purpose of this Regulation, to use better methods for risk
measurement and management and also use them for regulatory own funds purposes. (26)
The capital requirements
should be proportionate to the risks addressed. In particular the reduction in
risk levels deriving from having a large number of relatively small exposures
should be reflected in the requirements. (27)
In line with the decision of the BCBS, as
endorsed by the GHOS on 10 January 2011, all Additional Tier 1 and Tier 2
instruments of an institution should be fully and permanently written down or
converted fully into Common Equity Tier 1 capital at the point of non-viability
of the institution. (28)
The provisions of this Regulation
respect the principle of proportionality, having regard in particular to the
diversity in size and scale of operations and to the range of activities of
credit institutions and investment firms. Respect of the
principle of proportionality also means that the simplest possible rating
procedures, even in the Internal Ratings Based Approach (‘IRB Approach’), are
recognised for retail exposures. (29)
The ‘evolutionary’ nature of this Regulation
enables credit institutions and investment firms to choose amongst
three approaches of varying complexity. In order to allow especially small
credit institutions and investment firms to opt for the more
risk-sensitive IRB Approach, the relevant provisions should be read as
such that exposure classes include all exposures that are, directly or
indirectly, put on a par with them throughout this Regulation. As a
general rule, the competent authorities should not discriminate between the
three approaches with regard to the Supervisory Review Process, i.e. credit
institutions and investment firms operating according to the provisions
of the Standardised Approach should not for that reason alone be supervised on
a stricter basis. (30)
Increased recognition should be given to
techniques of credit risk mitigation within a framework of rules designed to
ensure that solvency is not undermined by undue recognition. The relevant
Member States' current customary banking collateral for mitigating credit risks
should wherever possible be recognised in the Standardised Approach, but also
in the other approaches. (31)
In order to ensure that the risks and risk
reductions arising from credit institutions and investment firms'
securitisation activities and investments are appropriately reflected in the
capital requirements of credit institutions and investment firms
it is necessary to include rules providing for a risk-sensitive and
prudentially sound treatment of such activities and investments. (32)
Operational risk is a significant risk faced by
credit institutions and investment firms requiring coverage by
own funds. It is essential to take account of the diversity of credit
institutions and investment firms in the Union by
providing alternative approaches to the calculation of operational risk
requirements incorporating different levels of risk-sensitivity and requiring
different degrees of sophistication. There should be appropriate incentives for
credit institutions and investment firms to move towards the
more risk-sensitive approaches. In view of the emerging state of the art for
the measurement and management of operational risk the rules should be kept
under review and updated as appropriate including in relation to the charges
for different business lines and the recognition of risk mitigation techniques.
Particular attention should be paid in this regard to taking insurance into
account in the simple approaches to calculating capital requirements for
operational risk. (33)
The monitoring and control of a credit
institution's exposures should be an integral part of its supervision.
Therefore, excessive concentration of exposures to a single client or group of
connected clients may result in an unacceptable risk of loss. Such a situation
can be considered prejudicial to the solvency of a credit institution. (34)
In determining the existence of a group of
connected clients and thus exposures constituting a single risk, it is also
important to take into account risks arising from a common source of
significant funding provided by the credit institution or investment firm
itself, its financial group or its connected parties. (35)
While it is desirable to base the calculation of
the exposure value on that provided for the purposes of own funds requirements,
it is appropriate to adopt rules for the monitoring of large exposures without
applying risk weightings or degrees of risk. Moreover, the credit risk
mitigation techniques applied in the solvency regime were designed with the
assumption of a well-diversified credit risk. In the case of large exposures
dealing with single name concentration risk, credit risk is not
well-diversified. The effects of those techniques should therefore be subject
to prudential safeguards. In this context, it is necessary to provide for an
effective recovery of credit protection for the purposes of large exposures. (36)
Since a loss arising from an exposure to a
credit institution or an investment firm can be as severe as a loss from any
other exposure, such exposures should be treated and reported in the same
manner as any other exposures. However, an alternative quantitative limit has
been introduced to alleviate the disproportionate impact of such an approach on
smaller institutions. In addition, very short-term exposures related to money
transmission including the execution of payment services, clearing, settlement
and custody services to clients are exempt to facilitate the smooth functioning
of financial markets and of the related infrastructure. Those services cover,
for example, the execution of cash clearing and settlement and similar
activities to facilitate settlement. The related exposures include exposures
which might not be foreseeable and are therefore not under the full control of
a credit institution, inter alia, balances on inter-bank accounts resulting
from client payments, including credited or debited fees and interest, and
other payments for client services, as well as collateral given or received. (37)
It is important that the misalignment between
the interest of undertakings that ‘re-package’ loans into tradable securities
and other financial instruments (originators or sponsors) and undertakings that
invest in these securities or instruments (investors) be removed. It is also
important that the interests of the originator or sponsor and the interests of
investors be aligned. To achieve this, the originator or sponsor should retain
a significant interest in the underlying assets. It is therefore important for
the originators or the sponsors to retain exposure to the risk of the loans in
question. More generally, securitisation transactions should not be structured
in such a way as to avoid the application of the retention requirement, in
particular through any fee or premium structure or both. Such retention should
be applicable in all situations where the economic substance of a
securitisation is applicable, whatever legal structures or instruments are used
to obtain this economic substance. In particular where credit risk is
transferred by securitisation, investors should make their decisions only after
conducting thorough due diligence, for which they need adequate information
about the securitisations. (38)
There should be no multiple applications of the
retention requirement. For any given securitisation it suffices that only one
of the originator, the sponsor or the original lender is subject to the
requirement. Similarly, where securitisation transactions contain other
securitisations as an underlying, the retention requirement should be applied
only to the securitisation which is subject to the investment. Purchased
receivables should not be subject to the retention requirement if they arise
from corporate activity where they are transferred or sold at a discount to
finance such activity. Competent authorities should apply the risk weight in
relation to non-compliance with due diligence and risk management obligations
in relation to securitisation for non-trivial breaches of policies and
procedures which are relevant to the analysis of the underlying risks. (39)
Due diligence should be used in order properly
to assess the risks arising from securitisation exposures for both the trading
book and the non-trading book. In addition, due diligence obligations need to
be proportionate. Due diligence procedures should contribute to building
greater confidence between originators, sponsors and investors. It is therefore
desirable that relevant information concerning the due diligence procedures is
properly disclosed. (40)
When a credit institution or investment firm
incurs an exposure to its own parent undertaking or to other subsidiaries of
its parent undertaking, particular prudence is necessary. The management of
exposures incurred by credit institutions and investment firms should
be carried out in a fully autonomous manner, in accordance with the principles
of sound management, without regard to any other considerations. In the field
of large exposures, specific standards, including more stringent restrictions,
should be laid down for exposures incurred by a credit institution to its own
group. Such standards need not, however be applied where the parent undertaking
is a financial holding company or a credit institution or where the other
subsidiaries are either credit or financial institutions or undertakings
offering ancillary services, provided that all such undertakings are covered by
the supervision of the credit institution on a consolidated basis. (41)
In view of the risk-sensitivity of the rules
relating to capital requirements, it is desirable to keep under
review whether these have significant effects on the economic cycle. The
Commission, taking into account the contribution of the European Central Bank
should report on these aspects to the European Parliament and to the Council. (42)
The capital requirements
for commodity dealers, including those dealers currently exempt from the
requirements of Directive 2004/39/EC, should be reviewed. (43)
The goal of liberalisation of gas and
electricity markets is both economically and politically important for the
Community. With this in mind, the capital requirements and
other prudential rules to be applied to firms active in those markets should be
proportionate and should not unduly interfere with achievement of the goal of
liberalisation. This goal should, in particular, be kept in mind when reviews of
this Regulation are carried out. (44)
Credit institutions and investment firms
investing in re-securitisations should exercise due diligence also
with regard to the underlying securitisations and the non-securitisation
exposures ultimately underlying the former. Credit institutions and
investment firms should assess whether exposures in the context
of asset-backed commercial paper programmes constitute re-securitisation
exposures, including those in the context of programmes which acquire senior tranches
of separate pools of whole loans where none of those loans is a securitisation
or re-securitisation exposure, and where the first-loss protection for each
investment is provided by the seller of the loans. In the latter situation, a
pool- specific liquidity facility should generally not be considered a
re-securitisation exposure because it represents a tranche of a single asset
pool (that is, the applicable pool of whole loans) which contains no
securitisation exposures. By contrast, a programme-wide credit enhancement
covering only some of the losses above the seller-provided protection across
the various pools generally would constitute a tranching of the risk of a pool
of multiple assets containing at least one securitisation exposure, and would therefore
be a re-securitisation exposure. Nevertheless, if such a programme funds itself
entirely with a single class of commercial paper, and if either the
programme-wide credit enhancement is not a re-securitisation or the commercial
paper is fully supported by the sponsoring credit institution or investment
firm, leaving the commercial paper investor effectively exposed to the default
risk of the sponsor instead of the underlying pools or assets, then that
commercial paper generally should not be considered a re-securitisation
exposure. (45)
The provisions on prudent valuation for the
trading book should apply to all instruments measured at fair
value, whether in the trading book or non- trading book of credit institutions and
investment firms. It should be clarified that, where the
application of prudent valuation would lead to a lower carrying value than
actually recognised in the accounting, the absolute value of the difference
should be deducted from own funds. (46)
Credit institutions and investment firms
should have a choice whether to apply a capital requirement to or deduct from
Common Equity Tier 1 items those securitisation positions that receive a 1 250
% risk weight under this Regulation, irrespective of whether the
positions are in the trading or the non-trading book. (47)
Originator or sponsor institutions should not be
able to circumvent the prohibition of implicit support by using their trading
books in order to provide such support. (48)
Directive 2006/48/EC introduced a preferential
risk weight under the standardised approach for exposures to small or medium
sized enterprises or natural persons and the possibility for institutions to
apply internal ratings based approaches where they themselves estimate the risk
weight, reflecting the soundness of their own particular underwriting criteria.
The preferential risk weights should continue to be in place also under this
Regulation. However, the possible merits of lowering the risk weights or
expanding their application to more exposures should be reviewed within 24
months after the entry into force of this Regulation. Such review should be
evidence-based and take into account reliable data on credit losses on exposures
to small or medium sized enterprises or natural persons during a full economic
cycle. The impact on lending to consumers should be given particular attention
in the context of this review. (49)
Without prejudice to the disclosures explicitly
required by this Regulation, the aim of the disclosure requirements should
be to provide market participants with accurate and comprehensive information
regarding the risk profile of individual institutions. Credit institutions and
investment firms should therefore be required to disclose
additional information not explicitly listed in this Regulation
where such disclosure is necessary to meet that aim. (50)
Where an external credit assessment for a
securitisation position incorporates the effect of credit protection provided
by the investing institution itself, the institution should not be able to
benefit from the lower risk weight resulting from that protection. This should
not lead to the deduction from capital of the securitisation if there are other
ways to determine a risk weight in line with the actual risk of the position,
not taking into account such credit protection. (51)
Given their recent weak performance, the
standards for internal models to calculate market risk capital requirements
should be strengthened. In particular, their capture of risks should be
completed regarding credit risks in the trading book. Furthermore, capital
charges should include a component adequate to stress conditions to strengthen
capital requirements in view of deteriorating market conditions and in order to
reduce the potential for pro-cyclicality. Credit institutions and
investment firms should also carry out reverse stress tests to
examine what scenarios could challenge the viability of the institution unless
they can prove that such a test is dispensable. Given the recent particular
difficulties of treating securitisation positions using approaches based on
internal models, the ability of credit institutions and investment firms to
model securitisation risks in the trading book should be limited and a
standardised capital charge for securitisation positions in the trading book
should be required by default. (52)
This Regulation lays down limited
exceptions for certain correlation trading activities, in accordance with which
an institution may be permitted by its supervisor to calculate a comprehensive
risk capital charge subject to strict requirements. In such cases the
institution should be required to subject those activities to a capital charge
equal to the higher of the capital charge in accordance with that internally
developed approach and 8 % of the capital charge for specific risk in accordance
with the standardised measurement method. It should
not be required to subject those exposures to the incremental risk charge but
they should be incorporated into both the value-at-risk measures and the
stressed value-at-risk measures. (53)
In light of the nature and magnitude of unexpected
losses experienced by credit institutions and
investment firms during the financial and economic crisis, it is necessary to improve
further the quality and harmonisation of own funds that credit
institutions and investment firms are required to hold. This should include the
introduction of a new definition of the core elements of capital available to
absorb unexpected losses as they arise, enhancements to the definition of
hybrid capital and uniform prudential adjustments to own funds. It is also
necessary to raise significantly the level of own funds, including new capital ratios
focusing on the core elements of own funds available to absorb losses as they
arise. (54)
For the purposes of strengthening market
discipline and enhancing financial stability it is necessary to introduce more
detailed requirements for disclosure of the form and nature of regulatory
capital and prudential adjustments made in order to ensure that investors and
deposits are sufficiently well informed about the solvency of credit institutions and investment firms. (55)
The new definition of capital and regulatory
capital requirements should be introduced in a manner that takes account of the
fact that there are different national starting points and circumstances, with
initial variance around the new standards reducing over the transition period.
In order to ensure the appropriate continuity in the level of own funds,
existing public sector capital injections will be grandfathered for the extent
of the transition period. (56)
Directive 2006/48/EC required credit institutions
to provide own funds that are at least equal to specified minimum amounts until
31 December 2011. In the light of the continuing effects of the financial
crisis in the banking sector and the extension of the transitional arrangements
for capital requirements adopted by the BCBS, it is appropriate to reintroduce a
lower limit for a limited period of time until sufficient amounts of own funds
have been established in accordance with the transitional arrangements for own
funds provided for in this Regulation that will be progressively phased in from
2013 to 2019. For groups which include
significant banking or investment business and insurance business, Directive
2002/87/EC on Financial Conglomerates, provides specific rules to address such
'double counting' of capital. Directive 2002/87/EC is based on internationally
agreed principles for dealing with risk across sectors. This proposal
strengthens the way these Financial Conglomerates rules shall apply to bank and
investment firm groups, ensuring their robust and consistent application. Any
further changes that are necessary will be addressed in the review of Directive
2002/87/EC, due in 2012. (57)
The financial crisis highlighted that credit institutions and investment firms massively underestimated the
level of counterparty credit risk associated with over-the-counter (OTC)
derivatives. This prompted the G20 Leaders, in September 2009, to call for more
OTC derivatives to be cleared through a Central Counterparty (CCP).
Furthermore, they asked to subject those OTC derivatives that could not be
cleared centrally to higher own funds requirements in order to properly reflect
the higher risks associated with them. (58)
Following the G-20 Leaders' call, the BCBS, as part
of Basel III, materially changed the counterparty credit risk regime. Basel III
is expected to significantly increase the own fund requirements associated with
credit institutions' and investment firms' OTC
derivatives and securities financing transactions and to create important
incentives for credit institutions and investment firms to use CCPs. Basel III
is also expected to provide further incentives to strengthen the risk
management of counterparty credit exposures and to revise the current regime for
the treatment of counterparty credit risk exposures to CCPs. (59)
Institutions should hold additional own funds due
to credit valuation adjustment risk arising from OTC derivatives. Institutions
should also apply a higher asset value correlation in the calculation of the
own fund requirements for counterparty credit risk exposures arising from OTC
derivatives and securities-financing transactions to certain financial
institutions. Credit institutions and investment firms should also considerably
improve measurement and management of counterparty credit risk by better
addressing wrong-way risk, highly leveraged counterparties and collateral,
accompanied by the corresponding enhancements in the areas of back-testing and
stress testing. (60)
Trade exposures to CCPs usually benefit from the
multilateral netting and loss-sharing mechanism provided by CCPs. As a
consequence, they involve a very low counterparty credit risk and should
therefore be subject to a very low own funds requirement. At the same time,
this requirement should be positive in order to ensure that credit institutions
and investment firms track and monitor their exposures to CCPs as part of good
risk management and to reflect that even trade exposures to CCPs are not
risk-free. (61)
A CCP's default fund is a mechanism that allows
the sharing (mutualisation) of losses among the CCP's clearing members. It is
used in case the losses incurred by the CCP following the default of a clearing
member are greater than the margins and default fund contributions provided by
that clearing member and any other defence the CCP may use before recurring to
the default fund contributions of the remaining clearing members. In view of
this, the risk of loss associated with exposures from default fund
contributions is higher than the one associated with trade exposures.
Therefore, this type of exposures should be subject to a higher own funds
requirement. (62)
The “hypothetical capital” of a CCP should be a
variable needed to determine the own funds requirement for a clearing member’s
exposures from its contributions to a CCP’s default fund. It should not be
understood as anything else. In particular, it should not be understood as the
amount of capital that a CCP is required to hold by its competent authority. (63)
The review of the treatment of counterparty credit
risk, and in particular putting in place higher own funds requirements for
bilateral derivative contracts in order to reflect the higher risk that such
contracts pose to the financial system, forms an integral part of the Commission’s
efforts to ensure efficient, safe and sound derivatives markets. Consequently,
this Regulation complements the Commission proposal for a Regulation on OTC
derivatives, central counterparties and trade repositories, of 15 September
2010[15]. (64)
The years preceding the financial crisis were
characterised by an excessive build up in credit institutions' and investment
firms' exposures in relation to their own funds (leverage). During the
financial crisis, losses and the shortage of funding forced credit institutions
and investment firms to reduce significantly their leverage over a short period
of time. This amplified downward pressures on asset prices, causing further
losses for both credit institutions and investment firms which in turn led to
further declines in their own funds. The ultimate results of this negative
spiral were a reduction in the availability of credit to the real economy and a
deeper and longer crisis. (65)
Risk-based own funds requirements are essential to
ensure sufficient own funds to cover unexpected losses. However, the crisis has
shown that these requirements alone are not sufficient to prevent credit institutions and investment firms from taking on excessive and
unsustainable leverage risk. (66)
In September 2009, G-20 leaders committed to
developing internationally-agreed rules to discourage an excessive leverage. To
this end, they supported the introduction of a leverage ratio as a
supplementary measure to the Basel II framework. (67)
In December 2010, the BCBS published guidelines
defining the methodology for calculating the leverage ratio. These rules
foresee an observation period that will run from 1 January 2013 until 1 January
2017 during which the leverage ratio, its components and its behaviour relative
to the risk-based requirement will be monitored. Based on the results of the
observation period the BCBS intends to make any final adjustments to the
definition and calibration of the leverage ratio in the first half of 2017,
with a view to migrating to a binding requirement on 1 January 2018 based on
appropriate review and calibration. The BCBS guidelines also foresee the
disclosure of the leverage ratio and its components starting from 1 January
2015. (68)
A leverage ratio is a new regulatory and
supervisory tool for the Union. In line with
international agreements, it should be introduced first as an additional
feature that can be applied on individual institutions at the discretion of
supervisory authorities. Reporting obligations for institutions would allow
appropriate review and calibration, with a view to migrating to a binding
measure in 2018. (69)
When reviewing the impact of the leverage ratio on
different business models, particular attention should be paid to business
models which are considered to entail low risk, such as mortgage lending and
specialised lending with regional governments, local authorities or public
sector entities. (70)
In order to facilitate the review, credit
institutions and investment firms should during an observation period monitor
the level and changes in the leverage ratio as well as leverage risk as part of
the internal capital adequacy assessment process (ICAAP). This monitoring
should be included in the supervisory review process. (71)
Restrictions on variable remuneration are an
important element in ensuring that credit
institutions and investment firms rebuild their capital levels when operating within
the buffer range. Credit institutions and investment firms are already
subject to the principle that awards and discretionary payments of variable
remuneration to those categories of staff whose professional activities have a
material impact on the risk profile of the institution have to be sustainable,
having regard to the financial situation of the institution. In order to ensure
that an institution restores its levels of own funds in a timely manner, it is
appropriate to align the award of variable remuneration and discretionary
pension benefits with the profit situation of the institution during any period
in which the combined buffer requirement is not met. (72)
Good governance structures, transparency
and disclosure are essential for sound remuneration policies. In order to
ensure adequate transparency to the market of their remuneration structures and
the associated risk, credit institutions and investments firms should disclose
detailed information on their remuneration policies, practices and, for reasons
of confidentiality, aggregated amounts for those members of staff whose
professional activities have a material impact on the risk profile of the
credit institution or investment firm. That information should be made
available to all stakeholders. (73)
Directive 95/46 of the European
Parliament and of the Council of 24 October 1995 on the protection of
individuals with regard to the processing of personal data and on the free
movement of such data[16]
and Regulation (EU) No 45/2001 of the European Parliament and of the Council of
18 December 2000 on the protection of individuals with regard to the processing
of personal data by the EU institutions and bodies and and on the free movement
of such data[17],
should be fully applicable to the processing of personal data for the purposes
of this Regulation (74)
Credit institutions and investment firms should hold a
stock of liquid assets that they can use to cover liquidity needs in a short
term liquidity stress. When they use the stock, they should put in place a plan
to restore their holdings of liquid assets and competent authorities should
ensure the adequacy of the plan and its implementation. (75)
The stock of liquid assets should be available at
any time to meet the liquidity outflows. The level of liquidity needs in a
short term liquidity stress should be determined in a standardised manner so as
to ensure a uniform soundness standard and a level playing field. It should be
ensured that such a standardised determination has no unintended consequences
for financial markets, credit extension and economic growth, also taking into
account different business models and funding environments of credit institutions and investment firms across the Union. To this end,
the liquidity coverage requirement should be subject to an observation period.
Based on the observations and supported by EBA, the Commission should confirm
or adjust the liquidity coverage requirement by means of a delegated act. (76)
Apart from short-term liquidity needs, credit institutions and investment firms should also adopt funding
structures that are stable at a longer term horizon. In December 2010, the BCBS
agreed that the NSFR will move to a minimum standard by 1 January 2018 and that
the BCBS will put in place rigorous reporting processes to monitor the ratio
during a transition period and will continue to review the implications of
these standards for financial markets, credit extension and economic growth,
addressing unintended consequences as necessary. The BCBS thus agreed that the
NSFR will be subject to an observation period and will include a review clause.
In this context, EBA should, based on reporting required by this Regulation,
evaluate how a stable funding requirement should be designed. Based on this
evaluation, the Commission should report to Council and European Parliament
together with any appropriate proposals in order to introduce such a
requirement by 2018. (77)
Weaknesses in corporate governance in a number of
credit institutions and investment firms have contributed to excessive and
imprudent risk-taking in the banking sector which led to the failure of
individual institutions and systemic problems. (78)
In order to facilitate the monitoring of institutions'
corporate governance practices and improve market discipline, credit
institutions and investment firms should publicly disclose their corporate
governance arrangements. Their management bodies should approve and publicly
disclose a statement providing assurance to the public that these arrangements
are adequate and efficient. (79)
In order to ensure progressive convergence between
the level of own funds and the prudential adjustments applied the definition of
own funds across the Union and to the definition of own funds laid down in this
Regulation during a transition period, the phasing in of the own funds requirements
of this Regulation should occur gradually. It is vital to ensure that this
phasing in is consistent with the recent enhancements made by Member States to
the required levels of own funds and to the definition of own funds in place in
the Member States. To that end, during the transition period the competent
authorities should determine within defined lower and upper limits how rapidly
to introduce the required level of own funds and prudential adjustments laid
down in this Regulation. (80)
In order to facilitate smooth transition from
divergent prudential adjustments currently applied in Member States to the set
of prudential adjustments laid down in this Regulation, competent authorities
should be able during a transition period to continue to require institutions,
to a limited extent, to make prudential adjustments to own funds that are a
derogation from this Regulation. (81)
In order to ensure that institutions have
sufficient time to meet the new required levels and definition of own funds,
certain capital instruments that do not comply with the definition of own funds
laid down in this Regulation should be phased out between 1 January 2013 and 31
December 2021. In addition, certain state-injected instruments should be
recognised fully in own funds for a limited period. (82)
In order to ensure progressive convergence towards
uniform rules on disclosure by institutions to provide market participants with
accurate and comprehensive information regarding the risk profile of individual
institutions, disclosure requirements should be phased in gradually. (83)
In order to take account of market developments
and experience in the application of this Regulation, the Commission should be
required to submit to the European Parliament and the Council reports, as
appropriate together with any legislative proposals, on the possible effect of
capital requirements on the economic cycle of minimum, own funds requirements
for exposures in the form of covered bonds, large exposures, liquidity
requirements, leverage, exposures to transferred credit risk, counterparty
credit risk and the original exposure method, retail exposures, on the
definition of eligible capital, and the level of application of this regulation. (84)
In order to specify the requirements set out in
this Regulation, the power to adopt acts in accordance with Article 290 of the
TFEU should be delegated to the Commission in
respect of technical adjustments to this Regulation to
clarify definitions to ensure uniform application of this Regulation or
to take account of developments on financial markets; to align terminology on,
and frame definitions in accordance with, subsequent relevant acts; ; to adjust
the provisions of that Regulation on own funds to reflect
developments in accounting standards or Union legislation, or with regard to
the convergence of supervisory practices; to expand the lists of exposure
classes for the purposes of the Standardised Approach or the IRB Approach to
take account of developments on financial markets; to adjust certain amounts
relevant to those exposure classes to take into account the effects of
inflation; to adjust the list and classification of off- balance sheet items;
and to adjust specific provisions and technical criteria on the treatment of
counterparty credit risk, the Standardised Approach and the IRB Approach,
credit risk mitigation, securitisation, operational risk, market risk, liquidity, capital
buffer, leverage and disclosure in order to take account of
developments on financial markets or in accounting standards or Union
legislation, or with regard to the convergence of supervisory practices and risk
measurement and account of the outcome of the review of various
matters relating to the scope of Directive 2004/39/EC. (85)
The power to adopt acts in accordance with Article 290 of
the TFEU should also be delegated to the Commission in respect of prescribing a temporary reduction in the level of
own funds or risk weights specified under that Regulation in
order to take account of specific circumstances; to clarify the exemption of
certain exposures from the application of provisions of that Regulation on
large exposures; to specify amounts relevant to the calculation of
capital requirements for the trading book to take account of developments in
the economic and monetary field; to adjust the categories of investment firms
eligible for certain derogations to required levels of own funds to take
account of developments on financial markets; to clarify the requirement that
investment firms hold own funds equivalent to one quarter of their fixed
overheads of the preceding year to ensure uniform application of this
Regulation; to determine the elements of own funds from
which deductions of an institution's holdings of the instruments of relevant
entities should be made; to introduce additional transitional provisions
relating to the treatment of actuarial gains and losses in measuring defined
benefit pension liabilities of institutions; to temporarily increase in the
level of own funds; and to specify liquidity requirements. (86)
It is of particular
importance that the Commission carry out appropriate consultations during its
preparatory work, including at expert level. The Commission, when preparing and
drawing up delegated acts, should ensure a simultaneous, timely and appropriate
transmission of relevant documents to the European Parliament and Council. (87)
The Commission should also be empowered to adopt, by
means of an urgency procedure, a temporary increase in the level of own funds,
risk weights or any prudential requirements that is necessary to respond to
market developments. Such provisions should be applicable for a period not
exceeding 6 months, unless the European Parliament or the Council has objected
to the delegated act within a period of six weeks. The Commission should state
the reasons for the use of the urgency procedure. (88)
Technical standards in financial services should
ensure harmonisation, uniform conditions and adequate protection of depositors,
investors and consumers across the Union. As a body with highly specialised
expertise, it would be efficient and appropriate to entrust EBA with the
elaboration of draft regulatory and implementing technical standards which do
not involve policy choices, for submission to the Commission. (89)
The Commission should adopt the draft regulatory
technical standards developed by EBA in the areas of cooperative societies or
similar institutions, certain own funds instruments, prudential adjustments,
deductions from own funds, additional own funds instruments, minority
interests, services ancillary to banking, the treatment of credit risk
adjustment, probability of default, loss given default, corporate Governance,
approaches to risk-weighting of assets, convergence of supervisory practices,
liquidity, and transitional arrangements for own funds, by means of delegated
acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of
Regulation (EU) No 1093/2010. It is of particular importance that the
Commission carry out appropriate consultations during its preparatory work,
including at expert level. (90)
The Commission should also be empowered to adopt
implementing technical standards by means of implementing acts pursuant to
Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No
1093/2010. EBA should be entrusted with drafting implementing technical
standards for submission to the Commission with regard to consolidation, joint
decisions, reporting, disclosure, exposures secured by mortgages, risk
assessment, approaches to risk-weighting of assets, risk-weights and
specification of certain exposures, the treatment of options and warrants,
positions in equity instruments and foreign exchange, the use of internal
models, leverage, and off-balance-sheet items. (91)
In order to ensure uniform conditions for the
implementation of this Regulation, implementing powers should be conferred on
the Commission. Those powers should be exercised in accordance with Regulation
(EU) No 182/2011 of the European Parliament and of the Council on laying down
the rules and general principles concerning mechanisms for control by the
Member States of the Commission's exercise of implementing powers HAVE
ADOPTED THIS REGULATION: PART ONE
GENERAL PROVISIONS Title I
Subject matter, scope and definitions Article 1
Scope This Regulation lays down uniform rules concerning
general prudential requirements that all institutions supervised under
Directive [inserted by OP] must meet in relation to the following items: (a)
own funds requirements relating to entirely
quantifiable, uniform and standardised elements of credit risk, market risk,
and operational risk; (b)
requirements limiting large exposures; (c)
after the delegated act referred to in Article 444
has entered into force, liquidity requirements relating to entirely
quantifiable, uniform and standardised elements of liquidity risk; (d)
reporting requirements related to points (a) to
(c) and to leverage; (e)
publication requirements. Article 299 applies to central
counterparties. This Regulation does not govern publication
requirements for competent authorities in the field of prudential regulation
and supervision of institutions as set out in Directive [inserted by OP]. Article 2
Supervisory powers For the purposes of ensuring compliance with this
Regulation, competent authorities shall have the powers and shall follow the
procedures set out in Directive [inserted by OP]. Article 3
Application of stricter requirements by institutions This Regulation shall not prevent
institutions from holding own funds and their components in excess of, or
applying measures that are stricter than those required by this Regulation. Article 4
Definitions For the purposes of this Regulation, the
following definitions shall apply: (1)
‘credit institution’ means an undertaking the
business of which is to receive deposits or other repayable funds from the
public and to grant credits for its own account; (2)
‘competent authorities’ means public authorities
or bodies officially recognized by national law, which are empowered by
national law to supervise credit institutions or investment firms as part of
the supervisory system in operation in the Member State concerned. (3)
‘financial institution’ means an undertaking
other than a credit institution, the principal activity of which is to acquire
holdings or to pursue one or more of the activities listed in points 2 to 12
and 15 Annex I of Directive [inserted by OP]; (4)
'institution' means credit institution or investment
firm. (5)
‘consolidating supervisor’ means the competent
authority responsible for the exercise of supervision on a consolidated basis
of EU parent institutions and institutions controlled by EU parent financial
holding companies or EU parent mixed financial holding companies. (6)
‘recognised third-country investment firms’
means firms meeting all of the following conditions: (a) firms which, if they were established within the Union, would be covered by the definition of investment firm; (b) firms which are authorised in a third country; (c) firms which are subject to and comply with prudential rules
considered by the competent authorities as at least as stringent as those laid
down by this Regulation or by Directive [inserted by OP]; (7)
‘local firm’ means a firm dealing for its own
account on markets in financial futures or options or other derivatives and on
cash markets for the sole purpose of hedging positions on derivatives markets,
or dealing for the accounts of other members of those markets and being
guaranteed by clearing members of the same markets, where responsibility for
ensuring the performance of contracts entered into by such a firm is assumed by
clearing members of the same markets; (8)
‘investment firms’ means institutions as defined
in Article 4(1)(1) of Directive 2004/39/EC which are subject
to the requirements imposed by that Directive, excluding the following: (a) credit institutions; (b) local firms; (c) firms which are only authorised to
provide the service of investment advice or receive and transmit orders from
investors without holding money or securities belonging to their clients and
which for that reason may not at any time place themselves in debt with those
clients; (9)
‘collective investment undertaking (CIU)’ means
an Alternative Investment Fund as defined by Article 4(1)(a) of Directive
2011/61/EU of the European Parliament and the Council of 8 June 2011 on
Alternative Investment Fund Managers or an undertaking for collective
investment in transferable securities (UCITS) as defined in Article 1 of
Directive 2009/65/EU of the European Parliament and the Council on the
coordination of laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS). (10)
‘authorisation’ means an instrument issued in
any form by the authorities by which the right to carry on the business is granted; (11)
‘consolidated situation’ means the
situation that results from applying requirements of this regulation in
accordance with Title II Chapter 2 to one institution as if that institution
formed, together with one or more other entities, one single institution; (12)
‘consolidated basis’ means on the
basis of the consolidated situation; (13)
‘marking to market’ means the valuation of
positions at readily available close out prices that are sourced independently,
including exchange prices, screen prices, or quotes from several independent
reputable brokers; (14)
‘marking to model’ means any valuation which has
to be benchmarked, extrapolated or otherwise calculated from one or more market
input; (15)
‘independent price verification’ means a
process by which market prices or mark-to-model inputs are regularly verified
for accuracy and independence. (16)
‘branch’ means a place of business which forms a
legally dependent part of a credit institution and which carries out directly
all or some of the transactions inherent in the business of credit
institutions; (17)
‘financial institution’ means an undertaking
other than a credit institution, the principal activity of which is to acquire
holdings or to pursue one or more of the activities listed in points 2 to 12
and 15 of Annex I to Directive [inserted by OP]; (18)
‘home Member State’ means the Member State in which a credit institution has been authorised; (19)
‘host Member State’ means the Member State in which a credit institution has a branch or in which it provides services; (20)
‘control’ means the relationship between a
parent undertaking and a subsidiary, as defined in Article 1 of Seventh Council
Directive 83/349/EEC of 13 June 1983 based on the Article 54 (3) (g) of the
Treaty on consolidated accounts[18],
or a similar relationship between any natural or legal person and an
undertaking; (21)
‘qualifying holding’ means a direct or indirect
holding in an undertaking which represents 10 % or more of the capital or
of the voting rights or which makes it possible to exercise a significant
influence over the management of that undertaking; (22)
‘public sector entities’ means non-commercial
administrative bodies responsible to central governments, regional governments
or local authorities, or authorities that exercise the same responsibilities as
regional and local authorities, or non-commercial undertakings owned by central
governments or regional or local authorities that have explicit guarantee
arrangements, and may include self administered bodies governed by law that are
under public supervision; (23)
‘eligible capital’ for the purposes of Title IV
of Part Two and Part Five means the sum of the following: (a) Common Equity Tier 1 capital; (b) Additional Tier 1 capital; (c) Tier 2 capital that is equal to or less
than 25 % of own funds; (24)
‘operational risk’ means the risk of loss
resulting from inadequate or failed internal processes, people and systems or
from external events, and includes legal risk; (25)
‘central banks’ means the national central banks
that are members of the European System of Central Banks and the European Central
Bank, unless otherwise indicated. (26)
‘dilution risk’ means the risk that an amount
receivable is reduced through cash or non-cash credits to the obligor; (27)
‘probability of default’ means the probability
of default of a counterparty over a one year period; (28)
‘loss’, for the purposes of Part Three, Title
II, means economic loss, including material discount effects, and material
direct and indirect costs associated with collecting on the instrument; (29)
‘loss given default (LGD)’ means the ratio of
the loss on an exposure due to the default of a counterparty to the amount
outstanding at default; (30)
‘conversion factor’ means the ratio of the
currently undrawn amount of a commitment that will be drawn and outstanding at
default to the currently undrawn amount of the commitment, the extent of the
commitment shall be determined by the advised limit, unless the unadvised limit
is higher; (31)
‘expected loss (EL)’, for the purposes of Part
Three, Title II, means the ratio of the amount expected to be lost on an
exposure from a potential default of a counterparty or dilution over a one year
period to the amount outstanding at default; (32)
‘credit risk mitigation’ means a technique used
by an institution to reduce the credit risk associated with an exposure or
exposures which that institution continues to hold; (33)
‘funded credit protection’ means a technique of
credit risk mitigation where the reduction of the credit risk on the exposure
of an institution derives from the right of that institution - in the event of
the default of the counterparty or on the occurrence of other specified credit
events relating to the counterparty - to liquidate, or to obtain transfer or
appropriation of, or to retain certain assets or amounts, or to reduce the
amount of the exposure to, or to replace it with, the amount of the difference
between the amount of the exposure and the amount of a claim on the institution; (34)
‘unfunded credit protection’ means a technique
of credit risk mitigation where the reduction of the credit risk on the
exposure of an institution derives from the undertaking of a third party to pay
an amount in the event of the default of the borrower or on the occurrence of
other specified credit events; (35)
‘repurchase transaction’ means any transaction
governed by an agreement falling within the definition of ‘repurchase
agreement’ or ‘reverse repurchase agreement’ (36)
‘cash assimilated instrument’ means a
certificate of deposit, bonds including covered bonds or any other
non-subordinated instrument, which has been issued by the institution, for
which the institution has already received full payment and which shall be
unconditionally reimbursed by the institution at its nominal value
(37)
‘securitisation’ means a transaction or scheme,
whereby the credit risk associated with an exposure or pool of exposures is
tranched, having both of the following characteristics: (a)
payments in the transaction or scheme are
dependent upon the performance of the exposure or pool of exposures; (b)
the subordination of tranches determines the
distribution of losses during the ongoing life of the transaction or scheme; (38)
‘tranche’ means a contractually established
segment of the credit risk associated with an exposure or number of exposures,
where a position in the segment entails a risk of credit loss greater than or
less than a position of the same amount in each other such segment, without
taking account of credit protection provided by third parties directly to the
holders of positions in the segment or in other segments; (39)
‘securitisation position’ means an exposure to a
securitisation; (40)
‘re-securitisation‘ means securitisation where
the risk associated with an underlying pool of exposures is tranched and at
least one of the underlying exposures is a securitisation position; (41)
‘re-securitisation position‘ means an exposure to a re-securitisation; (42)
‘originator’ means either of the following: (a)
an entity which, either itself or through
related entities, directly or indirectly, was involved in the original
agreement which created the obligations or potential obligations of the debtor
or potential debtor giving rise to the exposure being securitised; (b)
an entity which purchases a third party's
exposures for its own account and then securitises them; (43)
‘sponsor’ means an institution other than an
originator institution that establishes and manages an asset-backed commercial
paper programme or other securitisation scheme that purchases exposures from
third party entities; (44)
‘credit enhancement’ means a contractual
arrangement whereby the credit quality of a position in a securitisation is
improved in relation to what it would have been if the enhancement had not been
provided, including the enhancement provided by more junior tranches in the
securitisation and other types of credit protection; (45)
‘securitisation special purpose entity (SSPE)’
means a corporation trust or other entity, other than an institution, organised
for carrying on a securitisation or securitisations, the activities of which
are limited to those appropriate to accomplishing that objective, the structure
of which is intended to isolate the obligations of the SSPE from those of the
originator institution, and the holders of the beneficial interests in which
have the right to pledge or exchange those interests without restriction; (46)
‘group of connected clients’ means any of the
following: (a)
two or more natural or legal persons who, unless
it is shown otherwise, constitute a single risk because one of them, directly
or indirectly, has control over the other or others unless the treatment set
out in point (c) applies; (b)
two or more natural or legal persons between
whom there is no relationship of control as described in point (a) but who
are to be regarded as constituting a single risk because they are so
interconnected that, if one of them were to experience financial problems, in
particular funding or repayment difficulties, the other or all of the others
would also be likely to encounter funding or repayment difficulties; (c)
where a central government has control over one or more
entities and exposures to this central government receive a 0 % risk weight
according to Article 109 and where that central government has provided an
explicit guarantee for all the obligations of such entities, this control does
not lead to a group of connected clients between the central government and
these entities. The same applies in cases of regional governments or local
authorities where exposures to the regional governments or local authority
receive a 0 % risk weight according to Article 110 and where the regional
governments or local authorities provided an explicit guarantee for all the
obligations of such entities. (47)
‘recognised exchanges’ means exchanges which
meet all of the following conditions: (a)
they are a market referred to in the list to be
published by (ESMA) according to Article 47 of Directive 2004/39/EC. (b)
they have a clearing mechanism whereby contracts
listed in Annex IV are subject to daily margin requirements which, in the
opinion of the competent authorities, provide appropriate protection; (48)
‘discretionary pension
benefits’ means enhanced pension
benefits granted on a discretionary basis by an
institution to an employee as part of that employee’s
variable remuneration package, which do not include accrued benefits granted to
an employee under the terms of the company pension scheme. (49)
‘participation’ means participation within the
meaning of the first sentence of Article 17 of Fourth Council Directive
78/660/EEC of 25 July 1978 on the annual accounts of certain types of companies[19], or the ownership, direct or
indirect, of 20 % or more of the voting rights or capital of an undertaking; (50)
‘exposure’ for the purposes of Part Three, Title
II means an asset or off-balance sheet item. (51)
‘mortgage lending value’ means the value of the immovable
property as determined by a prudent assessment of the future marketability of
the property taking into account long-term sustainable aspects of the property,
the normal and local market conditions, the current use and alternative
appropriate uses of the property. (52)
‘market value’ means for the purposes of
immovable property the estimated amount for which the property should exchange
on the date of valuation between a willing buyer and a willing seller in an
arm's-length transaction after proper marketing wherein the parties had each
acted knowledgeably, prudently and without compulsion. (53)
‘relevant accounting framework' means the
accounting rules to which the institution is subject under Regulation (EC) No
1606/2002[20]
of the European Parliament and of the Council of 19 July 2002 on the
application of international accounting standards and Council Directive
86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts
of banks and other financial institutions[21]. (54)
‘one year default rate’ means the ratio between
the number of defaults occurred during a period that starts from one year prior
to a date T and the number of obligors assigned to this grade or pool one year
prior to that date. (55)
‘speculative immovable property financing’ means
loans for the purposes of the acquisition or development or construction of
land in relation to such property, with the intention of reselling for profit. (56)
‘repurchase agreement’ and ‘reverse repurchase
agreement’ mean any agreement in which an institution or its counterparty
transfers securities or commodities or guaranteed rights relating to either of
the following: (a) title to securities or commodities
where that guarantee is issued by a recognised exchange which holds the rights
to the securities or commodities and the agreement does not allow an
institution to transfer or pledge a particular security or commodity to more
than one counterparty at one time, subject to a commitment to repurchase them; (b) substituted securities or commodities
of the same description at a specified price on a future date specified, or to
be specified, by the transferor, being a repurchase agreement for the
institution selling the securities or commodities and a reverse repurchase
agreement for the institution buying them. (57)
'financial instruments’ means any of the
following: (a)
a contract that gives rise to both a financial asset
of one party and a financial liability or equity instrument of another party; (b)
any instrument specified in Section C of Annex I
to Directive 2004/39/EC; (c)
derivative financial instrument; (d)
a primary financial instrument; (e)
a cash instrument. The instruments referred to in points (a) to
(c) are only financial instruments if their value is derived from the price of
an underlying financial instrument or another underlying item, a rate, or an
index. (58)
‘initial capital’ means the amount and types of
own funds specified in Article 12 of Directive [inserted by OP] for credit
institutions and in Title IV of that Directive for investment firms. (59)
‘positions held with trading intent’ means any
of the following: (a)
proprietary positions and positions arising from
client servicing and marking making; (b)
positions intended to be resold short term; (c)
positions intended to benefit from actual or
expected short term price differences between buying and selling prices or from
other price of interest rate variations; (60)
‘parent undertaking’ means: (a) a parent undertaking as defined in
Articles 1 and 2 of Directive 83/349/EEC; (b) for the purposes of Section II of
Chapters 3 and 4 of Title VII, Title VIII of Directive [inserted by OP] and
Part V of this Regulation a parent undertaking within the meaning of Article
1(1) of Directive 83/349/EEC and any undertaking which, effectively exercises a
dominant influence over another undertaking; (61)
‘subsidiary’ means: (a) a subsidiary as defined in Articles 1
and 2 of Directive 83/349/EEC; (b) a subsidiary within the meaning of
Article 1(1) of Directive 83/349/EEC and any undertaking over which, a parent
undertaking effectively exercises a dominant influence; All subsidiaries of subsidiaries shall also be
considered to be subsidiaries of the undertaking that is their
original parent undertaking; (62)
‘trading book’ means all positions in financial
instruments and commodities held by an institution either with trading intent
or in order to hedge positions held with trading intent; (63)
‘financial holding company’ means a financial
institution, the subsidiaries of which are either exclusively or mainly
institutions or financial institutions, at least one of such subsidiaries being
an institution, and which is not a mixed financial holding company within the
meaning of Article 2(15) of Directive 2002/87/EC[22]; (64)
‘parent institution in a Member State’ means an
institution which has a institution or a financial institution as a subsidiary
or which holds a participation in such an institution, and which is not itself
a subsidiary of another institution authorised in the same Member State, or of
a financial holding company or mixed financial holding company set up in the
same Member State. (65)
‘EU parent institution’ means a parent
institution which is not a subsidiary of another institution authorised in any
Member State, or of a financial holding company or mixed financial holding
company set up in any Member State; (66)
‘parent financial holding company in a Member
State’ means a financial holding company which is not itself a subsidiary of an
institution authorised in the same Member State, or of a financial holding
company or mixed financial holding company set up in the same Member State; (67)
‘EU parent financial holding company’ means a
parent financial holding company which is not a subsidiary of an institution
authorised in any Member State or of another financial holding company or mixed
financial holding company set up in any Member State; (68)
‘parent mixed financial holding company in a
Member State’ means a mixed financial holding company which is not itself a
subsidiary of a credit institution authorised in the same Member State, or of a
financial holding company or mixed financial holding company set up in that
same Member State; (69)
‘EU parent mixed financial holding company’
means a parent mixed financial holding company which is not a subsidiary of a
credit institution authorised in any Member State or of another financial
holding company or mixed financial holding company set up in any Member State; (70)
'multilateral trading facility' has the same
meaning as under Article 4(15) of Directive 2004/39/EC; (71)
‘mixed activity holding company’ means a parent
undertaking, other than a financial holding company or an institution or a
mixed financial holding company , the subsidiaries of which include at least
one institution; (72)
‘close links’ means a situation in which two or
more natural or legal persons are linked in any of the following ways: (a)
participation in the form of ownership, direct
or by way of control, of 20 % or more of the voting rights or capital of an
undertaking; (b)
control; (c)
the fact that both or all are permanently linked
to one and the same third person by a control relationship (73)
‘central counterparty (CCP)’ means a legal
entity that interposes itself between the counterparties to a trade within one
or more financial markets, becoming the buyer to every seller and the seller to
every buyer; (74)
‘default fund’ means a fund established by a CCP
the purpose of which is to mutualise the losses the CCP incurs due to the
default or insolvency of one or more of its clearing members, where the margins
and default fund contributions provided by those clearing members are not
sufficient to cover those losses; (75)
‘trade exposure’ means the sum of exposures
arising from assets posted to a CCP, mark-to-market exposures to a CCP and
potential future exposures to a CCP; (76)
‘insurance undertaking’ has the same meaning as
under Article 13(1) of Directive 2009/138/EC; (77)
‘mixed activity insurance holding company’ has
the same meaning as under point (g) of Article 212(1) of Directive 2009/138/EC; (78)
‘reinsurance undertaking’ has the same meaning
as under Article 13(4) of Directive 2009/138/EC; (79)
‘third country insurance undertaking’ has the
same meaning as under Article 13(3) of Directive 2009/138/EC; (80)
‘third country reinsurance undertaking’ has the
same meaning as under Article 13(6) of Directive 2009/138/EC; (81)
‘regulated market means a market referred to in
the list to be published by the European Securities and Markets Authority
(ESMA) according to Article 47 of Directive 2004/39/EC; (82)
‘management body’ means the governing body of an
institution, comprising the supervisory and the managerial functions, which has
the ultimate decision-making authority and is empowered to set the
institution's strategy, objectives and overall direction. Management body shall
include persons who effectively direct the business of the institution; (83)
‘management body in its supervisory function’
means the management body acting in its supervisory function of overseeing and
monitoring management decision-making; (84)
‘senior management’ means those individuals who
exercise executive functions within a institution and who are responsible and
accountable to the management body for the day-to-day management of the
institution; (85)
mixed financial holding company’ shall mean a
parent undertaking, other than a regulated entity, which together with its
subsidiaries, at least one of which is a regulated entity which has its head
office in the Community, and other entities, constitutes a financial
conglomerate; (86)
‘leverage’ means the relative size of an
institution's assets, off-balance sheet obligations and contingent obligations
to pay or to deliver or to provide collateral, including obligations from
received funding, made commitments, derivates or repurchase agreements, but excluding
obligations which can only be enforced during the liquidation of an
institution, compared to that institution’s own funds. Title II
Level of application of requirements Chapter 1
Application of requirements on an individual basis Article 5
General principles 1.
Institutions shall comply with the obligations
laid down in Parts Two to Five on
an individual basis. 2.
Every institution which is neither a subsidiary
in the Member State where it is authorised and supervised, nor a parent
undertaking, and every institution not included in the consolidation pursuant
to Article 17, shall comply with the obligations laid down in Article 84 on an individual basis. 3.
Every institution which is neither a parent
undertaking, nor a subsidiary, and every institution not included in the
consolidation pursuant to Article 17, shall comply with the obligations laid
down in Part Eight on an individual basis. 4.
Institutions other than investment firms that
are not authorised to provide the investment services listed in points 3 and 6
of Section A of Annex I to Directive 2004/39/EC shall comply with the obligations
laid down in Articles 401 and 403 on an individual basis. 5.
Institutions shall comply with the obligations
laid down in Part Seven on an individual basis. Article 6
Derogation to the application of prudential requirements on an individual basis 1.
Competent authorities may waive the application
of Article 5(1) to any subsidiary of an institution, where both the subsidiary
and the institution are subject to authorisation and supervision by the Member
State concerned, and the subsidiary is included in the supervision on a
consolidated basis of the institution which is the parent undertaking, and all
of the following conditions are satisfied, in order to ensure that own funds
are distributed adequately among the parent undertaking and the subsidiaries: (a)
there is no current or foreseen material
practical or legal impediment to the prompt transfer of own funds or repayment
of liabilities by its parent undertaking; (b)
either the parent undertaking satisfies the
competent authority regarding the prudent management of the subsidiary and has
declared, with the permission of the competent authority, that it guarantees
the commitments entered into by the subsidiary, or the risks in the subsidiary are
of negligible interest; (c)
the risk evaluation, measurement and control
procedures of the parent undertaking cover the subsidiary; (d)
the parent undertaking holds more than 50 % of
the voting rights attached to shares in the capital of the subsidiary or has
the right to appoint or remove a majority of the members of the management body
of the subsidiary. 2.
Competent authorities may exercise the option
provided for in paragraph 1 where the parent undertaking is a financial holding
company or a mixed financial holding company set up in the same Member State as the institution, provided that it
is subject to the same supervision as that exercised over institutions, and in
particular to the standards laid down in Article 10(1). 3.
Competent authorities may waive the application
of Article 5(1) to a parent institution in a Member State where that
institution is subject to authorisation and supervision by the Member State
concerned, and it is included in the supervision on a consolidated basis, and
all the following conditions are satisfied, in order to ensure that own funds
are distributed adequately among the parent undertaking and the subsidiaries: (a)
there is no current or foreseen material
practical or legal impediment to the prompt transfer of own funds or repayment
of liabilities to the parent institution in a Member State; (b)
the risk evaluation, measurement and control
procedures relevant for consolidated supervision cover the parent institution
in a Member State. The competent authority which makes use of this
paragraph shall inform the competent authorities of all other Member States. Article 7
Derogation to the application of liquidity requirements on an individual basis 1.
The competent authorities shall waive in full or
in part the application of Article 401 to a parent institution and to all or
some of its subsidiaries in the European Union and supervise them as a single
liquidity sub-group so long as they fulfil all of the following conditions: (a)
The parent institution complies with the
obligations laid down in Articles 401 and 403 on a consolidated basis or, where
the sub-group does not include the EU parent institution, on a sub-consolidated
basis; (b)
The parent institution monitors and has
oversight at all times over the liquidity positions of all institutions within
the group or sub-group, that are subject to the waiver; (c)
The institutions have entered into contracts
that provide for the free movement of funds between them to enable them to meet
their individual and joint obligations as they come due; (d)
There are no current or foreseen material
practical or legal impediment to the fulfilment of the contracts referred to in
(c). 2.
Where all institutions of the single liquidity
sub-group are authorised in the same Member State, paragraph 1 shall be applied
by the competent authorities of that Member State. Where institutions of the single liquidity
sub-group are authorised in several Member States, paragraph 1 shall only be
applied after following the procedure laid down in Article 19 and only to the
institutions whose competent authorities agree about the following elements: (a)
the adequacy of the organisation and the
treatment of liquidity risk as required by Article 84 of Directive [inserted by
OP]; (b)
the distribution of amounts, location and
ownership of the required liquid assets to be held within the sub-group; (c)
minimum amounts of liquid assets to be held by
institutions for which the application of Article 401 has been waived; (d)
the need for stricter parameters than those set
out in Part Six, Title III. Competent authorities may also apply paragraph
1 also to institutions which that are members of the same institutional
protection scheme referred to in 108(7)(b), provided that they meet all the
conditions laid down in Article 108(7). Competent authorities shall in that
case determine one of the institutions subject to the waiver to meet Article 401on
the basis of the consolidated situation of all institutions of the single
liquidity sub-group. 3.
Where a waiver has been granted under paragraph
1, the competent authorities may also waive the application of Article 403. Article 8
Individual consolidation method 1.
Subject to paragraphs 2 and
3 of this Article and to Article
134(3) of Directive [inserted by OP], the competent
authorities may permit on a case by case basis parent institutions to
incorporate in the calculation of their requirement under Article 5(1)
subsidiaries which meet the conditions laid down in points (c) and (d) of
Article 6(1), and whose material exposures or material liabilities are to that
parent institution. 2.
The treatment in paragraph 1 shall be permitted
only where the parent institution demonstrates fully to the competent
authorities the circumstances and arrangements, including legal arrangements,
by virtue of which there is no material practical or legal impediment, and none
are foreseen, to the prompt transfer of own funds, or repayment of liabilities
when due by the subsidiary to its parent undertaking. 3.
Where a competent authority exercises the
discretion laid down in paragraph 1, it shall on a regular basis and not less
than once a year inform the competent authorities of all the other Member
States of the use made of paragraph 1 and of the circumstances and arrangements
referred to in paragraph 2. Where the subsidiary is in a third country, the
competent authorities shall provide the same information to the competent
authorities of that third country as well. Article 9
Waiver for credit institutions permanently affiliated to a central body Competent authorities may waive the application of the requirements set out in Parts Two to Four
and Six to Eight to one or more credit institutions situated in the same Member
State and which are permanently affiliated to a central body which supervises
them and which is established in the same Member State, if national law provides
all of the following: (a)
the commitments of the central body and
affiliated institutions are joint and several liabilities or the commitments of
its affiliated institutions are entirely guaranteed by the central body; (b)
the solvency and liquidity of the central body
and of all the affiliated institutions are monitored as a whole on the basis of
consolidated accounts of these institutions; (c)
the management of the central body is empowered
to issue instructions to the management of the affiliated institutions. Chapter 2
Prudential consolidation Section 1
Application of requirements on a consolidated basis Article 10
General treatment 1.
Parent institutions in a Member State shall comply, to the extent and in the manner prescribed in Article16, with the
obligations laid down in Parts Two to Four and Seven on the basis of their consolidated situation. 2.
Institutions controlled by a parent financial
holding company or a parent mixed financial holding
company in a Member State shall comply, to the extent
and in the manner prescribed in Article 16, with the obligations laid down in Parts Two to Four and Seven on the basis of
the consolidated situation of that financial holding company or mixed financial holding company. Where more than one institution is controlled
by a parent financial holding company or by a parent mixed financial holding
company in a Member State, the first subparagraph shall apply only to the
institution to which supervision on a consolidated basis applies in accordance
with Article 106 of Directive [inserted by OP]. 3.
EU parent institutions and institutions
controlled by an EU parent financial holding company and institutions
controlled by an EU parent mixed financial holding company shall comply with
the obligations laid down in Articles 401 and 403 on the basis of the
consolidated situation of that parent institution, financial holding company or
mixed financial holding company, if the group comprises one or more credit
institutions or investment firms that are authorised to provide the investment
services listed in points 3 and 6 of Section A of Annex I to Directive
2004/39/EC. 4.
Where Article 9 is applied, the central body
referred to in that Article shall comply with the requirements of Parts Two to Four and Seven on the basis of
the consolidated situation of the central body. Article 16 shall apply to the
central body and the affiliated institutions shall be treated as the
subsidiaries of the central body. Article 11
Financial holding company or mixed financial holding company with both a
subsidiary credit institution and a subsidiary
investment firm Where a financial holding company or a
mixed financial holding company has at least one credit institution and one
investment firm as subsidiaries, the requirements that apply on the basis of
the consolidated situation of the financial holding company or of the mixed
financial holding company shall apply to the credit institution. Article 12
Application of disclosure requirements on a consolidated basis 1.
EU parent institutions shall comply with the
obligations laid down in Part Eight on the basis of their consolidated
situation. Significant subsidiaries of EU parent
institutions shall disclose the information specified in Article 424, 425, 435
and 436, on an individual or sub-consolidated basis. 2.
Institutions controlled by an EU parent
financial holding company or EU parent mixed financial
holding company shall comply with the obligations laid
down in Part Eight on the basis of the consolidated situation of that financial
holding company or mixed financial holding company. Significant subsidiaries of EU parent financial
holding companies or EU parent mixed holding companies shall disclose the
information specified in Article 424 and 425, 435 and 436 on an individual or
sub-consolidated basis. 3.
Paragraphs 1 and 2 shall not apply in full
or in part to EU parent institutions, institutions controlled by an EU parent
financial holding company or EU parent mixed financial
holding company, to the extent
that they are included within equivalent
disclosures provided on a consolidated basis by a
parent undertaking established in a third country. 4. Where Article 9 is
applied, the central body referred to in that Article shall comply with the
requirements of Part Eight on the basis of the consolidated situation of the
central body. Article 16(1) shall apply to the central body and the affiliated
institutions shall be treated as the subsidiaries of the central body. Article 13
Application of requirements of Part Five on a consolidated basis 1.
Parent undertakings and their subsidiaries
subject to this Regulation shall
meet the obligations laid down in Part Five on a consolidated or sub-consolidated basis, to ensure that their
arrangements, processes and mechanisms required by those provisions are
consistent and well-integrated and that any data and information relevant to
the purpose of supervision can be produced. In
particular, they shall ensure that subsidiaries not subject to this Regulation
implement arrangements, processes and mechanisms to ensure compliance with
those provisions. 2.
Institutions shall apply an additional risk
weight in accordance with Article 396 when applying Article 87 on a
consolidated or sub-consolidated basis if the requirements of Articles 394 or 395
are breached at the level of an entity established in a third country included
in the consolidation in accordance with Article 16 if the breach is material in
relation to the overall risk profile of the group. 3.
Obligations resulting from Part Five concerning subsidiaries,
not themselves subject to this Regulation, shall not apply if the EU parent
institution or institutions controlled by an EU parent financial holding
company or EU parent mixed financial holding company, can demonstrate to the
competent authorities that the application of Part Five is unlawful under the
laws of the third country where the subsidiary is established. Article 14
Derogation to the application of own funds requirements on a consolidated basis
for groups of investment firms 1.
The competent authorities that supervise groups on a consolidated basis
may waive, on a case-by-case basis, the application of own
funds requirements on a consolidated basis provided
that the following conditions exist: (a)
each EU investment firm in such a group uses the
alternative calculation of total risk exposure amount referred to in Article 90(2);
(b)
all investment firms in such a group fall within
the categories in Articles 90(1) and 91(1); (c)
each EU investment firm in such a group meets
the requirements imposed in Article 90 on an individual basis and at the same
time deducts from its Common Equity Tier 1 items any contingent liability in
favour of investment firms, financial institutions, asset management companies
and ancillary services undertakings, which would otherwise be consolidated; (d)
any financial holding company which is the
parent financial holding company in a Member State of any investment firm in
such a group holds, at least as much capital, defined here as the sum of the
following: (i) the items referred to in Articles 24(1),
48(1) and 59(1); (ii) as the sum of the full book value of
any holdings, subordinated claims and instruments referred to in Articles 33(1)(h)
and (i), 53(1)(c) and (d), and 63(1)(c) and (d) in investment firms, financial
institutions, asset management companies and ancillary services undertakings
which would otherwise be consolidated; and (iii) the total amount of any contingent
liability in favour of investment firms, financial institutions, asset
management companies and ancillary services undertakings which would otherwise
be consolidated; (e)
the group does not comprise credit institutions. Where the criteria in the first subparagraph
are met, each EU investment firm shall have in place systems to monitor and
control the sources of capital and funding of all financial holding companies,
investment firms, financial institutions, asset management companies and
ancillary services undertakings within the group. 2.
The competent authorities may also apply the
waiver if the financial holding companies holds a lower amount of own funds
than the amount calculated under paragraph 1(d), but no lower than the sum
of the own funds requirements imposed on an individual basis to investment
firms, financial institutions, asset management companies and ancillary
services undertakings which would otherwise be consolidated and the total
amount of any contingent liability in favour of investment firms, financial
institutions, asset management companies and ancillary services undertakings
which would otherwise be consolidated. For the purposes of this paragraph, the own funds requirement for investment
undertakings of third countries, financial institutions, asset management
companies and ancillary services undertakings is a notional own funds requirement. Article 15
Supervision of investment firms waived from the application of own funds
requirements on a consolidated basis Investment firms in a group which has been
granted the waiver provided for in Article 14 shall notify the competent authorities
of the risks which could undermine their financial positions, including those
associated with the composition and sources of their own funds, internal
capital and funding. Where the competent authorities waive the
obligation of supervision on a consolidated basis as provided for in Article 14,
they shall take other appropriate measures to monitor the risks, namely large
exposures, of the whole group, including any undertakings not located in a Member State. Where the competent authorities waive the
application of own funds requirements on a consolidated basis as provided for in
Article14, the requirements of Part Eight shall apply on an individual basis. Section 2
Methods for prudential consolidation Article 16
Methods for prudential consolidation 1.
The institutions that are required to comply
with the requirements referred to in Section 1 on the basis of their
consolidated situation shall carry out a full consolidation of all institutions and financial institutions
that are its subsidiaries or, where relevant, the subsidiaries of the same
parent financial holding company or mixed parent financial holding company.
Paragraphs 2 to 8 of this Article shall not apply where Articles 401 and 403 apply
on the basis of an institution's consolidated situation. 2.
However, the competent authorities may on a case-by-case basis permit proportional
consolidation according to the share of capital that the parent undertaking
holds in the subsidiary. Proportional consolidation may only be permitted where
all of the following conditions are fulfilled: (a)
the liability of the parent undertaking is
limited to the share of capital that the parent undertaking holds in the
subsidiary in view of the liability of the other shareholders or members; (b)
the solvency of those other shareholder or
members is satisfactory; (c)
the liability of the other shareholders and members
is clearly established in a legally binding way. 3.
Where undertakings are linked by a relationship
within the meaning of Article 12(1) of Directive 83/349/EEC, the competent
authorities shall determine how consolidation is to be carried out. 4.
The competent authorities responsible for
supervision on a consolidated basis shall require the proportional
consolidation according to the share of capital held of participations in
institutions and financial institutions managed by an undertaking included in
the consolidation together with one or more undertakings not included in the
consolidation, where those undertakings' liability is limited to the share of
the capital they hold. 5.
In the case of participations or capital ties
other than those referred to in paragraphs 1 and 2, the competent authorities
shall determine whether and how consolidation is to be carried out. In
particular, they may permit or require use of the equity method. That method
shall not, however, constitute inclusion of the undertakings concerned in
supervision on a consolidated basis. 6.
The competent
authorities shall determine whether and how consolidation is to be carried out
in the following cases: (a)
where, in the opinion of the competent
authorities, an institution exercises a significant influence over one or more
institutions or financial institutions, but without holding a participation or
other capital ties in these institutions; and (b)
where two or more institutions or financial
institutions are placed under single management other than pursuant to a
contract or clauses of their memoranda or Articles of association. In particular, the competent authorities may
permit, or require use of, the method provided for in Article 12 of Directive
83/349/EEC. That method shall not, however, constitute inclusion of the
undertakings concerned in consolidated supervision. 7.
EBA shall develop draft regulatory technical
standards to specify conditions according to which consolidation shall be
carried out in the cases referred to in paragraphs 2 to 6 of this Article. EBA shall submit those draft regulatory technical
standards to the Commission by 31 December 2016. Powers are conferred on the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. 8.
Where consolidated supervision is required
pursuant to Article 106 of Directive [inserted by OP], ancillary services
undertakings and asset management companies as defined in Directive 2002/87/EC
shall be included in consolidations in the cases, and in accordance with the
methods, laid down in this Article. Section 3
Scope of prudential consolidation Article 17
Entities excluded from the scope of prudential consolidation 1.
An institution, financial institution or an
ancillary services undertaking which is a subsidiary or an undertaking in which
a participation is held, need not to be included in the consolidation where the
total amount of assets and off-balance sheet items of the undertaking concerned
is less than the smaller of the following two amounts: (a) EUR 10 million; (b) 1 % of the total amount of assets and
off-balance sheet items of the parent undertaking or the undertaking that holds
the participation. 2.
The competent authorities responsible for exercising
supervision on a consolidated basis pursuant to Article 106 of Directive
[inserted by OP] may on a case-by-case basis decide in the following cases that
an institution, financial institution or ancillary services undertaking which
is a subsidiary or in which a participation is held need not be included in the
consolidation: (a)
where the undertaking concerned is situated in a
third country where there are legal impediments to the transfer of the
necessary information; (b)
where the undertaking concerned is of negligible
interest only with respect to the objectives of monitoring credit institutions;
(c)
where, in the opinion of the competent
authorities responsible for exercising supervision on a consolidated basis, the
consolidation of the financial situation of the undertaking concerned would be
inappropriate or misleading as far as the objectives of the supervision of
credit institutions are concerned. 3.
Where, in the cases referred to in paragraph 1
and point (b) of paragraph 2, several undertakings meet the above criteria set
out therein, they shall nevertheless be included in the consolidation where
collectively they are of non-negligible interest with respect to the specified
objectives. Article 18
Joint decisions on prudential requirements 1.
The competent authorities shall work together,
in full consultation: (a) in the case of applications for
the permissions referred to in Articles 138(1), 146(9), 301(2), 277, 352 of
Regulation [inserted by OP], respectively, submitted by an EU parent
institution and its subsidiaries, or jointly by the subsidiaries of an EU
parent financial holding company or EU parent mixed financial holding company,
to decide whether or not to grant the permission sought and to determine the
terms and conditions, if any, to which such permission should be subject. (b) for the purposes of applying the
intra-group treatment referred to in Article 410(8) and 413(4) of this Regulation
in relation to institutions that are not subject to the waiver of Article 7. Applications shall be
submitted only to the consolidating supervisor. The application referred to in Article 301(2), shall include a description of the methodology used for allocating
operational risk capital between the different entities of the group. The
application shall indicate whether and how diversification effects are intended
to be factored in the risk measurement system. 2.
The competent authorities shall do everything
within their power to reach a joint decision within six months on: (a)
the application referred to in paragraph 1(a); (b)
the liquidity intra-group treatment referred to
in paragraph 1(b). This joint decision shall be set out in a
document containing the fully reasoned decision which shall be provided to the
applicant by the competent authority referred to in paragraph 1. 3.
The period referred to in paragraph 2 shall
begin: (a) on the date of receipt of the complete
application referred to in paragraph 1(a) by the consolidating supervisor. The
consolidating supervisor shall forward the complete application
to the other competent authorities without delay; (b) on the date of receipt by competent authorities
of a report prepared by the consolidating supervisor analysing intra-group
commitments within the group. 4.
In the absence of a joint decision between the
competent authorities within six months, the consolidating supervisor shall
make its own decision on paragraph 1(a) and 1(b). The decision
of the consolidating supervisor on paragraph 1(b) shall not limit the powers of
the competent authorities under Article 102. The decision shall be set out in a document
containing the fully reasoned decision and shall take into account the views
and reservations of the other competent authorities expressed during the six
months period. The decision shall be provided to the EU
parent institution, the EU parent financial holding company or to the EU parent
mixed financial holding company and the other competent
authorities by the consolidating supervisor. If, at the end of the six month period, any of the
competent authorities concerned has referred the matter to EBA in accordance
with Article 19 of Regulation (EU) No 1093/2010, the consolidating supervisor
shall defer its decision and await any decision that EBA may take in accordance
with Article 19(3) of that Regulation on its decision, and shall take its
decision in conformity with the decision of EBA. The six-month period shall be
deemed the conciliation period within the meaning of that Regulation. EBA shall
take its decision within 1 month. The matter shall not be referred to EBA after
the end of the six month period or after a joint decision has been reached. 5.
Where an EU parent institution and
its subsidiaries, the subsidiaries of an EU parent financial holding
company or
an EU parent mixed financial holding company use an Advanced
Measurement Approach referred to in Article 301(2) or an IRB
Approach referred to in Article 138 on a unified basis, the competent
authorities shall allow the qualifying criteria set out in Article 310
and 311 or
in Part Three, Chapter 3, Section 6 respectively to be met
by the parent and its subsidiaries considered together, in a way that is consistent
with the structure of the group and its risk management systems, processes and
methodologies. 6.
The decisions referred to in paragraphs 2 and 4 shall
be binding
on the competent authorities in the Member States concerned. 7.
EBA shall develop draft implementing technical
standards to specify the joint decision process referred to in
paragraph 1(a), with regard to the applications for
permissions referred to in Articles 138(1), 146(9), 301(2),
277, 352, and for the
liquidity intra-group treatment referred to in paragraph 1(b) with a view to facilitating joint decisions. EBA shall submit those technical standards to the
Commission by 31 December 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to
in the first subparagraph in accordance with the
procedure laid down in Article 15 of Regulation (EU) No 1093/2010. Article 19
Joint decisions on the level of application of liquidity requirements 1.
Upon application of an EU parent institution or
an EU parent financial holding company or EU parent mixed financial holding
company, the consolidating supervisor and the competent authorities responsible
for the supervision of subsidiaries of an EU parent institution or an EU parent
financial holding company or EU parent mixed financial holding company in a
Member State shall do everything within their power to reach a joint decision
identifying a single liquidity sub-group for the application of Article 7. This joint decision shall be reached within six
months after submission by the consolidating supervisor of a report identifying
single liquidity sub-groups on the basis of the criteria laid down in Article 7.
In the event of disagreement during the six months period, the consolidating
supervisor shall consult EBA at the request of any of the other competent
authorities concerned. The consolidating supervisor may consult EBA on its own
initiative. The joint decision may also impose constraints
on the location and ownership of liquid assets and require minimum amounts of
liquid assets to be held by credit institutions that are exempt from the
application of Article 401. The joint decision shall be fully reasoned and
state the reasons leading to it. The consolidating supervisor shall submit the
decision including the reasons to the parent institution of the liquidity
subgroup. 2.
In the absence of a joint decision within six
months, each competent authority responsible for supervision on an individual
basis shall take its own decision. However, any competent authority may during the
six months period refer to EBA the question whether the conditions of (a) to (d)
of Article 7(1) are met and request its assistance in accordance with Article
19 of Regulation No (EC) 1093/2010. If at the end of the six month period any
of the competent authorities concerned has done so, all the competent
authorities involved shall defer their decisions pending a decision by EBA.
Such decision shall be taken within three months of the request. Once EBA has
taken its decision, the competent authorities shall take their decisions
concerning the conditions (a) to (d) of Article 7(1), in conformity with the
decision of EBA. The matter shall not be referred to EBA after the end of the
six month period or after a joint decision has been reached. The joint decision referred to in paragraph 1
and the decision referred to in the previous subparagraph shall be binding in
accordance with Article 19(3) of Regulation No (EC) 1093/2010. 3.
Any relevant competent authority may also during
the six months period consult EBA on the question whether the conditions of (a)
to (d) of Article 7(2) are met. In this case, EBA may carry out its non-binding
mediation in accordance with Article 31(c) of Regulation No (EC) 1093/2010. In
such case, all the competent authorities involved shall defer their decisions
pending the conclusion of the non-binding mediation. Where, during the
mediation, no agreement has been reached by the competent authorities within 3
months, each competent authority responsible for supervision on an individual
basis shall take its own decision. 4.
EBA shall develop draft implementing technical
standards to specify the joint decision process referred to in this Article,
with regard to the application of Article 7, with a view to facilitating joint
decisions. EBA shall submit those draft implementing
technical standards to the Commission by 31 December 2016. Powers are conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Article 20
Sub-consolidation in cases of entities in third countries Subsidiary institutions shall apply the
requirements laid down in Part Three, Article 84 and Part V on the basis of
their sub-consolidated situation if those institutions, or the parent
undertaking where it is a financial holding company or mixed financial holding
company, have an institution or a financial institution or an asset management
company as defined in Article 2(5) of Directive 2002/87/EC as a subsidiary in a
third country, or hold a participation in such an undertaking. Article 21
Undertakings in third countries For the purposes of applying supervision on
a consolidated basis in accordance with this Chapter, the terms ‘investment
firm,’ 'credit institution', financial institution, and 'institution' shall also
apply to undertakings established in third countries, which, were they
established in the Union, would fulfil the definitions of those terms in
Article 16. PART TWO OWN FUNDS Title I Definitions specific to own funds Article 22
Definitions (1)
‘accumulated other comprehensive income’ has the
same meaning as under International Accounting Standard (IAS) 1, as applicable
under Regulation (EC) No 1606/2002; (2)
'ancillary own-fund insurance items' means own
funds within the meaning of Article 89 of Directive 2009/138/EC; (3)
‘applicable accounting standard’ means the
relevant accounting standard, applicable under Directive 86/635/EEC or under
Regulation (EC) No 1606/2002, that applies to the institution; (4)
'basic own funds' means basic own funds within
the meaning of Article 88 of Directive 2009/138/EC; (5)
'Tier 1 own-fund insurance items' means basic
own-fund items of undertakings subject to the requirements of Directive
2009/138/EC where those items are classified in Tier 1 within the meaning of
Directive 2009/138/EC in accordance with paragraph 1 of Article 94 of that
Directive; (6)
‘additional Tier 1 own-fund insurance items'
means basic own-fund items of undertakings subject to the requirements of
Directive 2009/138/EC the items are classified as Tier 1 capital within the
meaning of Directive 2009/138/EC in accordance with paragraph 1 of Article 94
of that Directive and the inclusion of those items is limited by the delegated
acts adopted in accordance with Article 99 of that Directive; (7)
'Tier 2 own-fund insurance items' means basic
own-fund items of undertakings subject to the requirements of Directive
2009/138/EC where those items are classified as Tier 2 within the meaning of
Directive 2009/138/EC in accordance with paragraph 2 of Article 94 of that
Directive; (8)
'Tier 3 own-fund insurance items' means basic
own-fund insurance items of undertakings subject to the requirements of
Directive 2009/138/EC where those items are classified as Tier 3 within the
meaning of Directive 2009/138/EC in accordance with paragraph 3 of Article 94
of that Directive; (9)
'deferred tax assets' has the same meaning as
under the applicable accounting standard; (10)
‘deferred tax assets that rely on future
profitability’ means deferred tax assets the future value of which may be
realised only in the event the institution generates taxable profit in the
future; (11)
‘deferred tax liabilities’ has the same meaning
as under the applicable accounting standard; (12)
‘defined benefit pension fund assets’ means the
assets of a defined pension fund or plan, as applicable, calculated after they
have been reduced by the amount of obligations under the same fund or plan; (13)
‘distributions’ means the payment of dividends
or interest in any form; (14)
'financial undertaking' has the same meaning as
under points (b) and (d) of Article 13(25) of Directive 2009/138/EC; (15)
‘funds for general banking risk’ has the same
meaning as under Article 38 of Directive 86/635/EEC; (16)
‘goodwill’ has the same meaning as under the
applicable accounting standard; (17)
‘indirect holding’ means an investment of an
institution in a third party with an exposure to a capital instrument issued by
a relevant entity, where that investment is made for the purposes of incurring
an exposure to that capital instrument, or an exposure to an instrument by any
other means where, in the event the instrument lost value, the loss arising
from the exposure would not be materially different from the loss that would be
incurred by the institution from a direct holding of the instrument; (18)
‘intangible assets’ has the same meaning as
under the applicable accounting standard; (19)
'mixed activity insurance holding company' has
the same meaning as under point (g) of Article 212(1) of Directive 2009/138/EC; (20)
‘operating entity’ means an entity established
with the purpose of earning a profit in its own right; (21)
‘other capital instruments’ means capital
instruments issued by relevant entities that do not qualify as Common Equity
Tier 1, Additional Tier 1 or Tier 2 instruments or Tier 1 insurance own-fund
items, additional Tier 1 own-fund insurance items, Tier 2 own-fund insurance
items or Tier 3 own-fun insurance items; (22)
‘other reserves’ means reserves within the
meaning of the applicable accounting standard that are required to be disclosed
under that applicable accounting standard, excluding any amounts already
included in accumulated other comprehensive income or retained earnings; (23)
‘own funds’ means the sum of Tier 1 capital and
Tier 2 capital; (24)
‘own funds instruments’ means capital instruments
issued by the institution that qualify as Common Equity Tier 1, Additional Tier
1 or Tier 2 instruments; (25)
‘profit’ has the same meaning as under the
applicable accounting standard; (26)
‘reciprocal cross holding’ means a holding by
an institution of the own funds instruments or other capital instruments issued
by relevant entities where those entities also hold own funds instruments
issued by the institution; (27)
‘relevant entity’ means any of the following: (a) another institution; (b) a financial institution; (c) an insurance undertaking; (d) a third country insurance undertaking;
(e) a reinsurance undertaking; (f) a third country reinsurance
undertaking; (g) a financial undertaking; (h) a mixed activity insurance holding
company; (i) an undertaking excluded from the
scope of Directive 2009/138/EC in accordance with the requirements laid down in
Article 4 of that Directive; (28)
‘retained earnings’ means profits and losses
brought forward as a result of the final application of profit or loss under
the applicable accounting standards; (29)
‘share premium account’ has the same meaning as
under the applicable accounting standard; (30)
‘temporary differences' has the same meaning as under
the applicable accounting standard. Title II
Elements of own funds Chapter 1
Tier 1 capital Article 23
Tier 1 capital The Tier 1 capital of
an institution consists of the sum of the Common Equity Tier 1 capital and
Additional Tier 1 capital of the institution. Chapter 2
Common Equity Tier 1 capital Section 1
Common Equity Tier 1 items and instruments Article 24
Common Equity Tier 1 items 1.
Common Equity Tier 1 items of institutions
consist of the following: (a)
capital instruments, provided the conditions laid
down in Article 26 are met; (b)
share premium accounts related to the
instruments referred to in point (a); (c)
retained earnings; (d)
accumulated other comprehensive income; (e)
other reserves; (f)
funds for general banking risk. 2.
For the purposes of point (c) of paragraph 1,
institutions may include interim or year-end profits in Common Equity Tier 1
capital before the institution has taken a formal decision confirming the final
profit or loss of the institution for the year only with the prior consent of
the competent authority. The competent authority shall consent where the
following conditions are met: (a)
those profits have been reviewed by persons
independent of the institution that are responsible for the auditing of the
accounts of that institution; (b)
the institution has demonstrated to the
satisfaction of the competent authority that any foreseeable charge or dividend
has been deducted from the amount of those profits. A review of the interim or year-end profits of
the institution shall provide an adequate level of assurance that those profits
have been evaluated in accordance with the principles set out in the applicable
accounting standard. 3.
EBA shall develop draft regulatory technical
standards to specify the meaning of foreseeable when determining whether any
foreseeable charge or dividend has been deducted. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. 4.
EBA shall establish, maintain and publish a list
of the forms of capital instrument in each Member State that qualify as Common
Equity Tier 1 instruments. EBA shall establish and publish this list by 1
January 2013. Article 25
Capital instruments of mutuals, cooperative societies or similar institutions
in Common Equity Tier 1 items 1.
Common Equity Tier 1 items shall include any
capital instrument issued by an institution under its statutory terms provided
the following conditions are met: (a)
the institution is of a type that is defined
under applicable national law and which competent authorities consider to
qualify as a mutual, cooperative society or a similar institution for the
purposes of this Part; (b)
the conditions laid down in Articles 26 and 27 are
met; (c)
the instrument does not possess features that
could cause the condition of the institution to be weakened as a going concern
during periods of market stress. 2.
EBA shall develop draft regulatory technical
standards to specify the following: (a)
the conditions according to which competent
authorities may determine that a type of undertaking recognised under
applicable national law qualifies as a mutual, cooperative society or similar
institution for the purposes of this Part; (b)
the nature and extent of the following: (i)
the features that could cause the condition of
an institution to be weakened as a going concern during periods of market
stress; (ii) the market stress under which such features could cause the
condition of the institution to be weakened as a going concern. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 26
Common Equity Tier 1 instruments 1.
Capital instruments shall qualify as Common
Equity Tier 1 instruments only if all the following conditions are met: (a)
the instruments are issued directly by the
institution with the prior approval of the owners of the institution or, where
permitted under applicable national law, the management body of the institution;
(b)
the instruments are paid up and their purchase
is not funded directly or indirectly by the institution; (c)
the instruments meet all the following
conditions as regards their classification: (i) they qualify as capital within the
meaning of Article 22 of Directive 86/635/EEC; (ii) they are classified as equity within
the meaning of the applicable accounting standard; (iii) they are classified as equity
capital for the purposes of determining balance sheet insolvency, where
applicable under national insolvency law; (d)
the instruments are clearly and separately
disclosed on the balance sheet in the financial statements of the institution; (e)
the instruments are perpetual; (f)
the principal amount of the instruments may not
be reduced or repaid, except in either of the following cases: (i) the liquidation of the institution; (ii) discretionary repurchases of the
instruments or other discretionary means of reducing capital, where the
institution has received the prior consent of the competent authority in accordance
with Article72; (g)
the provisions governing the instruments do not
indicate expressly or implicitly that the principal amount of the instruments
would or might be reduced or repaid other than in the liquidation of the
institution, and the institution does not otherwise provide such an indication
prior to or at issuance of the instruments, except in the case of instruments
referred to in Article 25 where the refusal by the institution to redeem such
instruments is prohibited under applicable national law; (h)
the instruments meet the following conditions as
regards distributions: (i) there are no preferential
distributions, including in relation to other Common Equity Tier 1 instruments,
and the terms governing the instruments do not provide preferential rights to
payment of distributions; (ii) distributions to holders of the
instruments may be paid only out of distributable items; (iii) the conditions governing the
instruments do not include a cap or other restriction on the maximum level of
distributions, except in the case of the instruments referred to in Article 25; (iv) the level of distributions is not
determined on the basis of the amount for which the instruments were purchased
at issuance, and is not otherwise determined on this basis, except in the case
of the instruments referred to in Article 25; (v) the conditions governing the
instruments do not include any obligation for the institution to make
distributions to their holders and the institution is not otherwise subject to
such an obligation; (vi) non-payment of distributions does not
constitute an event of default of the institution; (i)
compared to all the capital instruments issued
by the institution, the instruments absorb the first and proportionately
greatest share of losses as they occur, and each instrument absorbs losses to
the same degree as all other Common Equity Tier 1 instruments; (j)
the instruments rank below all other claims in
the event of insolvency or liquidation of the institution; (k)
the instruments entitle their owners to a claim
on the residual assets of the institution, which, in the event of its liquidation
and after the payment of all senior claims, is proportionate to the amount of
such instruments issued and is not fixed or subject to a cap, except in the
case of the capital instruments referred to in Article 25; (l)
the instruments are not secured, or guaranteed
by any of the following: (i) the institution or its subsidiaries; (ii) the parent institution or its
subsidiaries; (iii) the parent financial holding company
or its subsidiaries; (iv) the mixed activity holding company or
its subsidiaries; (v) the mixed financial holding company
and its subsidiaries; (vi) any undertaking that has close links
with the entities referred to in points (i) to (v); (m)
the instruments are not subject to any
arrangement, contractual or otherwise, that enhances the seniority of claims
under the instruments in insolvency or liquidation. 2.
The conditions laid down in point (i) of
paragraph 1 shall be met notwithstanding a write down on a permanent basis of
the principal amount of Additional Tier 1 instruments. 3.
EBA shall develop draft regulatory technical
standards to specify the following: (a)
the applicable forms and nature of indirect
funding of capital instruments; (b) the meaning of distributable items for the purposes of
determining the amount available to be distributed to the holders of own funds
instruments of an institution. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt the regulatory
technical standards referred to in the first subparagraph in accordance with the
procedure laid down in Articles 10 to 14 of Regulation (EU) No 1093/2010. Article 27
Capital instruments issued by mutuals, cooperative societies and similar
institutions 1.
Capital instruments issued by mutuals,
cooperative societies and similar institutions shall qualify as Common Equity
Tier 1 instruments only if the conditions laid down in Article 26 and this
Article are met. 2.
The following conditions shall be met as regards
redemption of the capital instruments: (a)
except where prohibited under applicable
national law, the institution shall be able to refuse the redemption of the
instruments; (b)
where the refusal by the institution of the
redemption of instruments is prohibited under applicable national law, the
provisions governing the instruments shall give the institution the ability to
limit their redemption; (c)
refusal to redeem the instruments, or the
limitation of the redemption of the instruments where applicable, may not
constitute an event of default of the institution. 3.
The capital instruments may include a cap or
restriction on the maximum level of distributions only where that cap or
restriction is set out under applicable national law or the statute of the
institution. 4.
Where the capital instruments provide the owner
with rights to the reserves of the institution in the event of insolvency or
liquidation that are limited to the nominal value of the instruments, such a
limitation shall apply to the same degree to the holders of all other Common
Equity Tier 1 instruments issued by that institution. 5.
Where the capital instruments entitle their
owners to a claim on the assets of the institution in the event of its
insolvency or liquidation that is fixed or subject to a cap, such a limitation
shall apply to the same degree to all holders of all Common Equity Tier 1
instruments issued by the institution. 6.
EBA shall develop draft regulatory technical
standards to specify the nature of the limitations on redemption necessary
where the refusal by the institution of the redemption of own funds instruments
is prohibited under applicable national law. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 28
Consequences of the conditions for Common Equity Tier 1 instruments ceasing to
be met The
following shall apply where, in the case of a Common Equity Tier 1 instrument,
the conditions laid down in Article 26, and Article 27 where applicable, cease
to be met: (a)
that instrument shall cease to qualify as a
Common Equity Tier 1 instrument; (b)
the share premium accounts that relate to that
instrument shall cease to qualify as Common Equity Tier 1 items. Section 2
Prudential filters Article 29
Securitised assets 1.
An institution shall exclude from any element of
own funds any increase in its equity under the applicable accounting standard
that results from securitised assets, including the following: (a) such an increase associated with
future margin income that results in a gain on sale for the institution; (b) where the institution is the
originator of a securitisation, net gains that arise from the capitalisation of
future income from the securitised assets that provide credit enhancement to
positions in the securitisation. 2.
EBA shall develop draft regulatory technical
standards to specify further the concept of a gain on sale referred to in point
(a) of paragraph 1. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 30
Cash flow hedges and changes in the value of own liabilities Institutions
shall not include the following items in any element of own funds: (a)
the fair value reserves related to gains or
losses on cash flow hedges of financial instruments that are not valued at fair
value, including projected cash flows; (b)
gains or losses on liabilities of the
institution that are valued at fair value that result from changes in the own
credit standing of the institution. Article 31
Additional value adjustments 1.
Institutions shall apply the requirements of
Article 100 to all their assets measured at fair value when calculating the
amount of their own funds and shall deduct from Common Equity Tier 1 capital
the amount of any additional value adjustments necessary. 2.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which the requirements of
Article 100 referred shall be applied for the purposes of paragraph 1. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 32
Unrealised gains and losses measured at fair
value Except
in the case of the items referred to in Article 30, institutions shall not make
adjustments to remove from their own funds unrealised gains or losses on their
assets or liabilities measured at fair value. Section 3
Deductions from Common Equity Tier 1 items, exemptions and alternatives Sub-section 1
Deductions from Common Equity Tier 1 items Article 33
Deductions from Common Equity Tier 1 items 1.
Institutions shall deduct the following from
Common Equity Tier 1 items: (a)
losses for the current financial year; (b)
intangible assets; (c)
deferred tax assets that rely on future
profitability; (d)
for institutions calculating risk-weighted
exposure amounts using the Internal Ratings Based Approach, negative amounts
resulting from the calculation of expected loss amounts laid down in Articles 154
and 155 154; (e)
defined benefit pension fund assets of the
institution; (f)
direct and indirect holdings by an institution
of own Common Equity Tier 1 instruments, including own Common Equity Tier 1
instruments that an institution is under an actual or contingent obligation to
purchase by virtue of an existing contractual obligation; (g)
holdings of the Common Equity Tier 1 instruments
of relevant entities where those entities have a reciprocal cross holding with
the institution that the competent authority considers to have been designed to
inflate artificially the own funds of the institution; (h)
the applicable amount of direct and indirect
holdings by the institution of Common Equity Tier 1 instruments of relevant
entities where the institution does not have a significant investment in those
entities; (i)
the applicable amount of direct and indirect
holdings by the institution of the Common Equity Tier 1 instruments of relevant
entities where the institution has a significant investment in those
entities; (j)
the amount of items required to be deducted from
Additional Tier 1 items pursuant to Article 53 that exceeds the Additional Tier
1 capital of the institution; (k)
the exposure amount of the following items which
qualify for a risk weight of 1 250 %, where the institution deducts that
exposure amount from Common Equity Tier 1 capital as an alternative to applying
a risk weight of 1 250 %: (i) qualifying holdings outside the
financial sector; (ii) securitisation positions, in
accordance with Articles 238(1)(b), 239(1)(b) and 253; (iii) free deliveries, in accordance with
Article 369(3); (l)
any tax charge relating to Common Equity Tier 1
items foreseeable at the moment of its calculation, except where the
institution suitably adjusts the amount of Common Equity Tier 1 items insofar
as such tax charges reduce the amount up to which those items may be applied to
cover risks or losses. 2.
EBA shall develop draft regulatory technical
standards to specify the following: (a) in greater detail, the application of
the deductions referred to in points (a), (c), (e) and (l) of paragraph 1; (b) the types of capital instrument of
financial institutions, third country insurance and reinsurance undertakings,
and undertakings excluded from the scope of Directive 2009/138/EC in accordance
with Article 4 of that Directive that shall be deducted from the following
elements of own funds: (i) Common Equity Tier 1 items; (ii) Additional Tier 1 items; (iii) Tier 2 items. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 34
Deduction of intangible assets Institutions
shall determine the intangible assets to be deducted in accordance with the
following: (a)
the amount to be deducted shall be reduced by
the amount of associated deferred tax liabilities that would be extinguished if
the intangible assets became impaired or were derecognised under the relevant
accounting standard; (b)
the amount to be deducted shall include goodwill
included in the valuation of significant investments of the institution. Article 35
Deduction of deferred tax assets that rely on future profitability 1.
Institutions shall determine the amount of
deferred tax assets that rely on future profitability that require deduction in
accordance with this Article. 2.
Except where the conditions laid down in
paragraph 3 are met, the amount of deferred tax assets that rely on future
profitability shall be calculated without reducing it by the amount of the
associated deferred tax liabilities of the institution. 3.
The amount of deferred tax assets that rely on
future profitability may be reduced by the amount of the associated deferred
tax liabilities of the institution, provided the following conditions are met: (a)
those deferred tax assets and associated
deferred tax liabilities both arise from the tax law of one Member State or third country; (b)
the taxation authority of that Member State or third country permits the offsetting of deferred tax assets and the associated
deferred tax liabilities. 4.
Associated deferred tax liabilities of the
institution used for the purposes of paragraph 3 may not include deferred tax
liabilities that reduce the amount of intangible assets or defined benefit
pension fund assets required to be deducted. 5.
The amount of associated deferred tax
liabilities referred to in paragraph 4 shall be allocated between the
following: (a)
deferred tax assets that rely on future
profitability and arise from temporary differences that are not deducted in
accordance with Article 45(1); (b)
all other deferred tax assets that rely on
future profitability. Institutions shall
allocate the associated deferred tax liabilities according to the proportion of
deferred tax assets that rely on future profitability that the items referred
to in points (a) and (b) represent. Article 36
Deferred tax assets that do not rely on future profitability 1.
Institutions shall apply a risk weight in
accordance with Chapter 2 or 3 of Title II of Part Three, as applicable, to
deferred tax assets that do not rely on future profitability. 2.
Deferred tax assets that do not rely on future
profitability comprise the following: (a)
overpayments of tax by the institution for the
current year; (b)
current year tax losses of the institution
carried back to previous years that give rise to a claim on, or a receivable
from, a central government, regional government or local tax authority; (c)
deferred tax assets arising from temporary
differences which, in the event the institution incurs a loss, becomes
insolvent or enters liquidation, are replaced, on a mandatory and automatic
basis in accordance with the applicable national law, with a claim on the central
government of the Member State in which the institution is incorporated which shall
absorb losses to the same degree as Common Equity Tier 1 instruments on a going
concern basis and in the event of insolvency or liquidation of the institution. Article 37
Deduction of negative amounts resulting from the calculation of expected loss
amounts The
amount to be deducted in accordance with point (d) of Article 33(1) shall not
be reduced by a rise in the level of deferred tax assets that rely on future
profitability, or other additional tax effect, that could occur if provisions
were to rise to the level of expected losses referred to in Section 3 of
Chapter 3 of Title II. Article 38
Deduction of defined benefit pension fund assets 1.
For the purposes of point (e) of Article 33(1),
the amount of defined benefit pension fund assets to be deducted shall be
reduced by the following: (a)
the amount of any associated deferred tax
liability which could be extinguished if the assets became impaired or were
derecognised under the applicable accounting standard; (b)
the amount of assets in the defined benefit
pension fund which the institution has an unrestricted ability to use, provided
the institution has received the prior consent of the competent authority.
Those assets used to reduce the amount to be deducted shall receive a risk
weight in accordance with Chapter 2 or 3 of Title II of Part Three, as
applicable. 2.
EBA shall develop draft regulatory technical
standards to specify the criteria according to which a competent authority
shall permit an institution to reduce the amount of assets in the defined
benefit pension fund as specified in point (b) of paragraph 1. EBA shall submit
those draft regulatory technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 39
Deduction of holdings of own Common Equity Tier 1 instruments For
the purposes of point (f) of Article 33(1), institutions shall calculate
holdings of own Common Equity Tier 1 instruments on the basis of gross long
positions subject to the following exceptions: (a)
institutions may calculate the amount of
holdings of own Common Equity Tier 1 instruments in the trading book on the
basis of the net long position provided the long and short positions are in the
same underlying exposure and the short positions involve no counterparty risk; (b)
institutions shall determine the amount to be
deducted for indirect holdings in the trading book that take the form of
holdings of index securities by calculating the underlying exposure to own
Common Equity Tier 1 instruments included in the indices; (c)
institutions may net gross long positions in own
Common Equity Tier 1 instruments in the trading book resulting from holdings of
index securities against short positions in own Common Equity Tier 1
instruments resulting from short positions in the underlying indices, including
where those short positions involve counterparty risk. Article 40
Significant investment in a relevant entity For the purposes of deduction, a
significant investment of an institution in a relevant entity shall arise where
any of the following conditions is met: (a)
the institution owns more than 10 % of the
Common Equity Tier 1 instruments issued by that entity; (b)
the institution has close links with that entity
and owns Common Equity Tier 1 instruments issued by that entity; (c)
the institution owns Common Equity Tier 1
instruments issued by that entity and the entity is not included in
consolidation pursuant to Chapter 2 of Title II of Part One but is included in
the same accounting consolidation as the institution for the purposes of
financial reporting under the applicable accounting standard. Article 41
Deduction of holdings of Common Equity Tier 1 instruments of relevant entities
and where an institution has a reciprocal cross holding designed artificially
to inflate own funds Institutions shall make the deductions
referred to in points (g), (h) and (i) of Article 33(1) in accordance with the
following: (a) holdings of Common Equity Tier 1
instruments and other capital instruments of relevant entities shall be
calculated on the basis of the gross long positions; (b) Tier 1 own-fund insurance items
shall be treated as holdings of Common Equity Tier 1 instruments for the
purposes of deduction. Article 42
Deduction of holdings of Common Equity Tier 1 instruments of relevant entities Institutions shall make the deductions
required by points (h) and (i) of Article 33(1) in accordance with the
following provisions: (a)
they may calculate holdings in the trading book
of the capital instruments of relevant entities on the basis of the net long
position in the same underlying exposure provided the maturity of the short
position matches the maturity of the long position or has a residual maturity
of at least one year; (b)
they shall determine the amount to be deducted
for indirect holdings in the trading book of the capital instruments of
relevant entities that take the form of holdings of index securities by calculating
the underlying exposure to the capital instruments of the relevant entities in
the indices. Article 43
Deduction of holdings where an institution does not have a significant
investment in a relevant entity 1.
For the purposes of point (h) of Article 33(1),
institutions shall calculate the applicable amount to be deducted by
multiplying the amount referred to in point (a) by the factor derived from the
calculation referred to in point (b): (a)
the aggregate amount by which the direct and
indirect holdings by the institution of the Common Equity Tier 1, Additional
Tier 1 and Tier 2 instruments of relevant entities which exceeds 10% of the
Common Equity Tier 1 items of the institution calculated after applying the
following to Common Equity Tier 1 items: (i) Articles 29 to 32; (ii) the deductions referred to in points
(a) to (g) and (j) to (l) of Article 33(1), excluding the amount to be deducted
for deferred tax assets that rely on future profitability and arise from
temporary differences; (iii) Articles 41 and 42; (b)
the amount of direct and indirect holdings by
the institution of the Common Equity Tier 1 instruments of relevant entities
divided by the aggregate amount of direct and indirect holdings by the
institution of the own funds instruments of those relevant entities. 2.
Institutions shall exclude underwriting
positions held for 5 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. 3.
Institutions shall determine the portion of
holdings of Common Equity Tier 1 instruments that is deducted pursuant to
paragraph 1 by dividing the amount specified in point (a) by the amount
specified in point (b): (a)
the amount of holdings required to be deducted
pursuant to paragraph 1; (b)
the aggregate amount of direct and indirect
holdings by the institution of the own funds instruments of relevant entities
in which the institution does not have a significant investment. 4.
The amount of holdings referred to in point (h)
of Article 33(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. 5.
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): (a)
the amount of holdings required to be risk
weighted pursuant to paragraph 4; (b)
aggregate amount of direct and indirect holdings
by the institution of the own funds instruments of relevant entities in which
the institution does not have a significant investment. Article 44
Deduction of holdings of Common Equity Tier 1 instruments where an institution
has a significant investment in a relevant entity For
the purposes of point (i) of Article 33(1), the applicable amount to be
deducted from Common Equity Tier 1 items shall exclude underwriting positions
held for 5 working days or fewer and shall be determined in accordance with
Articles 41 and 42 and Sub-Section 2. Sub-section 2
Exemptions from and alternatives to deduction from Common Equity Tier 1 items Article 45
Threshold exemptions from deduction from Common Equity Tier 1 items 1.
In making the deductions required pursuant to
points (c) and (i) of Article 33(1), institutions shall not deduct the items
listed in points (a) and (b) which in aggregate are equal to or less than 15 %
of Common Equity Tier 1 capital are exempt from deduction: (a)
deferred tax assets that are dependent on future
profitability and arise from temporary differences, and in aggregate are equal
to or less than 10 % of the Common Equity Tier 1 items of the institution
calculated after applying the following: (i) Articles 29 to 32; (ii) points (a) to (h) and (j) to (l) of Article
33(1), excluding deferred tax assets that rely on future profitability and
arise from temporary differences. (b)
where an institution has a significant
investment in a relevant entity, the direct and indirect holdings of that institution
of the Common Equity Tier 1 instruments of those entities that in aggregate are
equal to or less than 10 % of the Common Equity Tier 1 items of the institution
calculated after applying the following: (i) Article 29 to 32; (ii) points (a) to (h) and (j) to (l) of
Article 33(1), excluding deferred tax assets that rely on future profitability
and arise from temporary differences. 2.
Items that are not deducted pursuant to paragraph
1 shall be risk weighted at 250 % and subject to the requirements of Title IV
of Part Three, as applicable. Article 46
Other exemptions from, and alternatives to, deduction where consolidation is
applied 1.
As an alternative to the deduction of holdings
of an institution in the Common Equity Tier 1 instruments of insurance undertakings,
reinsurance undertakings and insurance holding companies in which the
institution has a significant investment, competent authorities may allow
institutions to apply methods 1, 2 or 3 of Annex I to Directive 2002/87/EC. The
institution shall apply the method chosen in a consistent manner over time. An institution may apply method 1 (accounting
consolidation) only if it has received the prior consent of the competent
authority. The competent authority may grant such consent only if it is
satisfied that the level of integrated management and internal control
regarding the entities that would be included in the scope of consolidation
under method 1 is adequate. 2.
For the purposes of calculating own funds on a
stand-alone basis, institutions subject to supervision on a consolidated basis
in accordance with Chapter 2 of Title II of Part One shall not deduct holdings
referred to in points (h) and (i) of Article 33(1) in relevant entities
included in the scope of consolidated supervision. 3.
Competent authorities may permit institutions
not to deduct a holding of an item referred to in points (h) and (i) of Article
33(1) in the following cases: (a)
where the holding is in a relevant entity which
is included in the same supplementary supervision as the institution in
accordance with Directive 2002/87/EC; (b)
where an institution referred to in Article 25 has
a holding in another such institution, or in its central or regional credit
institution, and the following conditions are met: (i) where the holding is in a central or
regional credit institution, the institution with that holding is associated
with that central or regional credit institution in a network subject to legal
or statutory provisions and the central or regional credit institution is
responsible, under those provisions, for cash-clearing operations within that
network; (ii) the institutions fall within the
same institutional protection scheme referred to in Article 108(7); (iii) the competent authorities have
granted the permission referred to in Article 108(7); (iv) the conditions laid down in Article 108(7)
are satisfied; (v) the institution draws up and reports
to the competent authorities the consolidated balance sheet referred to in
point (e) of Article 108(7) no less frequently than own funds requirements are
required to be reported under Article 95. (c)
where a regional credit
institution has a holding in its central or another regional credit institution
and the conditions laid down in point (b)(i) to (v) are met. 4.
EBA, EIOPA and ESMA shall, through the Joint
Committee, develop draft regulatory technical standards to specify for the
purposes of this Article the conditions of application of the calculation
methods listed in Annex I, Part II and Article 228(1) of Directive 2002/87/EC
for the purposes of the alternatives to deduction referred to in paragraph 1
and point (a) of paragraph 3. EBA, EIOPA and ESMA shall submit those draft
regulatory technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. 5.
EBA shall develop draft regulatory technical
standards to specify the conditions of application of point (b) of paragraph 3.
EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Section 3
Common Equity Tier 1 Capital Article 47
Common Equity Tier 1 capital The Common Equity Tier
1 capital of an institution shall consist of Common Equity Tier 1 items after
the application of the adjustments required by Article 29 to 32, the deductions
pursuant to Article 33 and the exemptions and alternatives laid down in Article
45, 46 and 74. Chapter 3
Additional Tier 1 capital Section 1
Additional Tier 1 items and instruments Article 48
Additional Tier 1 items Additional Tier 1 items shall consist of
the following: (a)
capital instruments, where the conditions laid
down in Article 49(1) are met; (b)
the share premium accounts related to the
instruments referred to in point (a). Article 49
Additional Tier 1 instruments 1.
Capital instruments shall qualify as Additional
Tier 1 instruments only if the following conditions are met: (a)
the instruments are issued and paid up; (b)
the instruments are not purchased by any of the
following: (i) the institution or its subsidiaries; (ii) a 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; (c)
the purchase of the instruments is not funded
directly or indirectly by the institution; (d)
the instruments rank below Tier 2 instruments in
the event of the insolvency of the institution; (e)
the instruments are not secured, or guaranteed
by any of the following: (i) the institution or its subsidiaries; (ii) the parent institution or its
subsidiaries; (iii) the parent financial holding company
or its subsidiaries; (iv) the mixed activity holding company or
its subsidiaries; (v) the mixed financial holding company
and its subsidiaries; (vi) any undertaking that has close links
with entities referred to in points (i) to (v); (f)
the instruments are not subject to any
arrangement, contractual or otherwise, that enhances the seniority of the claim
under the instruments in insolvency or liquidation; (g)
the instruments are perpetual and the provisions
governing them include no incentive for the institution to redeem them; (h)
where the provisions governing the instruments
include one or more call options, the option to call may be exercised at the
sole discretion of the issuer; (i)
the instruments may be called, redeemed or
repurchased only where the conditions laid down in Article 72 are met, and not
before five years after the date of issuance; (j)
the provisions governing the instruments do not
indicate explicitly or implicitly that the instruments would or might be
called, redeemed or repurchased and the institution does not otherwise provide
such an indication; (k)
the institution does not indicate explicitly or
implicitly that the competent authority would consent to a request to call,
redeem or repurchase the instruments; (l)
distributions under the instruments meet the
following conditions: (i) they are paid out of distributable
items; (ii) the level of distributions made on
the instruments will not be modified based on the credit standing of the
institution, its parent institution or parent financial holding company or
mixed activity holding company; (iii) the provisions governing the
instruments give the institution full discretion at all times to cancel the distributions
on the instruments for an unlimited period and on a non-cumulative basis, and
the institution may use such cancelled payments without restriction to meet its
obligations as they fall due; (iv) cancellation of distributions does
not constitute an event of default of the institution; (v) the cancellation of distributions
imposes no restrictions on the institution; (m)
the instruments do not contribute to a
determination that the liabilities of an institution exceed its assets, where
such a determination constitutes a test of insolvency under applicable national
law; (n)
the provisions governing the instruments require
the principal amount of the instruments to be written down, or the instruments
to be converted to Common Equity Tier 1 instruments, upon the occurrence of a
trigger event; (o)
the provisions governing the instruments include
no feature that could hinder the recapitalisation of the institution; (p)
where the instruments are not issued directly by
the institution or by an operating entity within the consolidation pursuant to
Chapter 2 of Title II of Part One, the parent institution, the parent financial
holding company, or the mixed activity holding company, the proceeds are
immediately available without limitation in a form that satisfies the conditions
laid down in this paragraph to any of the following: (i) the institution; (ii) an operating entity within the
consolidation pursuant to Chapter 2 of Title II of Part One; (iii) the parent institution; (iv) the parent financial holding
company; (v) the mixed activity holding company. 2.
EBA shall develop draft regulatory technical
standards to specify all the following: (a)
the form and nature of incentives to redeem; (b)
the nature of the write down of the principal
amount; (c)
the procedures and timing for the following: (i) determining that a trigger event has
occurred; (ii) notifying the competent authority
and the holders of the instrument that a trigger event has occurred and that
the principal amount of the instrument will be written down or the instrument
converted to a Common Equity Tier 1 instrument, as applicable, in accordance
with the provisions governing the instrument; (iii) writing down the principal amount of
the instrument, or converting it to a Common Equity Tier 1 instrument, as
applicable; (d)
features of instruments that could hinder the
recapitalisation of the institution; (e)
the use of special purposes entities for
indirect issuance of own funds instruments. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 50
Restrictions on the cancellation of distributions on Additional Tier 1
instruments and features that could hinder the recapitalisation of the
institution For the purposes of points (l)(v) and (o)
of Article 49(1), the provisions governing Additional Tier 1 instruments may,
in particular, not include the following: (a)
a requirement for distributions on the
instruments to be made in the event of a distribution being made on an
instrument issued by the institution that ranks to the same degree as, or more
junior than, an Additional Tier 1 instrument, including a Common Equity Tier 1
instrument; (b)
a requirement for the payment of distributions
on Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments to be
cancelled in the event that distributions are not made on those Additional Tier
1 instruments; (c)
an obligation to substitute the payment of
interest or dividend by a payment in any other form. The institution shall not
otherwise be subject to such an obligation. Article 51
Write down or conversion of Additional Tier 1 instruments For
the purposes of point (n) of Article 49(1), the following provisions shall
apply to Additional Tier 1 instruments: (a) a trigger event occurs when the
Common Equity Tier 1 capital ratio of the institution referred to in point (a)
of Article 87 falls below either of the following: (i) 5.125 %; (ii) a level higher than 5.125 %, where
determined by the institution and specified in the provisions governing the
instrument; (b) where the provisions governing
the instruments require them to be converted into Common Equity Tier 1
instruments upon the occurrence of a trigger event, those provisions shall
specify either of the following: (i) the rate of such conversion and a
limit on the permitted amount of conversion; (ii) a range within which the instruments
will convert into Common Equity Tier 1 instruments; (c) where the provisions governing
the instruments require their principal amount to be written down upon the
occurrence of a trigger event, the write down shall reduce all the following: (i) the claim of the holder of the
instrument in the liquidation of the institution; (ii) the amount required to be paid in the
event of the call of the instrument; (iii) the distributions made on the
instrument. Article 52
Consequences of the conditions for Additional Tier 1 instruments ceasing to be
met The
following shall apply where, in the case of an Additional Tier 1 instrument,
the conditions laid down in Article 49(1) cease to be met: (a)
that instrument shall cease to qualify as an
Additional Tier 1 instrument; (b)
the part of the share premium accounts that
relates to that instrument shall cease to qualify as Additional Tier 1 items. Section 2
Deductions from Additional Tier 1 items Article 53
Deductions from Additional Tier 1 items Institutions
shall deduct the following from Additional Tier 1 items: (a)
direct and indirect holdings by an institution
of own Additional Tier 1 instruments, including own Additional Tier 1
instruments that an institution could be obliged to purchase as a result of
existing contractual obligations; (b)
holdings of the Additional Tier 1 instruments of
relevant 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; (c)
the applicable amount determined in accordance
with Article 57 of direct and indirect holdings of the Additional Tier 1
instruments of relevant entities, where an institution does not have a
significant investment in those entities; (d)
direct and indirect holdings by the institution
of the Additional Tier 1 instruments of relevant entities where the institution
has a significant investment in those entities, excluding underwriting
positions held for 5 working days or fewer; (e)
the amount of items required to be deducted from
Tier 2 items pursuant to Article 63 that exceed the Tier 2 capital of the
institution; (f)
any tax charge relating to Additional Tier 1
items foreseeable at the moment of its calculation, except where the
institution suitably adjusts the amount of Additional Tier 1 items insofar as
such tax charges reduce the amount up to which those items may be applied to
cover risks or losses. Article 54
Deductions of holdings of own Additional Tier 1 instruments For
the purposes of point (a) of Article 53, institutions shall calculate holdings
of own Additional Tier 1 instruments on the basis of gross long positions
subject to the following exceptions: (a)
institutions may calculate the amount of
holdings of own Additional Tier 1 instruments in the trading book on the basis
of the net long position provided the long and short positions are in the same
underlying exposure and the short positions involve no counterparty risk; (b)
institutions shall determine the amount to be
deducted for indirect holdings in the trading book of own Additional Tier 1
instruments that take the form of holdings of index securities by calculating
the underlying exposure to own Additional Tier 1 instruments in the indices; (c)
gross long positions in own Additional Tier 1
instruments in the trading book resulting from holdings of index securities may
be netted by the institution against short positions in own Additional Tier 1
instruments resulting from short positions in the underlying indices, including
where those short positions involve counterparty risk. Article 55
Deduction of holdings of Additional Tier 1 instruments of relevant entities and
where an institution has a reciprocal cross holding designed artificially to
inflate own funds Institutions shall make the deductions
required by points (b), (c) and (d) of Article 53 in accordance with the
following: (a)
holdings of Additional Tier 1 instruments shall
be calculated on the basis of the gross long positions; (b)
additional Tier 1 own-fund insurance items shall
be treated as holdings of Additional Tier 1 instruments for the purposes of
deduction. Article 56
Deduction of holdings of Additional Tier 1 instruments of relevant entities Institutions
shall make the deductions required by points (c) and (d) of Article 53 in
accordance with the following: (a)
they shall calculate holdings in the trading
book of the capital instruments of relevant entities on the basis of the net
long position in the same underlying exposure provided the maturity of the
short position matches the maturity of the long position or has a residual
maturity of at least one year; (b)
they shall determine the amount to be deducted
for indirect holdings in the trading book of the capital instruments of
relevant entities that take the form of holdings of index securities by calculating
the underlying exposure to the capital instruments of the relevant entities in
the indices. Article 57
Deduction of holdings of Additional Tier 1 instruments where an institution
does not have a significant investment in a relevant entity 1.
For the purposes of point (c) of Article 53,
institutions shall calculate the applicable amount to be deducted by
multiplying the amount referred to in point (a) by the factor derived from the
calculation referred to in point (b): (a)
the aggregate amount by which the direct and
indirect holdings by the institution of the Common Equity Tier 1, Additional
Tier 1 and Tier 2 instruments of relevant entities exceeds 10% of the Common
Equity Tier 1 items of the institution calculated after applying the following:
(i) Article 29 to 32; (ii) points (a) to (g) and (j) to (l) of
Article 33(1), excluding deferred tax assets that rely on future profitability
and arise from temporary differences; (iii) Articles 41 and 42; (b)
the amount of direct and indirect holdings by
the institution of the Additional Tier 1 instruments of relevant entities
divided by the aggregate amount of all direct and indirect holdings by the
institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2
instruments of those relevant entities. 2.
Institutions shall exclude underwriting
positions held for 5 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. 3.
Institutions shall determine the portion of
holdings of Additional Tier 1 instruments that is deducted by dividing the
amount specified in point (a) by the amount specified in point (b): (a)
the amount of holdings required to be deducted
pursuant to paragraph 1; (b)
aggregate amount of direct and indirect holdings
by the institution of the own funds instruments of relevant entities in which
the institution does not have a significant investment. Section 3
Additional Tier 1 capital Article 58
Additional Tier 1 capital The Additional Tier 1
capital of an institution shall consist of Additional Tier 1 items after the
deduction of the items referred to in Article 53 and the application of Article
74. Chapter 4
Tier 2 capital Section 1
Tier 2 items and instruments Article 59
Tier 2 items Tier 2 items shall consist of the
following: (a)
capital instruments, where the conditions laid
down in Article 60 are met; (b)
the share premium accounts related to the
instruments referred to in point (a); (c)
for institutions calculating risk-weighted
exposure amounts in accordance with Chapter 2 of Title II, 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; (d)
for institutions calculating risk-weighted
exposure amounts under Chapter 3 of Title II, positive amounts, gross of tax
effects, resulting from the calculation laid down in Article 154 and 155 up to
0,6 % of risk weighted exposure amounts calculated under Chapter 3 of Title II
of Part Three. Article 60
Tier 2 instruments Capital
instruments shall qualify as Tier 2 instruments provided the following
conditions are met: (a)
the instruments are issued and fully paid-up; (b)
the instruments are not purchased by any of the
following: (i) the institution or its subsidiaries; (ii) 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; (c)
the purchase of the instruments is not funded
directly or indirectly by the institution; (d)
the claim on the principal amount of the
instruments under the provisions governing the instruments is wholly
subordinated to claims of all non-subordinated creditors; (e)
the instruments are not secured, or guaranteed
by any of the following: (i) the institution or its subsidiaries; (ii) the parent institution or its
subsidiaries; (iii) the parent financial holding company
or its subsidiaries; (iv) the mixed activity holding company or
its subsidiaries; (v) the
mixed financial holding company and its subsidiaries; (vi) any undertaking that has close links
with entities referred to in points (i) to (v); (f)
the instruments are not subject to any
arrangement that otherwise enhances the seniority of the claim under the
instruments; (g)
the instruments have an original maturity of at
least 5 years; (h)
the provisions governing the instruments do not
include any incentive for them to be redeemed by the institution; (i)
where the instruments include one or more call
options, the options are exercisable at the sole discretion of the issuer; (j)
the instruments may be called, redeemed or
repurchased only where the conditions laid down in Article 72 are met, and not
before five years after the date of issuance; (k)
the provisions governing the instruments do not
indicate or suggest that the instruments would or might be redeemed or
repurchased other than at maturity and the institution does not otherwise
provide such an indication or suggestion; (l)
the provisions governing the instruments 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; (m)
the level of interest or dividend payments due
on the instruments will not be modified based on the credit standing of the
institution, its parent institution or parent financial holding company or
mixed activity holding company; (n)
where the instruments are not issued directly by
the institution or by an operating entity within the consolidation pursuant to
Chapter 2 of Title II of Part One, the parent institution, the parent financial
holding company, or the mixed activity holding company, the proceeds are
immediately available without limitation in a form that satisfies the
conditions laid down in this paragraph to any of the following: (i) the institution; (ii) an operating entity within the
consolidation pursuant to Chapter 2 of Title II of Part One; (iii) the parent institution; (iv) the parent financial holding company; (v) the mixed activity holding company. Article 61
Amortisation of Tier 2 instruments The
extent to which Tier 2 instruments qualify as Tier 2 items during the final 5
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: (a)
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; (b)
the number of remaining calendar days of contractual
maturity of the instruments or subordinated loans. Article 62
Consequences of the conditions for Tier 2 instruments ceasing to be met Where
in the case of a Tier 2 instrument the conditions laid down in Article 60 cease
to be met, the following shall apply: (a)
that instrument shall cease to qualify as a Tier
2 instrument; (b)
the part of the share premium accounts that
relate to that instrument shall cease to qualify as Tier 2 items. Section 2
Deductions from Tier 2 items Article 63
Deductions from Tier 2 items The following shall be deducted from Tier 2
items: (a)
direct and indirect 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; (b)
holdings of the Tier 2 instruments of relevant
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; (c)
the applicable amount determined in accordance
with Article 67 of direct and indirect holdings of the Tier 2 instruments of
relevant entities, where an institution does not have a significant investment
in those entities; (d)
direct and indirect holdings by the institution
of the Tier 2 instruments of relevant entities where the institution has a
significant investment in those entities, excluding underwriting positions held
for fewer than 5 working days. Article 64
Deductions of holdings of own Tier 2 instruments and subordinated loans For
the purposes of point (a) of Article 63, institutions shall calculate holdings
on the basis of the gross long positions subject to the following exceptions: (a)
institutions may calculate the amount of
holdings in the trading book on the basis of the net long position provided the
long and short positions are in the same underlying exposure and the short
positions involve no counterparty risk; (b)
institutions shall determine the amount to be
deducted for indirect holdings in the trading book that take the form of
holdings of index securities by calculating the underlying exposure to own Tier
2 instruments in the indices; (c)
institutions may net gross long positions in own
Tier 2 instruments in the trading book 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. Article 65
Deduction of holdings of Tier 2 instruments and subordinated loans of relevant
entities and where an institution has a reciprocal cross holding designed
artificially to inflate own funds Institutions shall make the deductions
required by points (b), (c) and (d) of Article 63 in accordance with the
following provisions: (a)
holdings of Tier 2 instruments, including
subordinated loans, shall be calculated on the basis of the gross long
positions; (b)
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. Article 66
Deduction of holdings of Tier 2 instruments and subordinated loans of relevant
entities Institutions
shall make the deductions required by points (c) and (d) of Article 63 in
accordance with the following: (a)
they may calculate holdings in the trading book
of the capital instruments of relevant entities on the basis of the net long
position in the same underlying exposure provided the maturity of the short
position matches the maturity of the long position or has a residual maturity
of at least one year; (b)
they shall determine the amount to be deducted
for indirect holdings in the trading book of the capital instruments of
relevant entities that take the form of holdings of index securities by looking
through to the underlying exposure to the capital instruments of the relevant
entities in the indices. Article 67
Deduction of Tier 2 instruments where an institution does not have a
significant investment in a relevant entity 1.
For the purposes of point (c) of Article 63,
institutions shall calculate the applicable amount to be deducted by
multiplying the amount referred to in point (a) by the factor derived from the
calculation referred to in point (b): (a)
the aggregate amount by which the direct and
indirect holdings by the institution of the Common Equity Tier 1, Additional
Tier 1 and Tier 2 instruments of relevant entities exceeds 10% of the Common
Equity Tier 1 items of the institution calculated after applying the following: (i) Article 29 to 32; (ii) points (a) to (g) and (j) to (l) of
Article 33(1), excluding the amount to be deducted for deferred tax assets that
rely on future profitability and arise from temporary differences; (iii) Articles 41 and 42; (b)
the amount of direct and indirect holdings by
the institution of the Tier 2 instruments of relevant entities divided by the
aggregate amount of all direct and indirect holdings by the institution of the
Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those
relevant entities. 2.
Institutions shall exclude underwriting
positions held for 5 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. 3.
Institutions shall determine the portion of
holdings of Tier 2 instruments that is deducted by dividing the amount
specified in point (a) by the amount specified in point (b): (a)
the total amount of holdings required to be
deducted pursuant to paragraph 1; (b)
aggregate amount of direct and indirect holdings
by the institution of the own funds instruments of relevant entities in which
the institution does not have a significant investment. Section 3
Tier 2 capital Article 68
Tier 2 capital The
Tier 2 capital of an institution shall consist of the Tier 2 items of the
institution after the deductions referred to in Article 63 and the application
of Article 74. Chapter 5
Own funds Article 69
Own funds The
own funds of an institution shall consist of the sum of its Tier 1 capital and
Tier 2 capital. Chapter 6
General requirements Article 70
Holding of capital instruments of regulated entities that do not qualify as
regulatory capital Institutions
shall not deduct from any element of own funds holdings of a regulated
financial entity within the meaning of paragraph 2 of Article 137(4) that do
not qualify as regulatory capital of that entity. Institutions shall apply a
risk weight to such holdings in accordance with Chapter 2 or 3 of Title II of
Part Three, as applicable. Article 71
Indirect holdings arsing from index holdings 1.
As an alternative to an institution calculating its
exposure to Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of
relevant entities included in indices, where the competent authority has given
its prior consent an institution may use a conservative estimate of the
underlying exposure of the institution to the Common Equity Tier 1, Additional
Tier 1 and Tier 2 instruments of relevant entities that are included in the
indices. 2.
A competent authority shall give its consent
only where the institution has demonstrated to the satisfaction of the
competent authority that it would be operationally burdensome for the
institution to monitor its underlying exposure to the Common Equity Tier 1,
Additional Tier 1 and Tier 2 instruments of those relevant entities included in
the indices. 3.
EBA shall develop draft regulatory technical
standards to specify: (a)
the extent of conservatism required in estimates
used as an alternative to the calculation of underlying exposure referred to in
paragraph 1; (b)
the meaning of operationally burdensome for the
purposes of paragraph 2. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 72
Conditions for reducing own funds An
institution shall require the prior consent of the competent authority to do
the following: (a)
reduce or repurchase Common Equity Tier 1
instruments issued by the institution in a manner that is permitted under
applicable national law; (b)
effect the call, redemption or repurchase of
Additional Tier 1 instruments or Tier 2 instruments prior to the date of their
contractual maturity. Article 73
Supervisory consent for reducing own funds 1.
The competent authority shall grant consent for
an institution to reduce, repurchase, call or redeem Common Equity Tier 1,
Additional Tier 1 or Tier 2 instruments where any of the following conditions
is met: (a)
earlier than or at the same time as the action
referred to in Article 13, the institution replaces the instruments referred to
in Article 72 with own funds instruments of equal or higher quality at terms
that are sustainable for the income capacity of the institution; (b)
the institution has demonstrated to the
satisfaction of the competent authority that the own funds of the institution
would, following the action in question, exceed the requirements laid down in
Article 87(1) by a margin that the competent authority considers to be significant
and appropriate and the competent authority considers the financial situation
of the institution otherwise to be sound. 2.
Where an institution takes an action referred to
in point (a) of Article 72 and the refusal of redemption of Common Equity Tier
1 instruments referred to in Article 25 is prohibited by applicable national
law, the competent authority may waive the conditions laid down in paragraph 1
of this Article provided the competent authority requires the institution to
limit the redemption of such instruments on an appropriate basis. 3.
EBA shall adopt draft regulatory technical
standards to specify the following: (a)
the meaning of sustainable for the income
capacity of the institution; (b)
the appropriate bases of limitation of
redemption referred to in paragraph 2; (c)
the process and data requirements for an
application by an institution for the consent of the competent authority to
carry out an action listed in Article 72, including the time period for
processing such application. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 74
Temporary waiver from deduction from own funds 1.
Where an institution holds shares that qualify
as Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments in a relevant
entity temporarily and the competent authority deems those holdings to be for
the purposes of a financial assistance operation designed to reorganise and
save that entity, the competent authority may waive on a temporary basis the provisions
on deduction that would otherwise apply to those instruments. 2.
EBA shall develop draft regulatory technical
standards to specify the concept of temporary for the purposes of paragraph 1
and the conditions according to which a competent authority may deem the
temporary holdings referred to be for the purposes of a financial assistance
operation designed to reorganise and save a relevant entity. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 75
Continuing review of quality of own funds 1.
EBA shall monitor the quality of own funds
instruments issued by institutions across the Union and shall notify the
Commission immediately where there is significant evidence of material
deterioration in the quality of those instruments. 2.
A notification shall include the following: (a)
a detailed explanation of the nature and extent
of the deterioration identified; (b)
technical advice on the action by the Commission
that EBA considers to be necessary. 3.
EBA shall provide technical advice to the
Commission on any significant changes it considers to be required to the
definition of own funds as a result of any of the following: (a)
relevant developments in market standards or
practice; (b)
changes in relevant legal or accounting
standards; (c)
significant developments in the methodology of
EBA for stress testing the solvency of institutions. 4.
EBA shall provide technical advice to the
Commission by 31 December 2013 on possible treatments of unrealised gains
measured at fair value other than including them in Common Equity Tier 1 without
adjustment. Such recommendations shall take into account relevant developments
in international accounting standards and in international agreements on
prudential standards for banks. Title III
Minority interest and Additional Tier 1 and Tier 2 instruments issued by
subsidiaries Article 76
Minority interests that qualify for inclusion in consolidated Common Equity
Tier 1 capital 1.
Minority interests shall comprise the Common
Equity Tier 1 instruments, plus the related retained earnings and share premium
accounts, of a subsidiary where the following conditions are met: (a)
the subsidiary is one of the following: (i) an institution; (ii) an undertaking that is subject by
virtue of applicable national law to the requirements of this Regulation and
Directive [inserted by OP], (c)
the subsidiary is included fully in the
consolidation pursuant to Chapter 2 of Title II of Part One; (d)
those Common Equity Tier 1 instruments are owned
by persons other than the undertakings included in the consolidation pursuant
to Chapter 2 of Title II of Part One. 2.
Minority interests that are funded directly or
indirectly, through a special purpose entity or otherwise, by the parent
institution, parent financial holding company, mixed activity holding company
or their subsidiaries shall not qualify as consolidated Common Equity Tier 1
capital. Article 77
Qualifying Additional Tier 1, Tier 1, Tier 2 capital and qualifying own funds Qualifying Additional Tier 1, Tier 1, Tier
2 capital and qualifying own funds shall comprise the minority interest,
Additional Tier 1, Tier 1 or Tier 2 instruments, as applicable, plus the
related retained earnings and share premium accounts, of a subsidiary where the
following conditions are met: (a)
the subsidiary is either of the following: (i) an institution; (ii) an undertaking that is subject by
virtue of applicable national law to the requirements of this Regulation and
Directive [inserted by OP]; (b)
the subsidiary is included fully in the scope of
consolidation pursuant to Chapter 2 of Title II of Part One; (c)
those instruments are owned by persons other
than the undertakings included in the consolidation pursuant to Chapter 2 of
Title II of Part One. Article 78
Qualifying Additional Tier 1and Tier 2 capital issued by a special purpose
entity 1.
Additional Tier 1 and Tier 2 instruments issued
by special purpose entity, and the related retained earnings and share premium
accounts, are included in qualifying Additional Tier 1, Tier 1 or Tier 2
capital or qualifying own funds, as applicable, only where the following conditions
are met: (a)
the special purpose entity issuing those
instruments is included fully in the consolidation pursuant to Chapter 2 of
Title II of Part One; (b)
the instruments, and the related retained
earnings and share premium accounts, are included in qualifying Additional Tier
1 capital only where the conditions laid down in Article 49(1) are satisfied; (c)
the instruments, and the related retained
earnings and share premium accounts, are included in qualifying Tier 2 capital
only where the conditions laid down in Article 60 are satisfied; (d)
the only asset of the special purpose entity is
its investment in the own funds of that subsidiary, the form of which satisfies
the relevant conditions laid down in Articles 49(1) or 60, as applicable. Where the competent authority considers the
assets of a special purpose entity to be minimal and insignificant for such an
entity, the competent authority may waive the condition specified in point (d). 2.
EBA shall develop draft regulatory technical
standards to specify the concepts of minimal and insignificant referred to in
point (d) of paragraph 1. EBA shall submit
those draft regulatory technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 79
Minority interests included in consolidated Common Equity Tier 1 capital Institutions
shall determine the amount of minority interests of a subsidiary that is
included in consolidated Common Equity Tier 1 capital by subtracting from the
minority interests of that undertaking the result of multiplying the amount
referred to in point (a) by the percentage referred to in point (b): (a)
the Common Equity Tier 1 capital of the
subsidiary minus the lower of the following: (i) the amount of Common Equity Tier 1
capital of that subsidiary required to meet the sum of the requirement laid
down in point (a) of Article 87(1) and the combined buffer referred to in
Article 122(2) of Directive [inserted by OP]; (ii) the amount of consolidated Common
Equity Tier 1 capital that relates to that subsidiary that is required on a
consolidated basis to meet the sum of the requirement laid down in point (a) of
Article 87(1) and the combined buffer referred to in Article 122(2) of
Directive [inserted by OP]; (b)
the minority interests of the subsidiary
expressed as a percentage of all Common Equity Tier 1 instruments of that
undertaking plus the related retained earnings and share premium accounts. Article 80
Qualifying Tier 1 instruments included in consolidated Tier 1 capital Institutions
shall determine the amount of qualifying Tier 1 capital of a subsidiary that is
included in consolidated Tier 1 capital by subtracting from the qualifying Tier
1 capital of that undertaking the result of multiplying the amount referred to
in point (a) by the percentage referred to in point (b). (a)
the lower of the following: (i) the amount of Tier 1 capital of the subsidiary
required to meet the sum of the requirement laid down in point (b) of Article 87(1)
and the combined buffer referred to in Article 122(2)of Directive [inserted by
OP]; (ii) the amount of consolidated Tier 1
capital that relates to the subsidiary that is required on a consolidated basis
to meet the sum of the requirement laid down in point (b) of Article 87(1) and
the combined buffer referred to in Article 122(2)of Directive [inserted by OP];
(b)
the qualifying Tier 1 capital of the subsidiary
expressed as a percentage of all Tier 1 instruments of that undertaking plus
the related retained earnings and share premium accounts Article 81
Qualifying Tier 1 capital included in consolidated Additional Tier 1 capital Institutions
shall determine the amount of qualifying Tier 1 capital of a subsidiary that is
included in consolidated Additional Tier 1 capital by subtracting from the
qualifying Tier 1 capital of that undertaking included in consolidated Tier 1
capital the minority interests of that undertaking that are included in
consolidated Common Equity Tier 1 capital. Article 82
Qualifying own funds included in consolidated own funds Institutions
shall determine the amount of qualifying own funds of a subsidiary that is
included in consolidated own funds by subtracting from the qualifying own funds
of that undertaking the result of multiplying the amount referred to in point
(a) by the percentage referred to in point (b): (a)
the lower of the following: (i) the amount of own funds of the subsidiary
required to meet the sum of the requirement laid down in point (c) of Article 87(1)
and the combined buffer referred to in Article 122(2) of Directive [inserted by
OP]; (ii) the amount of own funds that relates
to the subsidiary that is required on a consolidated basis to meet the sum of
the requirement laid down in point (c) of Article 87(1) and the combined buffer
referred to in Article 122(2)of Directive [inserted by OP]; (b)
the qualifying own funds of the undertaking,
expressed as a percentage of all own funds instruments of the subsidiary that
are included in Common Equity Tier 1, Additional Tier 1 and Tier 2 items and
the related retained earnings and share premium accounts Article 83
Qualifying own funds instruments included in consolidated Tier 2 capital Institutions
shall determine the amount of qualifying own funds of a subsidiary that is
included in consolidated Tier 2 capital by subtracting from the qualifying own
funds of that undertaking that are included in consolidated own funds the
qualifying Tier 1 capital of that undertaking that is included in consolidated
Tier 1 capital. Title IV
Qualifying holdings outside the financial sector Article 84
Risk weighting and prohibition of qualifying holdings outside the financial
sector 1.
A qualifying holding, the amount of which
exceeds 15 % of the eligible capital of the institution, in an undertaking
which is not one of the following shall be subject to the provisions laid down
in paragraph 3: (a)
a relevant entity; (b)
an undertaking, that is not a relevant entity,
carrying on activities which the competent authority considers to be the
following: (i) a direct extension of banking; or (ii) ancillary to banking, (iii) leasing, factoring, the management
of unit trusts, the management of data processing services or any other similar
activity. 2.
The total amount of the qualifying holdings of
an institution in undertakings other than those referred to in (a) and (b) of paragraph
1 that exceeds 60 % of its eligible capital shall be subject to the provisions
laid down in paragraph 3. 3.
Competent authorities shall apply the
requirements laid down in point (a) or (b) to qualifying holdings of
institutions referred to in paragraphs 1 and 2: (a)
institutions shall apply a risk weight of 1 250
% to the following: (i) the amount of qualifying holdings
referred to in paragraph 1 in excess of 15 % of eligible capital; (ii) the total amount of qualifying
holdings referred to in paragraph 2 that exceed 60 % of the eligible capital of
the institution; (b)
the competent authorities shall prohibit
institutions from having qualifying holdings referred to in paragraphs 1 and 2
the amount of which exceeds the percentages of eligible capital laid down in
those paragraphs. 4.
EBA shall develop draft regulatory technical
standards to specify: (a)
activities that are a direct extension of
banking; (b)
activities that concern services ancillary to
banking; (c)
similar activities for the purposes of point
(b)(iii) of paragraph 1. EBA shall submit
those draft regulatory technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 85
Alternative to 1 250 % risk weight As an alternative to applying a 1 250 %
risk weight to the amounts in excess of the limits specified in paragraphs 1
and 2 of Article 84, institutions may deduct those amounts from Common Equity
Tier 1 items in accordance with point (k) of Article 33(1). Article 86
Exceptions 1.
Shares of undertakings not referred to in points
(a) and (b) of paragraph 1 shall not be included in calculating the eligible
capital limits specified in Article 84 where any of the following conditions is
met: (a) those shares are held temporarily
during a financial reconstruction or rescue operation, (b) the holding of the shares is an
underwriting position held for 5 working days or fewer; (c) those shares are held the own name of
the institution and on behalf of others. 2.
Shares which are not financial fixed assets as
defined in Article 35(2) of Directive 86/635/EEC shall not be included in the
calculation specified in Article 84. PART THREE
CAPITAL REQUIREMENTS Title I
General Requirements, valuation and reporting Chapter 1
Required level of own funds Section 1
Own funds requirements for institutions Article 87
Own funds requirements 1.
Subject to Articles 88 and 89, institutions
shall at all times satisfy the following own funds requirements: (a)
a Common Equity Tier 1 capital ratio of 4.5 %; (b)
a Tier 1 capital ratio of 6 %; (c)
a total capital ratio of 8 %. 2.
Institutions shall calculate their capital
ratios as follows: (a)
the Common Equity Tier 1 capital ratio is the
Common Equity Tier 1 capital of the institution expressed as a percentage of the
total risk exposure amount; (b)
the Tier 1 capital ratio is the Tier 1 capital
of the institution expressed as a percentage of the total risk exposure amount; (c)
the total capital ratio is the own funds of the
institution expressed as a percentage of the total risk exposure amount. 3.
Total risk exposure amount shall be calculated
as the sum of the following points (a) to (f) after taking into account the
provisions laid down in paragraph 4: (a)
the risk weighted exposure amounts for credit
risk and dilution risk, calculated in accordance with Title II of Part Three,
in respect of all the business activities of an institution, excluding risk
weighted exposure amounts from the trading book business of the institution; (b)
the own funds requirements, determined in
accordance with Title IV of Part Three or Part Four, as applicable, for the
trading-book business of an institution, for the following: (i) position risk; (ii) large exposures exceeding the limits
specified in Articles 384 to 390, to the extent an institution is permitted to
exceed those limits; (c)
the own funds requirements determined in
accordance with Title IV of Part Three or Title V of Part Three, as applicable,
for the following: (i) foreign-exchange risk; (ii) settlement risk; (iii) commodities risk; (d)
the own funds requirements calculated in
accordance with Title VI for credit valuation adjustment risk of OTC derivative
instruments other than credit derivatives recognised to reduce risk-weighted
exposure amounts for credit risk; (e)
the own funds requirements determined in
accordance with Title III of Part Three for operational risk; (f)
the risk weighted exposure amounts determined in
accordance with Title II of Part Three for counterparty risk arising from the
trading book business of the institution for the following types of
transactions and agreements: (i) OTC derivative instruments and credit
derivatives; (ii) repurchase transactions, securities
or commodities lending or borrowing transactions based on securities or
commodities; (iii) margin lending transactions based on
securities or commodities; (iv) long settlement transactions. 4.
The following provisions shall apply in the
calculation of the total exposure amount referred to in paragraph 3: (a) the own funds requirements referred to
in points (c) to (e) of that paragraph shall include those arising from all the
business activities of an institution; (b) institutions shall multiply the own
funds requirements set out in points (b) to (e) of that paragraph by 12.5. Article 88
Initial capital requirement on going concern 1.
The own funds of an institution may not fall
below the amount of initial capital required at the time of its authorisation. 2.
Institutions that were already in existence on 1
January 1993, the own funds of which do not attain the amount of initial
capital required may continue to carry on their activities. In that event, the
own funds of those institutions may not fall below the highest level reached
with effect from 22 December 1989. 3.
Where control of an institution falling within
the category referred to in paragraph 2 is taken by a natural or legal person
other than the person who controlled the institution previously, the own funds
of that institution shall attain the amount of initial capital required. 4.
Where there is a merger of two or more
institutions falling within the category referred to in paragraph 2, the own
funds of the institution resulting from the merger shall not fall below the
total own funds of the merged institutions at the time of the merger, as long
as the amount of initial capital required has not been attained. 5.
Where competent authorities consider it
necessary to ensure the solvency of an institution that the requirement laid
down in paragraph 1 is met, the provisions laid down in paragraphs 2 to 4 shall
not apply. Article 89
Derogation for small trading book business 1.
Institutions may replace the capital requirement
referred to in point (b) of paragraph 3 of Article 87 by a capital requirement
calculated in accordance with point (a) of that paragraph in respect of their
trading-book business, provided that the size of their on- and
off-balance-sheet trading-book business meets the following conditions: (a)
is normally less than 5% of the total assets and
€15 million; (b)
never exceeds 6% of total assets and €20
million. 2.
In calculating the size of on- and
off-balance-sheet business, debt instruments shall be valued at their market
prices or their nominal values, equities at their market prices and derivatives
according to the nominal or market values of the instruments underlying them.
Long positions and short positions shall be summed regardless of their signs. 3.
Where an institution fails to meet the condition
in point (b) of paragraph 1 it shall immediately notify the competent
authority. If, following assessment by the competent authority, the competent
authority determines and notifies the institution that the requirement in point
(a) of paragraph 1 is not met, the institution shall cease to make use of
paragraph 1 from the next reporting date. section 2
Own funds requirements for investment firms with limited
authorisation to provide investment services Article 90
Own funds requirements for investment firms with limited authorisation to
provide investment services 1.
For the purposes of Article 87(3), investment
firms that are not authorised to provide the investment services listed in
points 3 and 6 of Section A of Annex I to
Directive 2004/39/EC shall use the calculation of the total risk exposure
amount specified in paragraph 2. 2.
Investment firms referred to in paragraph 1
shall calculate the total risk exposure amount as the higher of the following: (a)
the sum of the items referred to in
points (a) to (d) and (f) of Article 87(3) after applying paragraph 87(4);
(b)
12.5 multiplied by the amount specified in
Article 92. 3.
Investment firms referred to in paragraph 1 are
subject to all other provisions regarding operational risk laid down in Title
VII, Chapter 3, section II, Sub-section 1 of Directive [inserted by OP]. Article 91
Own funds requirements for investment firms which hold initial capital as laid
down in Article 29 of Directive [inserted by OP] 1.
For the purposes of Article 87(3), the following
categories of investment firm which hold initial capital in accordance with
Article 29 of Directive [inserted by OP] shall use the calculation of the total
risk exposure amount specified in paragraph 2: (a)
investment firms that deal on own account only
for the purpose of fulfilling or executing a client order or for the purpose of
gaining entrance to a clearing and settlement system or a recognised exchange
when acting in an agency capacity or executing a client order; (b)
investment firms that do not hold client money
or securities; (c)
investment firms that undertake only dealing on
own account; (d)
investment firms that have no external
customers; (e)
investment firms for which the execution and
settlement whose transactions takes place under the responsibility of a
clearing institution and are guaranteed by that clearing institution. 2.
For investment firms referred to in paragraph 1,
total risk exposure amount shall be calculated as the sum of the following: (a)
points (a) to (d) and (f) of Article 87(3) after
applying paragraph 87(4); (b)
the amount referred to in Article 92 multiplied
by 12.5. 3.
Investment firms referred to in paragraph 1 are
subject to all other provisions regarding operational risk laid down in Title
VII, Chapter 3, Section 2, Sub-section 1 of Directive [inserted by OP]. Article 92
Own Funds based on Fixed Overheads 1.
In accordance with Article 90 and 91, an
investment firm shall hold eligible capital of at least one quarter of the
fixed overheads of the investment firm for the preceding year. 2.
Where there is a change in the business of an
investment firm since the preceding year that the competent authority considers
to be material, the competent authority may adjust the requirement laid down in
paragraph 1. 3.
Where an investment firm has not completed
business for one year, starting from the day it starts up, an investment firm
shall hold eligible capital of at least one quarter of the fixed overheads
projected in its business plan, except where the competent authority requires
the business plan to be adjusted. 4.
EBA shall develop draft regulatory technical
standards to specify in greater detail the following: (a)
the calculation of the requirement to hold
eligible capital of at least one quarter of the fixed overheads of the previous
year; (b)
the conditions for the adjustment by the competent
authority of the requirement to hold eligible capital of at least one quarter
of the fixed overheads of the previous year; (c)
the calculation of projected fixed overheads in
the case of an investment firm that has not completed business for one year. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 93
Own funds for investment firms on a consolidated basis 1.
In the case of the investment firms referred to
in Article 90(1) in a group, where that group does not include credit
institutions, a parent investment firm in a Member State shall apply Article 87
at a consolidated level as follows: (a)
using the calculation of total risk exposure
amount specified in Article 90(2); (b)
own funds calculated on the basis of the
consolidated financial situation of the parent investment firm. 2.
In the case of investment firms referred to in
Article 91(1) in a group, where that group does not include credit
institutions, an investment firm controlled by a financial holding company
shall apply Article 87 at a consolidated level as follows: (a)
it shall use the calculation of total risk
exposure amount specified in Article 91(2); (b)
own funds calculated on the basis of the
consolidated financial situation of the parent investment firm. Chapter 2
Calculation and reporting requirements Article 94
Valuation The valuation of assets and
off-balance-sheet items shall be effected in accordance with the accounting
framework to which the institution is subject under Regulation (EC) No
1606/2002 and Directive 86/635/EEC. Article 95
Reporting on own funds requirements 1.
Institutions that calculate own funds
requirements for position risk shall report these own funds requirements at
least every 3 months. This reporting shall include financial information drawn up in accordance with the accounting
framework to which the institution is subject under Regulation (EC) No
1606/2002 and Directive 86/635/EEC to the extent this is necessary to obtain a
comprehensive view of the risk profile of an institution's activities. Reporting by institutions on the obligations laid
down in 87 shall be carried out at least twice each year. Institutions shall communicate the results and
any component data required to the competent authorities. 2.
EBA shall develop draft implementing technical
standards to specify the uniform formats, frequencies and dates of reporting and
the IT solutions to be applied in the Union for such reporting. The reporting
formats shall be proportionate to the nature, scale and complexity of the
activities of the institutions. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the implementing standards referred to in the first sub-paragraph in accordance
with the procedure laid down in Article 15 of Regulation (EU) No 1093/2010. Article 96
Specific reporting obligations 1.
Institutions shall report the following data to
the competent authorities: (a)
losses stemming from lending collateralised, up
to 80% of the market value or 80% of the mortgage lending value in any given
year unless otherwise decided under Article 119(2), by residential property; (b)
overall losses stemming from lending
collateralised by residential property in any given year; (c)
losses stemming from lending collateralised, up
to 50% of the market value or 60% of the mortgage lending value in any given
year unless otherwise decided under Article 119(2), by commercial immovable
property; (d)
overall losses stemming from lending
collateralised by commercial immovable property in any given year. 2.
The competent authorities shall publish annually
on an aggregated basis the data specified in points (a) to (d) of paragraph 1,
together with historical data, where available. A competent authority shall,
upon the request of another competent authority in a Member State or the EBA
provide to that competent authority or the EBA more detailed information on the
condition of the residential or commercial immovable property markets in that
Member State. 3.
EBA shall develop draft implementing technical
standards to specify the following: (a)
uniform formats, frequencies and dates of
reporting of the items referred to in paragraph 1; (b)
uniform formats, frequencies and dates of
publication of the aggregate data referred to in paragraph 2. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2013. Power is delegated to
the Commission to adopt the implementing technical standards referred to in the
first sub-paragraph in accordance with the procedure laid down in Article 15 of
Regulation (EU) No 1093/2010. Chapter 3
Trading book Article 97
Requirements for the Trading Book 1.
Positions in the trading book shall be either free of restrictions on their tradability or able to be
hedged. 2.
Trading intent shall be evidenced on the basis
of the strategies, policies and procedures set up by the institution to manage
the position or portfolio in accordance with Article 98. 3.
Institutions shall establish and maintain
systems and controls to manage their trading book in accordance with Articles 99
and 100. 4.
Institutions may include internal hedges in the
calculation of capital requirements for position risk provided that they are
held with trading intent and that the requirements of Articles 98 to 101 are
met. Article 98
Management of the trading book In managing its positions or sets of
positions in the trading book the institution shall comply with all of the
following requirements: (a)
the institution shall have in place a clearly
documented trading strategy for the position/instrument or portfolios, approved
by senior management, which shall include the expected holding period; (b)
the institution shall have in place clearly
defined policies and procedures for the active management of positions entered
into on a trading desk. Those policies and procedures shall include the
following: (i) which positions may be entered into
by which trading desk; (ii) position limits are set and monitored
for appropriateness; (iii) dealers have the autonomy to enter
into and manage the position within agreed limits and according to the approved
strategy; (iv) positions are reported to senior
management as an integral part of the institution's risk management process; (v) positions are actively monitored with
reference to market information sources and an assessment made of the marketability
or hedge-ability of the position or its component risks, including the
assessment, the quality and availability of market inputs to the valuation
process, level of market turnover, sizes of positions traded in the market; (c)
the institution shall have in place clearly
defined policies and procedures to monitor the positions against the
institution's trading strategy including the monitoring of turnover and
positions for which the originally intended holding period has been exceeded. Article 99
Inclusion in the Trading Book 1.
Institutions shall have in place clearly defined
policies and procedures for determining which position to include in the
trading book for the purposes of calculating their capital requirements, in
accordance with the requirements set out in Article T1 and the definition
of trading book in accordance with Article 4, taking into account the
institution's risk management capabilities and practices. The institution shall
fully document its compliance with these policies and procedures and shall
subject them to periodic internal audit. 2.
Institutions shall have in place clearly defined
policies and procedures for the overall management of the trading book. These
policies and procedures shall at least address: (a)
the activities the institution considers to be
trading and as constituting part of the trading book for own funds requirement
purposes; (b)
the extent to which a position can be
marked-to-market daily by reference to an active, liquid two-way market; (c)
for positions that are marked-to-model, the
extent to which the institution can: (i) identify all material risks of the
position; (ii) hedge all material risks of the
position with instruments for which an active, liquid two-way market exists; (iii) derive reliable estimates for the
key assumptions and parameters used in the model; (d)
the extent to which the institution can, and is
required to, generate valuations for the position that can be validated
externally in a consistent manner; (e)
the extent to which legal restrictions or other
operational requirements would impede the institution's ability to effect a
liquidation or hedge of the position in the short term; (f)
the extent to which the institution can, and is
required to, actively manage the risks of positions within its trading
operation; (g)
the extent to which the institution may transfer
risk or positions between the non-trading and trading books and the criteria
for such transfers. Article 100
Requirements for Prudent Valuation 1.
All trading book positions shall be subject to
the standards for prudent valuation specified in this Article. Institutions shall in particular ensure that
the prudent valuation of their
trading book positions achieves an appropriate degree of certainty having
regard to the dynamic nature of trading book positions, the demands of
prudential soundness and the mode of operation and purpose of capital
requirements in respect of trading book positions. 2.
Institutions shall
establish and maintain systems and controls sufficient to provide prudent and
reliable valuation estimates. Those systems and controls shall include at least the following elements: (a)
documented policies and procedures for the
process of valuation, including clearly defined responsibilities of the various
areas involved in the determination of the valuation, sources of market
information and review of their appropriateness, guidelines for the use of
unobservable inputs reflecting the institution's assumptions of what market
participants would use in pricing the position, frequency of independent
valuation, timing of closing prices, procedures for adjusting valuations, month
end and ad-hoc verification procedures; (b)
reporting lines for the department accountable
for the valuation process that are clear and independent of the front office. The reporting line shall ultimately be to a
member of the management body. 3.
Institutions shall revalue trading book
positions at least daily. 4.
Institutions shall mark their positions to
market whenever possible, including when applying trading book capital
treatment. 5.
When marking to market, an institution shall use
the more prudent side of bid and offer unless the institution is a significant market maker in the particular type of financial
instrument or commodity in question and it can close out at mid market. 6.
Where marking to market is not possible, institutions shall
conservatively mark to model their positions and
portfolios, including when
calculating own funds requirements for positions in the trading book. 7.
Institutions shall comply with the following
requirements when marking to model: (a)
senior management shall be aware of the elements
of the trading book or of other fair-valued positions which are subject to mark
to model and shall understand the materiality of the uncertainty thereby
created in the reporting of the risk/performance of the business; (b)
institutions shall source market inputs, where
possible, in line with market prices, and shall assess the appropriateness of
the market inputs of the particular position being valued and the parameters of
the model on a frequent basis; (c)
where available, institutions shall use
valuation methodologies which are accepted market practice for particular
financial instruments or commodities; (d)
where the model is developed by the institution
itself, it shall be based on appropriate assumptions, which have been assessed
and challenged by suitably qualified parties independent of the development
process; (e)
institutions shall have in place formal change
control procedures and shall hold a secure copy of the model and use it
periodically to check valuations; (f)
risk management shall be aware of the weaknesses
of the models used and how best to reflect those in the valuation output; and (g)
institutions shall be subject to periodic review
to determine the accuracy of its performance, which shall include assessing the
continued appropriateness of assumptions, analysis of profit and loss versus
risk factors, and comparison of actual close out values to model outputs. For the purposes of point (d), the model shall
be developed or approved independently of the trading desk and shall be
independently tested, including validation of the mathematics, assumptions and
software implementation. 8.
Institutions shall perform independent price
verification in addition to daily marking to market or marking to model. Verification of market prices and model
inputs shall be performed by a person or unit independent from persons or units that benefit from the trading book, at least monthly, or more frequently depending on the nature of
the market or trading activity. Where independent pricing sources are not
available or pricing sources are more subjective, prudent measures such as
valuation adjustments may be appropriate. 9.
Institutions shall
establish and maintain procedures for considering valuation adjustments. 10.
Institutions shall formally consider the following valuation adjustments unearned credit spreads,
close-out costs, operational risks, early termination, investing and funding
costs, future administrative costs and, where relevant, model risk. 11.
Institutions shall establish and maintain procedures
for calculating an adjustment to the current valuation of any less liquid positions, which can in particular arise from market events or
institution-related situations such as concentrated positions and/or positions
for which the originally intended holding period has been exceeded.
Institutions shall, where necessary, make such
adjustments in addition to any changes to the value of the position required
for financial reporting purposes and shall design such adjustments to reflect
the illiquidity of the position. Under those procedures, institutions shall
consider several factors when determining whether a valuation adjustment is
necessary for less liquid positions. Those factors include the following: (a)
the amount of time it would take to hedge out the
position or the risks within the position; (b)
the volatility and average of bid/offer spreads; (c)
the availability of market quotes (number and
identity of market makers) and the volatility and average of trading volumes
including trading volumes during periods of market stress; (d)
market concentrations; (e)
the aging of positions; (f)
the extent to which valuation relies on
marking-to-model; (g)
the impact of other model risks. 12.
When using third party valuations or marking to
model, institutions shall consider whether to apply a valuation adjustment. In
addition, institutions shall consider the need for establishing adjustments for
less liquid positions and on an ongoing basis review their continued
suitability. 13.
With regard to complex products, including
securitisation exposures and n-th-to-default credit derivatives, institutions
shall explicitly assess the need for valuation adjustments to reflect the model
risk associated with using a possibly incorrect valuation methodology and the
model risk associated with using unobservable (and possibly incorrect)
calibration parameters in the valuation model. Article 101
Internal Hedges 1.
An internal hedge shall
in particular meet the following requirements: (a)
it shall not be primarily intended to avoid or
reduce own funds requirements; (b)
it shall be properly documented and subject to
particular internal approval and audit procedures; (c)
it shall be dealt with at market conditions; (d)
the market risk that is generated by the
internal hedge shall be dynamically managed in the trading book within the
authorised limits; (e)
it shall be carefully monitored. Monitoring shall be ensured by adequate
procedures. 2.
The requirements of paragraph 1 apply
without prejudice to the requirements applicable to the hedged position in the
non-trading book. 3.
By way of derogation from paragraphs 1 and 2,
when an institution hedges a non-trading book credit risk exposure or
counterparty risk exposure using a credit derivative booked in its trading book
using an internal hedge, the non-trading book or counterparty risk exposure
shall not be deemed to be hedged for the purposes of calculating risk weighted
exposure amounts unless the institution purchases from an eligible third party
protection provider a corresponding credit derivative meeting the requirements
for unfunded credit protection in the non-trading book. Without prejudice to
point (i) of Article 293, where such third party protection is purchased and
recognised as a hedge of a non-trading book exposure for the purposes of
calculating capital requirements, neither the internal nor external credit
derivative hedge shall be included in the trading book for the purposes of
calculating capital requirements. Title II
Capital requirements for credit risk Chapter 1
General principles Article 102
Approaches to credit risk Institutions shall apply either the
Standardised Approach provided for in Chapter 2 or, if permitted by the
competent authorities in accordance with Article 138, the Internal Ratings
Based Approach provided for in Chapter 3 to calculate their risk-weighted exposure
amounts for the purposes of points (a) and (f) of Article 87(3). Article 103
Use of credit risk mitigation technique under the Standardised Approach and the
IRB Approach 1.
For an exposure to which an institution applies the Standardised Approach under Chapter 2 or applies the IRB Approach under Chapter 3 but
without using its own estimates
of LGD and conversion factors under Article 146, the
institution may use credit risk mitigation in accordance with Chapter 4 in the
calculation of risk-weighted exposure amounts for the purposes of points (a)
and (f) of Article 87(3) or, as relevant, expected loss amounts for the
purposes of the calculation referred to in point (d) of Article 33(1) and point (c) of Article 59. 2.
For an exposure to which an institution applies
the IRB Approach by using their own estimates of LGD and conversion factors
under Articles 146, the institution may use credit risk mitigation in
accordance with Chapter 3. Article 104
Treatment of securitised exposures under the Standardised Approach and the IRB
Approach 1.
Where an institution uses the Standardised Approach under Chapter 2 for the calculation
of risk-weighted exposure amounts for the exposure class to which the
securitised exposures would be assigned under Article107, it shall calculate
the risk-weighted exposure amount for a securitisation position in accordance
with Articles 240, 241 and 246 to 253. Institutions
using the Standardised Approach may also use the internal assessment approach
where this has been permitted under Article 254(3). 2.
Where an institution uses the IRB Approach under
Chapter 3 for the calculation of risk-weighted exposures amounts for the
exposure class to which the securitised exposure would be assigned under
Article 142it shall calculate the risk-weighted exposure amount in accordance
with Articles 240, 241 and 254 to 261. Except for the internal assessment approach, where
the IRB Approach is used only for a part of the securitised exposures
underlying a securitisation, the institution shall use the approach corresponding
to the predominant share of securitised exposures underlying this
securitisation. Article 105
Treatment of credit risk adjustment 1.
Institutions applying the Standardised Approach
shall treat general credit risk adjustments in accordance with Article 59 (c). 2.
Institutions applying the IRB Approach shall
treat general credit risk adjustments in accordance with Article 155. For the purposes of this Article and Chapters 2
and 3, general and specific credit risk adjustments shall exclude funds for general
banking risk. 3.
Institutions using the IRB Approach that apply
the Standardised Approach for a part of their exposures on consolidated or
individual basis, in accordance with Article 143 and 145 shall determine the
part of general credit risk adjustment that shall be assigned to the treatment
of general credit risk adjustment under the Standardised Approach and to the
treatment of general credit risk adjustment under the IRB Approach as follows: (a)
where applicable when an institution included in
the consolidation exclusively applies the IRB Approach, general credit risk
adjustments of this institution shall be assigned to the treatment set out in
paragraph 2; (b)
where applicable, when an institution included
in the consolidation exclusively applies the Standard Approach, general credit
risk adjustment of this institution shall be assigned to the treatment set out
in paragraph 1(a); (c)
The remainder of credit risk adjustment shall be
assigned on a pro rata basis according to the proportion of risk weighted
exposure amounts subject to the Standardised Approach and subject to the IRB
Approach. 4.
EBA shall develop draft regulatory technical
standards to specify the calculation of specific credit risk adjustments and
general credit risk adjustments under the relevant accounting framework for the
following: (a)
exposure value under the Standardised Approach
referred to in Articles 106 and 122; (b)
exposure value under the IRB Approach referred
to in Articles 162 to 164; (c)
treatment of expected loss amounts referred to
in Article 155; (d)
exposure value for the calculation of the
risk-weighted exposure amounts for securitisation position referred to in
Article 241 and 261; (e)
the determination of default under Article 174; (f)
information on specific and general credit risk
adjustment referred to in Article 428. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt the regulatory standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 10 to 14 of Regulation (EU)
No 1093/2010. Chapter 2
Standardised Approach Section 1
General principles Article 106
Exposure value 1.
The exposure value of an asset item shall be its
accounting value remaining after specific credit risk
adjustments have been applied. The exposure value of an
off-balance sheet item listed in Annex I shall be the following percentage of its nominal value after reduction of specific credit risk
adjustments: (a)
100 % if it is a full-risk item; (b)
50 % if it is a medium-risk item; (c)
20 % if it is a medium/low-risk item; (d)
0 % if it is a low-risk item. The off-balance sheet items referred to in the second
sentence of the first subparagraph shall be assigned to risk categories as
indicated in Annex I. When an institution is using the Financial
Collateral Comprehensive Method under Article 218, the exposure value of
securities or commodities sold, posted or lent under a repurchase transaction or
under a securities or commodities lending or borrowing transaction, and margin lending
transactions shall be increased by the volatility adjustment appropriate to
such securities or commodities as prescribed in Articles 218 to 220. 2.
The exposure value of a derivative instrument
listed in Annex II shall be determined in accordance with Chapter 6 with the
effects of contracts of novation and other netting agreements taken into
account for the purposes of those methods in accordance with Chapter 6. The
exposure value of repurchase transaction, securities or commodities lending or borrowing transactions, long
settlement transactions and margin lending transactions may be determined
either in accordance with Chapter 6 or Chapter 4. 3.
Where an exposure is subject to funded credit
protection, the exposure value applicable to that item may be modified in
accordance with Chapter 4. Article 107
Exposure classes Each exposure shall be assigned to one of
the following exposure classes: (a)
claims or contingent claims on central
governments or central banks; (b)
claims or contingent claims on regional governments
or local authorities; (c)
claims or contingent claims on public sector
entities; (d)
claims or contingent claims on multilateral
development banks; (e)
claims or contingent claims on international
organisations; (f)
claims or contingent claims on institutions; (g)
claims or contingent claims on corporates; (h)
retail claims or contingent retail claims; (i)
claims or contingent claims secured by mortgages
on immovable property; (j)
exposures in default; (k)
claims in the form of covered bonds; (l)
securitisation positions; (m)
claims on institutions and corporate with a
short-term credit assessment; (n)
claims in the form of units or shares in
collective investment undertakings (‘CIUs’); (o)
equity claims; (p)
other items. Article 108
Calculation of risk weighted exposure amounts 1.
To calculate risk-weighted exposure amounts,
risk weights shall be applied to all exposures, unless deducted from own funds,
in accordance with the provisions of Section 2. The application of risk weights
shall be based on the exposure class to which the exposure is assigned and, to
the extent specified in Section 2, its credit quality. Credit quality may be
determined by reference to the credit assessments of External Credit Assessment
Institutions (hereinafter referred to as ‘ECAIs’) as defined in Article 130 or
the credit assessments of Export Credit Agencies in
accordance with Section 3. 2.
For the purposes of applying a risk weight, as
referred to in paragraph 1, the exposure value shall be multiplied by the risk
weight specified or determined in accordance with Section 2. 3.
Where an exposure is subject to credit
protection the risk weight applicable to that item may be modified in
accordance with Chapter 4. 4.
Risk-weighted exposure amounts for securitised
exposures shall be calculated in accordance with Chapter 5. 5.
Exposures for which no calculation is provided
in Section 2 shall be assigned a risk-weight of 100 %. 6.
With the exception of exposures giving rise to
liabilities in the form of Common Equity Tier 1, Additional Tier 1 or Tier 2
items, an institution may, subject to the permission of the competent
authorities, decide not apply the requirements of paragraph 1 of this Article
to the exposures of that institution to a counterparty which is its parent
undertaking, its subsidiary, a subsidiary of its parent undertaking or an
undertaking linked by a relationship within the meaning of Article 12(1) of
Directive 83/349/EEC Competent authorities are empowered to authorise such an
alternative method if the following conditions are fulfilled: (a)
the counterparty is an institution, a financial
holding company or a mixed financial holding company, financial institution,
asset management company or ancillary services undertaking subject to
appropriate prudential requirements; (b)
the counterparty is included in the same
consolidation as the institution on a full basis; (c)
the counterparty is subject to the same risk
evaluation, measurement and control procedures as the institution; (d)
the counterparty is established in the same Member State as the institution; (e)
there is no current or foreseen material
practical or legal impediment to the prompt transfer of own funds or repayment
of liabilities from the counterparty to the institution. Where the institution, in accordance with this
paragraph, decides not to apply the requirements of paragraph 1, it shall
assign a risk weight of 0 %. 7.
With the exception of exposures giving rise to
liabilities in the form of Common Equity Tier 1, Additional Tier 1 and Tier 2
items, institutions may, subject to the permission of the competent
authorities, not apply the requirements of paragraph 1 of this Article to
exposures to counterparties with which the institution has entered into an
institutional protection scheme that is a contractual or statutory liability
arrangement which protects those institutions and in particular ensures their
liquidity and solvency to avoid bankruptcy in case it becomes necessary.
Competent authorities are empowered to authorize such an alternative method if
the following conditions are fulfilled: (a)
the requirements set out in points (a), (d) and
(e) of paragraph 6 are met; (b)
the arrangements ensure that the institutional
protection scheme is able to grant support necessary under its commitment from
funds readily available to it; (c)
the institutional protection scheme disposes of
suitable and uniformly stipulated systems for the monitoring and classification
of risk, which gives a complete overview of the risk situations of all the
individual members and the institutional protection scheme as a whole, with
corresponding possibilities to take influence; those systems shall suitably
monitor defaulted exposures in accordance with Article 174(1); (d)
the institutional protection scheme conducts its
own risk review which is communicated to the individual members; (e)
the institutional protection scheme draws up and
publishes on an annual basis, a consolidated report comprising the balance
sheet, the profit-and-loss account, the situation report and the risk report,
concerning the institutional protection scheme as a whole, or a report
comprising the aggregated balance sheet, the aggregated profit-and-loss
account, the situation report and the risk report, concerning the institutional
protection scheme as a whole; (f)
members of the institutional protection scheme
are obliged to give advance notice of at least 24 months if they wish to end the
institutional protection scheme; (g)
the multiple use of elements eligible for the
calculation of own funds (hereinafter referred to as ‘multiple gearing’) as
well as any inappropriate creation of own funds between the members of the
institutional protection scheme shall be eliminated; (h)
The institutional protection scheme shall be
based on a broad membership of credit institutions of a predominantly
homogeneous business profile; (i)
the adequacy of the systems referred to in point
(d) is approved and monitored at regular intervals by the relevant competent
authorities. Where the institution, in accordance with this
paragraph, decides not to apply the requirements of paragraph 1, it shall
assign a risk weight of 0 %. 8.
Risk weighted exposure amounts for exposures
arising from an institution's pre-funded contribution to the default fund of a
CCP and trade exposures with a CCP shall be determined in accordance with
Articles 296 to 300 as applicable. Section 2
Risk weights Article 109
Exposures to central governments or central banks 1.
Exposures to central governments and central
banks shall be assigned a 100 % risk weight, unless the
treatments set out in paragraphs 2 to 5 apply. 2.
Exposures to central governments and central
banks for which a credit assessment by a nominated ECAI is available shall be
assigned a risk weight according to Table 1 which corresponds to the credit
assessment of the eligible ECAI in accordance with Article 131. Table 1 Credit quality step || 1 || 2 || 3 || 4 || 5 || 6 Risk weight || 0 % || 20 % || 50 % || 100 % || 100 % || 150 % 3.
Exposures to the European Central Bank shall be
assigned a 0 % risk weight. 4.
Exposures to Member States' central governments
and central banks denominated and funded in the domestic currency of that
central government and central bank shall be assigned a risk weight of 0 %. 5.
When the competent authorities of a third
country which apply supervisory and regulatory arrangements at least equivalent
to those applied in the Union
assign a risk weight which is lower than that indicated in paragraphs 1 to 2 to
exposures to their central government and central bank denominated and funded
in the domestic currency, institutions may risk weight
such exposures in the same manner. For the purposes of this paragraph, the
Commission may adopt, by way of implementing acts, and subject to the
examination procedure referred to in Article 447(2), a decision as to whether a
third country applies supervisory and regulatory arrangements at least
equivalent to those applied in the Union. In the absence of such a decision, until
1 January 2014, institutions may continue to apply the treatment set out in
this paragraph to third country where the relevant competent authorities had
approved the third country as eligible for this treatment before 1 January 2013. Article 110
Exposures to regional governments or local authorities 1.
Exposures to regional governments or local
authorities shall be risk-weighted as exposures to institutions unless they are treated as exposures to central governments under
paragraphs 2 or 4. The preferential treatment for
short-term exposures specified in Articles 115(2), and 114(2) shall not be
applied. 2.
Exposures to regional governments or local
authorities shall be treated as exposures to the central government in whose
jurisdiction they are established where there is no difference in risk between
such exposures because of the specific revenue-raising powers of the former,
and the existence of specific institutional arrangements the effect of which is
to reduce their risk of default. EBA shall develop draft implementing technical
standards to specify the exposures to regional governments and local
authorities that shall be treated as exposures to central governments based on
the criteria set out in the previous subparagraph. EBA shall submit those draft technical
standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the second subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No 1093/2010. Before the entry into force of the technical
standards referred to in the previous subparagraph, institutions may continue
to apply the treatment set out in the first subparagraph, where the competent
authorities have applied that treatment before 1 January 2013. 3.
Exposures to churches or religious communities
constituted in the form of a legal person under public law shall, in so far as
they raise taxes in accordance with legislation conferring on them the right to
do so, be treated as exposures to regional governments and local authorities.
However that paragraph 2 shall not apply. In this case for the purposes of
Article 145(1)(a), permission to apply the Standardised Approach shall not be
excluded. 4.
When competent authorities of a third country jurisdiction
which applies supervisory and regulatory arrangements at least equivalent to
those applied in the Union
treat exposures to regional governments or local authorities as exposures to
their central government and there is no difference in
risk between such exposures because of the specific revenue-raising powers of
regional government or local authorities and to specific institutional
arrangements to reduce the risk of default, institutions may risk weight exposures to such regional governments and local
authorities in the same manner. For the purposes of this paragraph, the
Commission may adopt, by way of implementing acts, and subject to the
examination procedure referred to in Article 447(2), a decision as to whether a
third country applies supervisory and regulatory arrangements at least
equivalent to those applied in the Union. In the absence of such a decision,
until 1 January 2014, institutions may continue to apply the treatment set out
in this paragraph to third country where the relevant competent authorities had
approved the third country as eligible for this treatment before 1 January 2013. 5.
Exposures to regional governments or local
authorities of the Member States that are not referred
to in paragraphs 2 to 4 and are denominated and funded in
the domestic currency of that regional government and local authority shall be
assigned a risk weight of 20 %. Article 111
Exposures to public sector entities 1.
Exposures to public sector entities for which a
credit assessment by a nominated ECAI is not available shall be assigned a risk
weight according to the credit quality step to which exposures to the central
government of the jurisdiction in which the Public Sector Entity is
incorporated are assigned in accordance with the following Table 2: Table 2 Credit quality step to which central government is assigned || 1 || 2 || 3 || 4 || 5 || 6 Risk weight || 20 % || 50 % || 100 % || 100 % || 100 % || 150 % For exposures to public sector entities
incorporated in countries where the central government is unrated, the risk
weight shall be 100%. 2.
Exposures to public sector entities for which a
credit assessment by a nominated ECAI is available shall be treated according
to Article 115. The preferential treatment for short-term exposures specified
in Articles 114(2) and 115(2), shall not be applied to those entities. 3.
For exposures to public sector entities with an
original maturity of 3 months or less, the risk weight shall be 20 %. 4.
Exposures to public-sector entities may be
treated as exposures to the central government in whose jurisdiction they are
established where there is no difference in risk between such exposures because
of the existence of an appropriate guarantee by the central government. 5.
For the purposes of this paragraph, the
Commission may adopt, by way of implementing acts, and subject to the
examination procedure referred to in Article 447(2), a decision as to whether a
third country applies supervisory and regulatory arrangements at least
equivalent to those applied in the Union. In the absence of such a decision,
until 1 January 2014, institutions may continue to apply the treatment set out
in this paragraph to third country where the relevant competent authorities had
approved the third country as eligible for this treatment before 1 January 2013. 6.
EBA shall develop draft implementing technical
standards to specify the public sector entities that may be treated according
to paragraphs 1 and 2. EBA shall submit those draft technical
standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Before the entry into force of the technical
standards referred to in the first subparagraph, institutions may continue to
apply the treatment set out in paragraph 1 that competent authorities have
applied before 1 January 2013. Article 112
Exposures to multilateral development banks 1.
Exposures to multilateral development banks that are not referred to in paragraph 2
shall be treated in the same manner as exposures to institutions. The
preferential treatment for short-term exposures as specified in Articles 115(2),
115(4) shall not be applied. The Inter-American Investment Corporation, the
Black Sea Trade and Development Bank and the Central American Bank for Economic
Integration shall be considered Multilateral Development Banks (MDB). 2.
Exposures to the following multilateral
development banks shall be assigned a 0 % risk weight: (a)
the International Bank for Reconstruction and
Development; (b)
the International Finance Corporation; (c)
the Inter-American Development Bank; (d)
the Asian Development Bank; (e)
the African Development Bank; (f)
the Council of Europe Development Bank; (g)
the Nordic Investment Bank; (h)
the Caribbean Development Bank; (i)
the European Bank for Reconstruction and
Development; (j)
the European Investment Bank; (k)
the European Investment Fund; (l)
the Multilateral Investment Guarantee Agency; (m)
the International Finance Facility for
Immunisation; (n)
the Islamic Development Bank. 3.
A risk weight of 20 % shall be assigned to the
portion of unpaid capital subscribed to the European Investment Fund. Article 113
Exposures to international organisations Exposures to the following international
organisations shall be assigned a 0 % risk weight: (a)
the European Union; (b)
the International Monetary Fund; (c)
the Bank for International Settlements; (d)
the European Financial Stability Facility (e)
an international financial institution
established by two or more Member States, which has the purpose to mobilise
funding and provide financial assistance to the benefit of its members that are
experiencing or threatened by severe financing problems. Article 114
Exposures to institutions 1.
Exposures to institutions for which a credit
assessment by a nominated ECAI is available shall be risk-weighted in
accordance with Article 115. Exposures to institutions for which a credit
assessment by a nominated ECAI is not available shall be risk-weighted in
accordance with Article 116. 2.
Exposures to institutions of a residual maturity
of 3 months or less denominated and funded in the national currency shall be assigned a risk weight that is one
category less favourable than the preferential risk weight, as described in
Articles 109(4) and 109(5), assigned to exposures to its central government. 3.
No exposures with a residual maturity of 3 months or less denominated and funded in
the national currency of the borrower shall be assigned a risk weight less than
20 %. 4.
Exposure to an institution in the form of
minimum reserves required by the ECB or by the central bank of a Member State to be held by an institution may be risk-weighted as exposures to the central bank of the Member State in question
provided: (a)
the reserves are held in accordance with
Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003
on the application of minimum reserves or a subsequent replacement regulation
or in accordance with national requirements in all material respects equivalent
to that Regulation; (b)
in the event of the bankruptcy or insolvency of
the institution where the reserves are held, the reserves are fully repaid to
the institution in a timely manner and are not made available to meet other
liabilities of the institution. 5.
Exposures to financial institutions authorised
and supervised by the competent authorities and subject to prudential
requirements equivalent to those applied to institutions shall be treated as exposures to institutions. Article 115
Exposures to rated institutions 1.
Exposures to institutions with a residual
maturity of more than three months for which a credit assessment by a nominated
ECAI is available shall be assigned a risk weight according to Table 3 which
corresponds to the credit assessment of the eligible ECAI in accordance with
Article 131. Table 3 Credit quality step || 1 || 2 || 3 || 4 || 5 || 6 Risk weight || 20 % || 50 % || 50 % || 100 % || 100 % || 150 % 2.
Exposures to an institution of up to three
months residual maturity for which a credit assessment by a nominated ECAI is
available shall be assigned a risk-weight according to Table 4 which
corresponds to the credit assessment of the eligible ECAI in accordance with
Article 131: Table 4 Credit quality step || 1 || 2 || 3 || 4 || 5 || 6 Risk weight || 20 % || 20 % || 20 % || 50 % || 50 % || 150 % 3.
The interaction between the treatment of short
term credit assessment under Article 126 and the general preferential treatment
for short term exposures set out in paragraph 2 shall be as follows: (a)
If there is no short-term exposure assessment,
the general preferential treatment for short-term exposures as specified in
paragraph 2 shall apply to all exposures to institutions of up to three months
residual maturity; (b)
If there is a short-term assessment and such an
assessment determines the application of a more favourable or identical risk
weight than the use of the general preferential treatment for short-term
exposures, as specified in paragraph 2, then the short-term assessment shall be
used for that specific exposure only. Other short-term exposures shall follow
the general preferential treatment for short-term exposures, as specified in
paragraph 2; (c)
If there is a short-term assessment and such an
assessment determines a less favourable risk weight than the use of the general
preferential treatment for short-term exposures, as specified in paragraph 2,
then the general preferential treatment for short-term exposures shall not be
used and all unrated short-term claims shall be assigned the same risk weight
as that applied by the specific short-term assessment. Article 116
Exposures to unrated institutions 1.
Exposures to institutions for which a credit assessment by a nominated ECAI is not available shall be assigned a risk weight according to the credit quality
step to which exposures to the central government of the jurisdiction in which
the institution is incorporated are assigned in accordance with Table 5. Table 5 Credit quality step to which central government is assigned || 1 || 2 || 3 || 4 || 5 || 6 Risk weight of exposure || 20 % || 50 % || 100 % || 100 % || 100 % || 150 % 2.
For exposures to unrated institutions incorporated in countries where the central government
is unrated, the risk weight shall be 100 %. 3.
For exposures to unrated
institutions with an original effective maturity of
three months or less, the risk weight shall be 20 %. Article 117
Exposures to corporates 1.
Exposures for which a credit assessment by a
nominated ECAI is available shall be assigned a risk weight according to Table
6 which corresponds to the credit assessment of the eligible ECAI in accordance
with Article 131. Table 6 Credit quality step || 1 || 2 || 3 || 4 || 5 || 6 Risk weight || 20 % || 50 % || 100 % || 100 % || 150 % || 150 % 2.
Exposures for which such a credit assessment is
not available shall be assigned a 100 % risk weight or the risk weight of its
central government, whichever is the higher. Article 118
Retail exposures Exposures that comply with the following
criteria shall be assigned a risk weight of 75 %: (a) the exposure shall be either to
an natural person or persons, or to a small or medium sized enterprise; (b) the exposure shall be one of a
significant number of exposures with similar characteristics such that the
risks associated with such lending are substantially reduced; (c) the total amount owed to the institution
and parent undertakings and its subsidiaries, including any exposure in
default, by the obligor client or group of connected clients, but excluding
claims or contingent claims secured on residential property collateral, shall
not, to the knowledge of the institution, exceed EUR 1 million. The institution
shall take reasonable steps to acquire this knowledge. Securities shall not be eligible for the
retail exposure class. The present value of retail minimum lease
payments is eligible for the retail exposure class. Article 119
Exposures secured by mortgages on immovable property 1.
An exposure or any part of an exposure fully
secured by mortgage on immovable property shall be assigned a risk weight of
100 %, where the conditions under Article 120 and Article 121 are not met,
except for any part of the exposure which is assigned to another exposure
class. The part of an exposure treated as fully and completely
secured by immovable property shall not be higher than the pledged amount of
the market value or in those Member States that have laid down rigorous
criteria for the assessment of the mortgage lending value in statutory or
regulatory provisions, the mortgage lending value of the property in question. 2.
Based on the data collected under Article 96,
and any other relevant indicators, the competent authorities shall
periodically, and at least annually, assess whether the risk-weight of 35% for
exposures secured by mortgages on residential property referred to in Article 120
and the risk weight of 50% for exposures secured on commercial immovable
property referred to in Article 121 located in its territory are appropriate
based on the default experience of exposures secured by immovable property and
taking into account forward-looking immovable property markets developments,
and may set a higher risk weight or stricter criteria than those set out in
Article 120(2) and 121(2), where appropriate, on the basis of financial
stability considerations. EBA shall coordinate the assessments carried out by
the competent authorities. The competent authorities shall consult EBA on
the adjustments to the risk weights and criteria applied. EBA shall publish the
risk weights and criteria that the competent authorities set for exposures
referred to in Articles 120, 121 and 195. EBA shall develop regulatory technical
standards to specify the conditions that competent authorities shall take into
account when determining stricter risk-weights or stricter criteria. EBA shall submit those draft technical
standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in accordance
with the procedure laid down in Articles 10 to 14 of Regulation (EU)No
1093/2010. 3.
The institutions of one Member State shall apply
the risk-weights and criteria that have been determined by the competent
authorities of another Member State to exposures secured by mortgages on
commercial and residential immovable property located in that Member State. Article 120
Exposures fully and completely secured by residential property 1.
Unless otherwise decided by the competent
authorities in accordance with Article 119(2),
exposures fully and completely secured by mortgages on residential property
shall be treated as follows: (a)
exposures or any part of an exposure fully and
completely secured by mortgages on residential property which is or shall be
occupied or let by the owner, or the beneficial owner in the case of personal
investment companies, shall be assigned a risk weight of 35%; (b)
exposures fully and completely secured by shares
in Finnish residential housing companies, operating in accordance with the
Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in
respect of residential property which is or shall be occupied or let by the
owner shall be assigned a risk weight of 35 %; (c)
exposures to a tenant under a property leasing
transaction concerning residential property under which the institution is the
lessor and the tenant has an option to purchase, shall be assigned a risk
weight of 35 % provided that the exposure of the institution is fully and
completely secured by its ownership of the property. 2.
Institutions shall consider an exposure or any
part of an exposure as fully and completely secured for the purposes of
paragraph 1 only if the following conditions are met: (a)
the value of the property does not materially
depend upon the credit quality of the borrower. Institutions may exclude
situations where purely macro-economic factors affect both the value of the
property and the performance of the borrower from their determination of the
materiality of such dependence; (b)
the risk of the borrower does not materially
depend upon the performance of the underlying property or project, but on the
underlying capacity of the borrower to repay the debt from other sources, and
as a consequence, the repayment of the facility does not materially depend on
any cash flow generated by the underlying property serving as collateral. For
those other sources, institutions shall determine maximum loan-to-income ratio
as part of their lending policy and obtain suitable evidence of the relevant
income when granting the loan. (c)
the requirements set out in Article 203 and the
valuation rules set out in Article 224(1) are met; (d)
the part of the loan to which the 35% risk
weight unless otherwise determined under Article 119(2) is assigned does not
exceed 80% unless otherwise determined under Article 119(2) of the market value
of the property in question or 80% of the mortgage lending value unless
otherwise determined under Article 119(2) of the property in question in those
Member States that have laid down rigorous criteria for the assessment of the
mortgage lending value in statutory or regulatory provisions. 3.
Institutions may derogate
from point (b) in paragraph 2 for exposures fully and completely secured by
mortgages on residential property which is situated within the territory of a Member State, where the competent authority of that Member
State has published evidence showing that a
well-developed and long-established residential property market is present in that territory with loss rates which do not
exceed the following limits: (a)
losses stemming from lending collateralised by
residential property up to 80% of the market value or 80% of the mortgage
lending value unless otherwise decided under Article 119(2) do not exceed 0,3%
of the outstanding loans collateralised by residential property in any given
year; (b)
overall losses stemming from lending
collateralised by residential property do not exceed 0,5% of the outstanding
loans collateralised by residential property in any given year. 4.
If either of the limits referred to in paragraph
3 is not satisfied in a given year, the eligibility to use paragraph 3 shall
cease and the condition contained in paragraph 2(b) shall apply until the
conditions in paragraph 3 are satisfied in a subsequent year. Article 121
Exposures fully and completely secured by mortgages on commercial immovable
property 1.
Unless otherwise decided by the competent
authorities in accordance with Article 119(2),
exposures fully and completely secured by mortgages on commercial immovable
property shall be treated as follows: (a)
exposures or any part of an exposure fully and
completely secured by mortgages on offices or other commercial premises may be
assigned a risk weight of 50%; (b)
exposures fully and completely secured, by
shares in Finnish housing companies, operating in accordance with the Finnish
Housing Company Act of 1991 or subsequent equivalent legislation, in respect of
offices or other commercial premises may be assigned a risk weight of 50 %;. (c)
exposures related to property leasing
transactions concerning offices or other commercial premises under which the institution
is the less or and the tenant has an option to purchase may be assigned a risk
weight of 50 % provided that the exposure of the institution is fully and
completely secured by its ownership of the property. 2.
The application of
paragraph 1 is subject to the following conditions: (a)
the value of the property shall not materially
depend upon the credit quality of the borrower. Institutions may exclude
situations where purely macro-economic factors affect both the value of the
property and the performance of the borrower from their determination of the
materiality of such dependence; (b)
the risk of the borrower shall not materially
depend upon the performance of the underlying property or project, but rather
on the underlying capacity of the borrower to repay the debt from other sources,
and as a consequence, the repayment of the facility shall not materially depend
on any cash flow generated by the underlying property serving as collateral; (c)
the requirements set out in Article 203 and the
valuation rules set out in 224(1) are met; (d)
The 50 % risk weight unless otherwise provided
under Article 119(2) shall be assigned to the part of the loan that does not
exceed 50 % of the market value of the property or 60 % of the mortgage lending
value unless otherwise provided under Article 119(2) of the property in
question in those Member States that have laid down rigorous criteria for the
assessment of the mortgage lending value in statutory or regulatory provisions.
3.
Institutions may derogate from point (b) in paragraph 2 for exposures fully and completely secured by
mortgages on commercial property which is situated within the territory of a
Member State, where the
competent authority of that Member State has published evidence showing that a well-developed and long-established commercial immovable property market
is present in that territory
with loss rates which do not exceed the following limits: (a)
losses stemming from lending collateralised by
commercial immovable property up to 50 % of the market value or 60 % of the
mortgage lending value (unless otherwise determined under Article 119(2)) do
not exceed 0,3 % of the outstanding loans collateralised by commercial immovable
property in any given year; (b)
overall losses stemming from lending
collateralised by commercial immovable property do not exceed 0,5 % of the
outstanding loans collateralised by commercial immovable property in any given
year. 4.
Where either of the limits referred to in
paragraph 3 is not satisfied in a given year, the eligibility to use paragraph
3 shall cease and the condition contained in paragraph 2(b) shall apply until
the conditions in paragraph 3 are satisfied in a subsequent year. Article 122
Exposures in default 1.
The unsecured part of any item for which a default has occurred according to Article 174 shall be assigned a risk weight of: (a)
150 %, where specific credit risk adjustments
are less than 20 % of the unsecured part of the exposure value if these
specific credit risk adjustments were not applied; (b)
100 %, where specific credit risk adjustments
are no less than 20 % of the unsecured part of the exposure value if these
specific credit risk adjustments were not applied. 2.
For the purpose of determining the secured part
of the past due item, eligible collateral and guarantees shall be those
eligible for credit risk mitigation purposes under
Chapter 4. 3.
Exposures fully and completely secured by
mortgages on residential property in accordance with Article 120 shall be
assigned a risk weight of 100 % net of value adjustments if a default has
occurred according to Article 174 4.
Exposures fully and completely secured by
mortgages on commercial immovable property in accordance with Article 121 shall
be assigned a risk weight of 100 % if a default has occurred according to
Article 174 Article 123
Items associated with particular high risk 1.
Institutions shall assign a 150% risk weight to
exposures, including exposures in the form of shares or units in a Collective
Investment Undertaking that are associated with particularly high risks, where
appropriate. 2.
Exposures with particularly high risks shall
include any of the following investments: (a) investments in venture capital firms; (b) alternative investment funds as
defined by Article 4(1)(1) of Directive [inserted by OP - Directive on
Alternative Investment Fund Managers]; (c) speculative immovable property financing.
3.
When assessing whether an exposure other than
exposures referred to in the paragraph 2 is associated with particularly high
risks, institutions shall take into account the following risk characteristics: (a)
there is a high risk of loss as a result of a
default of the obligor; (b)
it is impossible to assess adequately whether
the exposure falls under point (a). EBA shall issue guidelines specifying which
types of exposures are associated with particularly high risk and under which
circumstances. The guidelines shall be adopted in accordance
with Article 16 of Regulation (EU) No 1093/2010. Article 124
Exposures in the form of covered bonds 1.
To be eligible for the preferential treatment
set out in paragraph 3, ‘covered bonds’ shall mean
bonds as defined in Article 52(4) of Directive 2009/65/EC
of the European Parliament and of the Council of 13 July 2009 on the
coordination of laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS)[23] and
collateralised by any of the following eligible assets: (a)
exposures to or guaranteed by central
governments, central banks, public sector entities, regional governments and
local authorities in the Union; (b)
exposures to or guaranteed by third country
central governments, non-EU central banks, multilateral development banks,
international organisations that qualify for the credit quality step 1 as set
out in this Chapter, and exposures to or guaranteed by non-EU public sector
entities, non-EU regional governments and non-EU local authorities that are
risk weighted as exposures to institutions or central governments and central
banks according to Articles 110(1), 110(2), 111(1), 111(2) or 111(4)
respectively and that qualify for the credit quality step 1 as set out in this
Chapter, and exposures in the sense of this point that qualify as a minimum for
the credit quality step 2 as set out in this Chapter, provided that they do not
exceed 20 % of the nominal amount of outstanding covered bonds of issuing
institutions; (c)
exposures to institutions that qualify for the
credit quality step 1 as set out in this Chapter. The total exposure of this
kind shall not exceed 15 % of the nominal amount of outstanding covered bonds
of the issuing institution. Exposures caused by transmission and management of
payments of the obligors of, or liquidation proceeds in respect of, loans
secured by immovable property to the holders of covered bonds shall not be
comprised by the 15 % limit. Exposures to institutions in the EU with a
maturity not exceeding 100 days shall not be comprised by the step 1
requirement but those institutions shall as a minimum qualify for credit
quality step 2 as set out in this Chapter; The competent
authorities may, after having consulted EBA, partly waive the application of
(c) and allow credit quality step 2 for up to 10 % of the total exposure of the
nominal amount of outstanding covered bonds of the issuing institution,
provided that significant potential concentration problems in the Member States
concerned can be documented due to the application of the credit quality step 1
requirement referred to in (c); (d)
loans secured by residential property or shares in
Finnish residential housing companies as referred to in Article 120(1)(b) up to
the lesser of the principal amount of the liens that are combined with any
prior liens and 80 % of the value of the pledged properties or by senior units
issued by French Fonds Communs de Créances or by equivalent securitisation
entities governed by the laws of a Member State securitising residential property
exposures. In the event of such senior units being used as collateral, the
special public supervision to protect bond holders as provided for in Article
52(4) of Directive 2009/65/EC of the European Parliament and of the Council of
13 July 2009 on the coordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable
securities (UCITS) shall ensure that the assets underlying such units shall, at
any time while they are included in the cover pool be at least 90 % composed of
residential mortgages that are combined with any prior liens up to the lesser
of the principal amounts due under the units, the principal amounts of the
liens, and 80 % of the value of the pledged properties, that the units qualify
for the credit quality step 1 as set out in this Chapter and that such units do
not exceed 10 % of the nominal amount of the outstanding issue; Exposures caused by transmission and management of
payments of the obligors of, or liquidation proceeds in respect of, loans
secured by pledged properties of the senior units or debt securities shall not
be comprised in calculating the 90 % limit; (e)
loans secured by commercial immovable property or
shares in Finnish housing companies as referred to in Article 121(1)(b) up to
the lesser of the principal amount of the liens that are combined with any
prior liens and 60 % of the value of the pledged properties or by senior units
issued by French Fonds Communs de Créances or by equivalent securitisation
entities governed by the laws of a Member State securitising commercial immovable
property exposures. In the event of such senior units being used as collateral,
the special public supervision to protect bond holders as provided for in
Article 52(4) of Directive 2009/65/EC shall ensure that the assets underlying
such units shall, at any time while they are included in the cover pool be at least
90 % composed of commercial mortgages that are combined with any prior liens up
to the lesser of the principal amounts due under the units, the principal
amounts of the liens, and 60 % of the value of the pledged properties, that the
units qualify for the credit quality step 1 as set out in this Chapter and that
such units do not exceed 10 % of the nominal amount of the outstanding issue.
Loans secured by commercial immovable property are eligible where the Loan to
Value ratio of 60 % is exceeded up to a maximum level of 70 % if the value of
the total assets pledged as collateral for the covered bonds exceed the nominal
amount outstanding on the covered bond by at least 10 %, and the bondholders'
claim meets the legal certainty requirements set out in Chapter 4. The
bondholders’ claim shall take priority over all other claims on the collateral.
Exposures caused by transmission and management of payments of the obligors of,
or liquidation proceeds in respect of, loans secured by pledged properties of
the senior units or debt securities shall not be comprised in calculating the
90 % limit; (f)
loans secured by ships where only liens that are
combined with any prior liens within 60 % of the value of the pledged ship. the situations in points (a) to (f) also include
collateral that is exclusively restricted by legislation to the protection of
the bond-holders against losses. 2.
Institutions shall for immovable
property collateralising covered bonds meet the requirements set out in Article
203 and the valuation rules set out in Article 224(1). 3.
Covered bonds for which a credit assessment by a
nominated ECAI is available shall be assigned a risk weight according to Table
6a which corresponds to the credit assessment of the eligible ECAI in
accordance with Article 131. Table 6a Credit quality step || 1 || 2 || 3 || 4 || 5 || 6 Risk weight || 10 % || 20 % || 20 % || 50 % || 50 % || 100 % 4.
Covered bonds for which a credit assessment by a
nominated ECAI is not available shall be assigned a risk weight on the basis of
the risk weight assigned to senior unsecured exposures to the institution which issues them. The following
correspondence between risk weights shall apply: (a)
if the exposures to the institution are assigned
a risk weight of 20 %, the covered bond shall be assigned a risk weight of 10
%; (b)
if the exposures to the institution are assigned
a risk weight of 50 %, the covered bond shall be assigned a risk weight of 20
%; (c)
if the exposures to the institution are assigned
a risk weight of 100 %, the covered bond shall be assigned a risk weight of 50
%; (d)
if the exposures to the institution are assigned
a risk weight of 150 %, the covered bond shall be assigned a risk weight of 100
%. 5.
Covered bonds issued before 31 December 2007 are not subject to the requirements of paragraph 1 and 2. They are eligible for the preferential treatment under paragraph 3 until their maturity. Article 125
Items representing securitisation positions Risk weighted exposure amounts for
securitisation positions shall be determined in accordance with Chapter 5. Article 126
Exposures to institutions and corporates with a short-term credit assessment Exposures to institutions and exposures to
corporates for which a short-term credit assessment by a nominated ECAI is
available shall be assigned a risk weight according to Table 7 which corresponds
to the credit assessment of the eligible ECAI in accordance with Article 131. Table 7 Credit Quality Step || 1 || 2 || 3 || 4 || 5 || 6 Risk weight || 20 % || 50 % || 100 % || 150 % || 150 % || 150 % Article 127
Exposures in the form of shares in collective investment undertakings (CIUS) 1.
Exposures in the form of units or shares in
collective investment undertakings (hereinafter referred to as 'CIUs') shall be
assigned a risk weight of 100 %, unless the institution applies the credit risk
assessment method under paragraph 2, or the look-through approach in paragraph
4 or the average risk weight approach under paragraph 5 when the conditions in paragraph
3 are met. 2.
Exposures in the form of
shares in CIUs for which a credit assessment by a
nominated ECAI is available shall be assigned a risk weight according to Table which
corresponds to the credit assessment of the eligible ECAI in accordance with
Article 131. Table 8 Credit quality step || 1 || 2 || 3 || 4 || 5 || 6 Risk weight || 20 % || 50 % || 100 % || 100 % || 150 % || 150 % 3.
Institutions may
determine the risk weight for a CIU, if the following eligibility criteria are
met: (a)
the CIU is managed by a company that is subject
to supervision in a Member State or, in the case of third country CIU, where
the following conditions are met: (i) the CIU is managed by a company which
is subject to supervision that is considered equivalent to that laid down in Union
legislation; (ii) cooperation between competent
authorities is sufficiently ensured; (b)
the CIU's prospectus or equivalent document
includes the following: (i) the categories of assets in which the
CIU is authorised to invest; (ii) if investment limits apply, the
relative limits and the methodologies to calculate them; (c)
the business of the CIU is reported to the
competent authority on at least an annual basis to enable an assessment to be
made of the assets and liabilities, income and operations over the reporting
period. For the purposes of point (a), the Commission
may adopt, by way of implementing acts, and subject to the examination
procedure referred to in Article 447(2), a decision as to whether a third
country applies supervisory and regulatory arrangements at least equivalent to
those applied in the European Union. In the absence of such a decision, until 1
January 2014, institutions may continue to apply the treatment set out in this
paragraph to third country where the relevant competent authorities had
approved the third country as eligible for this treatment before 1 January 2013. 4.
Where the institution is aware of the underlying exposures of a CIU, it may look through
to those underlying exposures in order to calculate an average risk weight for its exposures in the form of shares in the CIUs in accordance with the methods set out in this Chapter. Where an underlying exposure of the CIU is itself an exposure in the
form of shares in another CIU which fulfils the criteria of paragraph 3, the
institution may look through to the underlying exposures of that other CIU. 5.
Where the institution is not aware of the underlying exposures of a CIU, it may calculate
an average risk weight for its exposures in the form of a unit or share in the
CIU in accordance with the methods set out in this Chapter subject to the assumption that the CIU first invests,
to the maximum extent allowed under its mandate, in the exposure classes attracting
the highest capital requirement, and then continues making investments in
descending order until the maximum total investment limit is reached. Institutions may rely on the following third
parties to calculate and report, in accordance with the methods set out in
paragraphs 4 and 5, a risk weight for the CIU: (a)
the depository institution or the depository
financial institution of the CIU provided that the CIU exclusively invests in
securities and deposits all securities at that depository institution or the
financial institution; (b)
for CIUs not covered by point (a), the CIU
management company, provided that the CIU management company meets the criteria
set out in paragraph 3(a). The correctness of the calculation referred to
in the first subparagraph shall be confirmed by an external auditor. Article 128
Equity exposures 1. The following exposures shall be considered equity
exposures: (a) non-debt exposures conveying a
subordinated, residual claim on the assets or income of the issuer; (b) debt exposures and other securities,
partnerships, derivatives, or other vehicles, the economic substance of which
is similar to the exposures specified in point (a). 2. Equity exposures shall be
assigned a risk weight of 100 %, unless they are required to be deducted in
accordance with Part Two, assigned a 250% risk weight in accordance with Article
45(2), assigned a 1 250% risk weight in accordance with Article 84(3) or
treated as high risk items in accordance with Article 123. 3. Investments in equity or regulatory capital instruments issued by institutions
shall be classified as equity claims, unless deducted from own funds or
attracting a 250% risk weight under Article 33 1(c) or treated as high risk
items in accordance with Article 123. Article 129
Other items 1.
Tangible assets within the meaning of Article
4(10) of Directive 86/635/EEC shall be assigned a risk weight of 100 %. 2.
Prepayments and accrued income for which an
institution is unable to determine the counterparty in accordance with
Directive 86/635/EEC, shall be assigned a risk weight of 100 %. 3.
Cash items in the process of collection shall be
assigned a 20 % risk weight. Cash in hand and equivalent cash items shall be
assigned a 0 % risk weight. 4.
Gold bullion held in own vaults or on an
allocated basis to the extent backed by bullion liabilities shall be assigned a
0 % risk weight. 5.
In the case of asset sale and repurchase
agreements and outright forward purchases, the risk weight shall be that
assigned to the assets in question and not to the counterparties to the
transactions. 6.
Where an institution provides credit protection for a number of exposures under terms
that the nth default among the exposures shall trigger payment and that this
credit event shall terminate the contract, and where the product has an external
credit assessment from an eligible ECAI, the risk weights prescribed in Chapter
5 shall be assigned. If the product is not rated by an eligible ECAI, the risk
weights of the exposures included in the basket will be aggregated, excluding
n-1 exposures, up to a maximum of 1250 % and multiplied by the nominal amount
of the protection provided by the credit derivative to obtain the risk weighted
asset amount. The n-1 exposures to be excluded from the aggregation shall be
determined on the basis that they shall include those exposures each of which
produces a lower risk-weighted exposure amount than the risk-weighted exposure
amount of any of the exposures included in the aggregation. 7.
The exposure value for leases shall be the
discounted minimum lease payments. Minimum lease payments are the payments over
the lease term that the lessee is or can be required to make and any bargain
option the exercise of which is reasonably certain. A
party other than the lessee may be required to make a payment related to the
residual value of a leased property and that payment obligation fulfils the set of conditions in Article 197 regarding the eligibility of
protection providers as well as the requirements for recognising other types of
guarantees provided in Articles 208 to 210, that
payment obligation may be taken into account as unfunded credit protection
under Chapter 4. These exposures shall be assigned to
the relevant exposure class in accordance with Article107. When the exposure is
a residual value of leased assets, the risk weighted exposure amounts shall be
calculated as follows: 1/t * 100 % * exposure value, where t is the greater of
1 and the nearest number of whole years of the lease remaining. Section 3
Recognition and mapping of credit risk assessment Sub-section 1
Recognition of ECAIs Article 130
ECAIs 1.
An external credit assessment may be used to
determine the risk weight of an exposure under this Chapter only if it has been
issued by an eligible ECAI or has been endorsed by an eligible ECAI in
accordance with Regulation (EC) No 1060/2009. 2.
Eligible ECAIs are all credit rating agencies
that have been registered or certified in accordance with Regulation (EC) No
1060/2009 and central banks issuing credit ratings which are exempt from
Regulation (EC) No 1060/2009. 3.
EBA shall publish a list
of eligible ECAIs. Sub-section 2
Mapping of ECAI's credit assessments Article 131
Mapping of ECAI's credit assessments 1.
EBA shall develop draft implementing standards
to specify for all eligible ECAIs, with which of the credit quality steps set
out in Section 2 the relevant credit assessments of the eligible ECAI correspond
('mapping'). Those determinations shall be objective and consistent. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2014 and shall submit
revised draft technical standards where necessary. Power is conferred on the Commission to adopt the
implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. 2.
When determining the mapping of credit
assessments, EBA shall comply with the following requirements: (a)
in order to differentiate between the relative
degrees of risk expressed by each credit assessment, EBA shall consider quantitative
factors such as the long-term default rate associated with all items assigned
the same credit assessment. For recently established ECAIs and for those that
have compiled only a short record of default data, EBA shall ask the ECAI what
it believes to be the long-term default rate associated with all items assigned
the same credit assessment; (b)
in order to differentiate between the relative
degrees of risk expressed by each credit assessment, EBA shall consider
qualitative factors such as the pool of issuers that the ECAI covers, the range
of credit assessments that the ECAI assigns, each credit assessment meaning and
the ECAI's definition of default; (c)
EBA shall compare
default rates experienced for each credit assessment of a particular ECAI and
compare them with a benchmark built on the basis of default rates experienced
by other ECAIs on a population of issuers that present an equivalent level of
credit risk; (d)
where the default rates experienced for the
credit assessment of a particular ECAI are materially and systematically higher
then the benchmark, EBA shall assign a higher credit quality step in the credit
quality assessment scale to the ECAI credit assessment; (e)
where EBA has increased the associated risk
weight for a specific credit assessment of a particular ECAI, and where default
rates experienced for that ECAI's credit assessment are no longer materially
and systematically higher than the benchmark, EBA shall decide to restore the
original credit quality step in the credit quality assessment scale for the
ECAI credit assessment. 3.
EBA shall develop draft implementing technical
standards to specify the quantitative factors referred to in point (a), the
qualitative factors referred to in point (b) and the benchmark referred to in
point (c) of paragraph 2. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the
implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Sub-section 3
Use of credit assessments by Export Credit Agencies Article 132
Use of credit assessments by Export Credit Agencies 1.
For the purpose of Article 109, institutions may
use credit assessments of an Export Credit Agency, if either of the following
conditions is met: (a)
it is a consensus risk score from Export Credit
Agencies participating in the OECD ‘Arrangement on Guidelines for Officially
Supported Export Credits’; (b)
the Export Credit Agency publishes its credit
assessments, and the Export Credit Agency subscribes to the OECD agreed
methodology, and the credit assessment is associated with one of the eight
minimum export insurance premiums that the OECD agreed methodology establishes. 2.
Exposures for which a credit assessment by an
Export Credit Agency is recognised for risk weighting purposes shall be
assigned a risk weight according to Table 9. Table 9 MEIP || 0 || 1 || 2 || 3 || 4 || 5 || 6 || 7 Risk weight || 0 % || 0 % || 20 % || 50 % || 100 % || 100 % || 100 % || 150 % 3. EBA shall issue guidelines
in accordance with Article 16 of Regulation 1093/2010 by 1 January 2014 on the
Export Credit Agencies that my be used by institutions in accordance with
paragraph 1. Section 4
Use of the ECAI credit assessments for the determination of risk weights Article 133
General requirements An institution may
nominate one or more eligible ECAIs to be used for the determination of risk
weights to be assigned to asset and off-balance sheet items. Credit assessments
shall not be used selectively. In using credit assessment, institutions shall
comply with the following requirements: (a) an institution which decides to use the credit assessments produced by an eligible
ECAI for a certain class of items shall use those credit assessments
consistently for all exposures belonging to that class; (b) an institution which decides to use the credit assessments produced by an eligible
ECAI shall use them in a continuous and consistent way over time; (c) an institution shall only use ECAIs credit assessments that take into account all amounts
both in principal and in interest owed to it; (d) where only one credit assessment
is available from a nominated ECAI for a rated item, that credit assessment
shall be used to determine the risk weight for that item; (e) where two credit assessments are
available from nominated ECAIs and the two correspond to different risk weights
for a rated item, the higher risk weight shall be assigned; (f) where more than two credit
assessments are available from nominated ECAIs for a rated item, the two
assessments generating the two lowest risk weights shall be referred to. If the
two lowest risk weights are different, the higher risk weight shall be
assigned. If the two lowest risk weights are the same, that risk weight shall
be assigned. Article 134
Issuer and issue credit assessment 1.
Where a credit assessment exists for a specific
issuing programme or facility to which the item constituting the exposure
belongs, this credit assessment shall be used to determine the risk weight to
be assigned to that item. 2.
Where no directly applicable credit assessment
exists for a certain item, but a credit assessment exists for a specific
issuing programme or facility to which the item constituting the exposure does
not belong or a general credit assessment exists for the issuer, then that
credit assessment shall be used in either of the following cases: (a)
it produces a higher risk weight than would
other wise be the case and the exposure in question ranks pari passu or junior
in all respects to the specific issuing program or facility or to senior
unsecured exposures of that issuer, as relevant; (b)
it produces a lower risk weight and the exposure
in question ranks pari passu or senior in all respects to the specific issuing
programme or facility or to senior unsecured exposures of that issuer, as
relevant. In all other cases, the exposure shall be
treated as unrated. 3.
Paragraph 1 and 2 are not to prevent the
application of Article 124. 4.
Credit assessments for issuers within a
corporate group cannot be used as credit assessment of another issuer within
the same corporate group. Article 135
Long-term and short-term credit assessments 1.
Short-term credit assessments may only be used
for short-term asset and off-balance sheet items constituting exposures to
institutions and corporates. 2.
Any short-term credit assessment shall only
apply to the item the short-term credit assessment refers to, and it shall not
be used to derive risk weights for any other item, except
in the following cases: (a)
if a short-term rated facility is assigned a 150
% risk weight, then all unrated unsecured exposures on that obligor whether
short-term or long-term shall also be assigned a 150 % risk weight; (b)
if a short-term rated facility is assigned a 50
% risk-weight, no unrated short-term exposure shall be assigned a risk weight
lower than 100 %. Article 136
Domestic and foreign currency items A credit assessment that refers to an item
denominated in the obligor's domestic currency cannot be used to derive a risk
weight for another exposure on that same obligor that is denominated in a
foreign currency. When an exposure arises through an
institution's participation in a loan that has been extended by a Multilateral
Development Bank whose preferred creditor status is recognised in the market,
the credit assessment on the obligors' domestic currency item may be used for
risk weighting purposes. Chapter 3
Internal Ratings Based Approach Section 1
Permission by competent authorities to use the IRB approach Article 137
IRB 0
Definitions 1.
For the purposes of this Chapter, the following
definitions shall apply: (1) 'rating system' means all of the
methods, processes, controls, data collection and IT systems that support the
assessment of credit risk, the assignment of exposures to rating grades or
pools, and the quantification of default and loss estimates that have been
developed for a certain type of exposures; (2) 'type of exposures' means a group of
homogeneously managed exposures which are formed by a certain type of
facilities and which may be limited to a single entity or a single sub-set of
entities within a group provided that the same type of exposures is managed
differently in other entities of the group; (3) 'business unit' means any separate
organisational or legal entities, business lines, geographical locations; (4) ‘regulated financial entity’ means any
of the following: (a) the following entities, including
third country entities, that carry out similar activities, that are subject to
prudential supervision pursuant to EU legislation or to legislation of a third
country which applies prudential supervisory and regulatory requirements at
least equivalent to those applied in the Union: (i) a credit institution; (ii) an investment firm; (iii) an insurance undertaking; (iv) a financial holding company; (v) a mixed activity holding company. (b) any other entity that fulfils all of
the following conditions: (i) it performs one or more of the
activities listed in Annex I of Directive [inserted by OP] or in Annex I of
Directive 2004/39/EC; (ii) it is a subsidiary of a regulated
financial entity; (iii) it is included in the prudential
supervision on consolidated level of the group; (c) any entity referred to in point (a)(i)
to (v) or in point (b) which is not subject to prudential supervisory and
regulatory requirements at least equivalent to those in the Union but which is
part of a group that is subject to those arrangements on a consolidated basis; (5) ‘large regulated financial entity’
means any regulated financial entity whose total assets, on the level of that
individual firm or on the consolidated level of the group, are greater than or
equal to the EUR 70 billion threshold, where the most recent audited financial
statement of the parent company and consolidated subsidiaries shall be used in
order to determine asset size; (6) ‘unregulated financial entity’ means
any other entity that is not a regulated entity but performs one or more of the
activities listed in Annex I of Directive [inserted by OP] or listed in Annex I
of Directive 2004/39/EC; (7) ‘obligor grade’ means a risk category
within the obligor rating scale of a rating system, to which obligors are
assigned on the basis of a specified and distinct set of rating criteria, from
which estimates of PD are derived; (8) ‘facility grade’ means a risk category
within a rating system's facility scale, to which exposures are assigned on the
basis of a specified and distinct set of rating criteria from which own
estimates of Loss Given Default are derived; (9) ‘servicer’ means an entity that
manages a pool of purchased receivables or the underlying credit exposures on a
day-to-day basis. 2.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which competent authorities
shall assess the equivalence of the prudential supervisory and regulatory
requirements set out in the legislation of third countries. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 138
Permission to use the IRB Approach 1.
Where the conditions set out in this Chapter are
met, the competent authority shall permit institutions to calculate their risk-weighted exposure amounts using the
Internal Ratings Based Approach (hereinafter referred to as ‘IRB Approach’). 2.
Permission to the use the IRB Approach,
including own estimates of Loss Given Default (hereinafter referred to as
‘LGD’) and conversion factors, shall be required for each and for each rating system and internal model approaches to equity exposures
and approach to estimating LGDs and conversion factors used. 3.
Institutions must obtain the permission of the
competent authorities for the following: (a)
changes to the range of application of a rating
system or an internal models approach to equity exposures that the institution has
received permission to use; (b)
material changes to a rating system or an
internal models approach to equity exposures that the institution has received
permission to use. The range of application of a rating system
shall comprise all exposures of the relevant type of exposure for which that
rating system was developed. 4.
Institutions shall notify the competent
authorities of all changes to rating systems and internal models approaches to
equity exposures. 5.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which institutions shall assess
the materiality of the changes to rating systems or internal models approaches
to equity exposures under the IRB Approach referred to in paragraph 1 that
require additional permission or require notification. EBA shall submit
those draft regulatory technical standards to the Commission by 31 December 2013. Power is delegated to
the Commission to adopt the regulatory technical standards referred to the
first subparagraph in accordance with the procedure laid down in Articles 10 to
14 of Regulation (EU) No 1093/2010. Article 139
Competent authorities’ assessment of an application to use an IRB Approach 1.
The competent authority shall grant permission
pursuant to Article 138 for an institution to use the IRB Approach, including
to use own estimates of LGD and conversion factors, only if the competent authority
is satisfied that requirements laid down in this Chapter are met, in particular
those laid down in Section 6, and that the systems of the institution for the
management and rating of credit risk exposures are sound and implemented with
integrity and, in particular, that the institution has demonstrated to the
satisfaction of the competent authority that the following standards are met: (a)
the institution's rating systems provide for a
meaningful assessment of obligor and transaction characteristics, a meaningful
differentiation of risk and accurate and consistent quantitative estimates of
risk; (b)
internal ratings and default and loss estimates
used in the calculation of own funds requirements and associated systems and
processes play an essential role in the risk management and decision-making
process, and in the credit approval, internal capital allocation and corporate
governance functions of the institution; (c)
the institution has a credit risk control unit responsible
for its rating systems that is appropriately independent and free from undue
influence; (d)
the institution collects and stores all relevant
data to provide effective support to its credit risk measurement and management
process; (e)
the institution documents its rating systems and
the rationale for their design and validates its rating systems; (f)
the institution has validated its rating systems
during an appropriate time period prior to the permission to use this rating
system or internal models approach to equity exposures, has assessed during
this time period whether these rating systems and internal models approaches
for equity exposures are suited to the range of application of the rating
system, and has made necessary changes to these rating systems and internal
models approaches for equity exposures following from its assessment; (g)
the institution has calculated under the IRB Approach
the own funds requirements resulting from its risk parameters estimates and is
able to submit the reporting as required by Article 95. The requirements to
use an IRB Approach, including own estimates of LGD and conversion factors,
apply also where an institution has implemented a rating system, or model used
within a rating system, that it has purchased from a third-party vendor. 2.
EBA shall develop regulatory technical standards
to specify the processes competent authorities shall follow in assessing the
compliance of an institution with the requirements to use the IRB Approach. EBA shall submit those
draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to
the Commission to adopt the regulatory technical standards referred to in the
first sub-paragraph in accordance with the procedure laid down in Article 15 of
Regulation (EU) No 1093/2010. Article 140
Prior experience of using IRB approaches 1.
An institution applying to
use the IRB Approach shall have
been using for the IRB exposure classes in question rating systems that were
broadly in line with the requirements set out in Section 6 for internal risk
measurement and management purposes for at least three years prior to its
qualification to use the IRB Approach. 2.
An institution applying
for the use of own estimates of LGDs and conversion factors shall demonstrate to the satisfaction of the competent authorities that it
has been estimating and employing own estimates of LGDs
and conversion factors in a manner that was broadly consistent with the
requirements for use of own estimates of those parameters set out in Section 6
for at least three years prior to qualification to use own estimates of LGDs
and conversion factors. 3.
Where the institution extends the use of the IRB
approach subsequent to its initial permission, the experience of the
institution shall be sufficient to satisfy the requirements of paragraphs 4 and 5 in respect of the
additional exposures covered. If the use of rating systems is extended to
exposures that are significantly different to the scope of the existing
coverage, such that the existing experience cannot be reasonably assumed to be
sufficient to meet the requirements of these provisions in respect of the
additional exposures, then the requirements of paragraphs 4 and 5 shall apply
separately for the additional exposures. Article 141
Measures to be taken where the requirements of this Chapter cease to be met Where an institution ceases to comply with the
requirements laid down in this Chapter, it shall notify the competent authority
and do one of the following: (a) present to the competent
authority a plan for a timely return to compliance; (b) demonstrate to the satisfaction
of the competent authorities that the effect of non-compliance is immaterial. Article 142
Methodology to assign exposure to exposures classes 1.
The methodology used by the institution for assigning exposures to
different exposure classes shall be appropriate and consistent over time. 2.
Each exposure shall be assigned to one of the
following exposure classes: (a)
claims or contingent claims on central
governments and central banks; (b)
claims or contingent claims on institutions; (c)
claims or contingent claims on corporates; (d)
retail claims or contingent retail claims; (e)
equity claims; (f)
securitisation positions; (g)
other non credit-obligation assets. 3.
The following exposures shall be assigned to the
class laid down in point (a) of paragraph 2: (a)
exposures to regional governments, local
authorities or public sector entities which are treated as exposures to central
governments under Article 110 and 110; (b)
exposures to Multilateral Development Banks referred
to in Article 112 International Organisations which attract a risk weight of
0 % under Article 113. 4.
The following exposures shall be assigned to the
class laid down in point (b) of paragraph 2 : (a)
exposures to regional governments and local
authorities which are not treated as exposures to central governments under
Article 110; (b)
exposures to Public Sector Entities which are
treated as exposures to institutions under Article 110; and (c)
exposures to Multilateral Development Banks
which are not assigned a 0 % risk weight under Article 112. 5.
To be eligible for the retail exposure class laid
down in point (d) of paragraph 2, exposures shall meet the following criteria: (a)
they shall be to one of the following: (i) a natural person or persons; (ii) to a small or medium sized enterprise,
provided in the latter case that the total amount owed to the institution and
parent undertakings and its subsidiaries, including any past due exposure, by
the obligor client or group of connected clients, but excluding claims or
contingent claims secured on residential property collateral, shall not, to the
knowledge of the institution, which shall have taken reasonable steps to
confirm the situation, exceed EUR 1 million; (b)
they are treated by the institution in its risk
management consistently over time and in a similar manner; (c)
they are not managed just as individually as
exposures in the corporate exposure class; (d)
they each represent one of a significant number
of similarly managed exposures. In addition to the exposures listed in the
first sub-paragraph, the present value of retail minimum lease payments shall
be included in the retail exposure class. 6.
The following exposures shall be assigned to the
equity exposure class laid down in point (e) of paragraph 2: (a)
non-debt exposures conveying a subordinated, residual
claim on the assets or income of the issuer; (b)
debt exposures and other securities,
partnerships, derivatives, or other vehicles, the economic substance of which
is similar to the exposures specified in point (a). 7.
Any credit obligation not assigned to the
exposure classes laid down in points (a), (b), (d), (e) and (f) of paragraph 2
shall be assigned to the corporate exposure class referred to in point (c) of
that paragraph. 8.
Within the corporate exposure class laid down in
point (c) of paragraph 2, institutions shall separately identify as specialised lending exposures,
exposures which possess the following characteristics: (a)
the exposure is to an entity which was created
specifically to finance or operate physical assets; (b)
the contractual arrangements give the lender a
substantial degree of control over the assets and the income that they
generate; (c)
the primary source of repayment of the
obligation is the income generated by the assets being financed, rather than
the independent capacity of a broader commercial enterprise. 9.
The residual value of leased properties shall be
assigned to the exposure class laid down in point (g) of paragraph 2, except to
the extent that residual value is already included in the lease exposure laid
down in Article 162(4). Article 143
Conditions for implementing the IRB approach across different classes of
exposure and business units 1.
Institutions and any
parent undertaking and its subsidiaries shall implement the IRB Approach for
all exposures, unless they have received the permission of the competent
authorities permanently use the Standardised Approach in accordance with Article
145. Subject to the permission of the competent
authorities, implementation may be carried out sequentially across the
different exposure classes, referred to in Article 142, within the same
business unit, across different business units in the same group or for the use
of own estimates of LGDs or conversion factors for the calculation of risk
weights for exposures to corporates, institutions, and central governments and
central banks. In the case of the retail exposure class
referred to in Article 142(5), implementation may be carried out sequentially
across the categories of exposures to which the different correlations in
Article 149 correspond. 2.
The competent authority shall determine the time
period over which an institution any parent undertaking and its subsidiaries
shall be required to implement the IRB approach for all exposures. This time
period shall be one that the competent authority considers to be appropriate on
the basis of the nature and scale of the institutions, any parent undertaking and its subsidiaries, and the number and
nature of rating systems to be implemented. 3.
Institutions shall carry out implementation of
the IRB approach according to conditions determined by the competent
authorities. The competent authority shall design those conditions such that
they ensure that the flexibility under paragraph 1 is not used selectively for
the purposes of achieving reduced own funds requirements in respect of those
exposure classes or business units that are yet to be included in the IRB
Approach or in the use of own estimates of LGDs and conversion factors. 4.
Institutions that have begun
to use of the IRB approach only after 1 January 2013 shall retain their ability
to calculate capital requirements using the Standardised Approach for all their
exposures during the implementation period until the competent authorities
notify them that they are satisfied that the implementation of the IRB approach
will be completed with reasonable certainty. 5.
An institution that is permitted to use the IRB Approach for any exposure class shall be permitted to use
the IRB Approach for the equity exposure class, except
where that institution is permitted to apply the Standardised Approach for
equity exposures pursuant to Article 145. 6.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which
competent authorities shall determine
the conditions by which they shall require institutions to implement the IRB
approach in accordance with this Article. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 144
Conditions to revert to the use of less sophisticated approaches 1.
An institution that uses the IRB Approach shall not stop using that approach and use instead the Standardised
Approach for the calculation of risk-weighted exposure amounts unless the
following conditions are met: (a)
the institution has demonstrated to the
satisfaction of the competent authority that the use of the Standardised
Approach is not proposed in order to reduce the own funds requirement of the
institution, is necessary on the basis of nature and complexity of the
institution and would not have a material adverse impact on the solvency of the
institution or its ability to manage risk effectively; (b)
the institution has received the prior
permission of the competent authority. 2.
Institutions which have
obtained permission under Article 146(9) to use own estimates of LGDs and
conversion factors, shall not revert to the use of LGD values and conversion
factors referred to in Article 146(8) unless the following conditions are met: (a) the institution has demonstrated to
the satisfaction of the competent authority that the use of the use of LGDs and
conversion factors laid down in Article 146(8) is not proposed in order to
reduce the own funds requirement of the institution, is necessary on the basis
of nature and complexity of the institution and would not have a material
adverse impact on the solvency of the institution or its ability to manage risk
effectively; (b) the institution has received the prior
permission of the competent authority. 3.
The application of
paragraphs 1 and 2 is subject to the conditions for rolling out the IRB
approach determined by the competent authorities in accordance with Article 143
and the permission for permanent partial use referred to in Article 145. Article 145
Conditions for permanent partial use 1.
Where institutions have received the prior permission of the competent authorities, institutions permitted to use the IRB
Approach in the calculation of risk-weighted exposure amounts and expected loss
amounts for one or more exposure classes, they may apply the Standardised
Approach for the following exposures: (a)
the exposure class laid down in 142(a), where
the number of material counterparties is limited and it would be unduly
burdensome for the institution to implement a rating system for these
counterparties; (b)
the exposure class laid down in Article 142(b),
where the number of material counterparties is limited and it would be unduly
burdensome for the institution to implement a rating system for these
counterparties; (c)
exposures in non-significant business units as
well as exposure classes that are immaterial in terms of size and perceived
risk profile; (d)
exposures to central governments of the Member States and their regional governments, local authorities and administrative bodies
provided: (i) there is no difference in risk
between the exposures to that central government and those other exposures
because of specific public arrangements, and (ii) exposures to the central government
are assigned a 0 % risk weight under Article 109(4); (e)
exposures of an institution to a counterparty
which is its parent undertaking, its subsidiary or a subsidiary of its parent
undertaking provided that the counterparty is an institution or a financial
holding company, mixed financial holding company, financial institution, asset
management company or ancillary services undertaking subject to appropriate prudential
requirements or an undertaking linked by a relationship within the meaning of
Article 12(1) of Directive 83/349/EEC; (f)
and exposures between institutions which meet
the requirements set out in Article 108(7); (g)
equity exposures to entities whose credit obligations
assigned a 0 % risk weight under Chapter 2 including those publicly sponsored
entities where a 0 % risk weight can be applied; (h)
equity exposures incurred under legislative
programmes to promote specified sectors of the economy that provide significant
subsidies for the investment to the institution and involve some form of
government oversight and restrictions on the equity investments where such
exposures may in aggregate be excluded from the IRB approach only up to a limit
of 10 % of own funds; (i)
the exposures identified in Article 115(9)
meeting the conditions specified therein; (j)
State and State-reinsured guarantees referred to
in Article 210(2). The competent authorities shall permit the
application of Standardised Approach for equity exposures referred to in points
(g) and (h) which have been permitted for this treatment in other Member
States. 2.
For the purposes of paragraph 1, the equity
exposure class of an institution shall be material if their aggregate value,
excluding equity exposures incurred under legislative programmes as referred to
in point (g) of paragraph 1, exceeds on average over the preceding year 10 % of
the own funds of the institution. Where the number of those equity exposures is
less than 10 individual holdings, that threshold shall be 5 % of the own funds
of the institution. 3.
EBA shall develop draft regulatory technical
standards to determine the conditions of application of points (a), (b) and
(c). EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2013. Power is delegated to the Commission to adopt the
regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. 4.
For the purposes of paragraph 1, the equity
exposure class of an institution shall be considered material if their aggregate value, excluding
equity exposures incurred under legislative programmes as referred to in
paragraph 1, point (g), exceeds, on average over the preceding year, 10 % of
the institution's own funds. If
the number of those equity exposures is less than 10 individual holdings, that
threshold shall be 5 % of the institution's own funds. Section 2
Calculation of risk weighted exposure amounts Sub-Section 1
Treatment by type of exposure Article 146
Treatment by exposure class 1.
The risk-weighted exposure amounts for credit
risk for exposures belonging to one of the exposure classes referred to in
points (a) to (e) and (g) of 142(2) shall, unless deducted from own funds, be
calculated in accordance with Sub-section 2 except where those exposures are
deducted from Common Equity Tier 1 Additional Tier 1 items or Tier 2 items. 2.
The risk-weighted exposure amounts for dilution
risk for purchased receivables shall be calculated according to Article 153.
Where an institution has full
recourse to the seller of purchased receivables for default risk and for
dilution risk, to the seller of the purchased receivables, the provisions of
this Article and Articles 147 and 154(1) to (4) in relation to purchased
receivables shall not apply and the exposure shall be treated as a
collateralised exposure. 3.
The calculation of risk-weighted exposure
amounts for credit risk and dilution risk shall be based on the relevant
parameters associated with the exposure in question. These shall include
probability of default (hereinafter referred to as ‘PD’), LGD, maturity (hereinafter
referred to as ‘M’) and exposure value of the exposure. PD and LGD may be
considered separately or jointly, in accordance with Section 4. 4.
Institutions may calculate risk-weighted
exposure amounts for credit risk for all exposures belonging to the exposure
class 'equity' referred to in
point (e) of Article 142(2) in accordance with Article 142(2) where they have
received the prior permission of the competent authorities. Competent
authorities shall grant permission for an institution to use the internal models approach set out in Article 150(4) provided the institution meets the requirements set out
in Sub-section 4 of Section 6. 5.
The calculation of risk weighted exposure
amounts for credit risk for specialised lending exposures may be calculated in
accordance with Article 148(4). 6.
For exposures belonging to the exposure classes
referred to in points (a) to (d) of Article 142(2), institutions shall provide their own estimates of PDs in accordance with Article
138 and Section 6. 7.
For exposures belonging to the exposure class
referred to in point (d) of Article 142(2), institutions shall provide own estimates of LGDs and conversion factors in
accordance with Article 138 and Section 6. 8.
For exposures belonging to the exposure classes
referred to in points (a) to (c) of Article 142(2), institutions shall apply the LGD values set out in Article 157(1), and the
conversion factors set out in Article 162(8) (a) to (d), unless it has been permitted to use its own estimates of LGDs and
conversion factors for those exposure classes in accordance with paragraph 9. 9.
For all exposures belonging to the exposure
classes referred to in points (a) to (c) of Article 142(2), the competent
authority shall permit institutions to use own estimates of LGDs and conversion factors only in
accordance with Article 138. 10.
The risk-weighted exposure amounts for
securitised exposures and for exposures belonging to the exposure class
referred to in point (f) of Article 142(2) shall be calculated in accordance
with Chapter 5. Article 147
Treatment of exposures in the form of shares in collective investment
undertakings (CIUs) 1.
Where exposures in the form of shares in a collective
investment undertakings (CIUs)
meet the criteria set out in Article 127(3) and the institution is aware of all or parts of the underlying exposures of the CIU,
the institution shall look
through to those underlying exposures in order to calculate risk-weighted
exposure amounts and expected loss amounts in accordance with the methods set
out in this Chapter. Where an underlying exposure of the CIU is
itself another exposure in the form of units or shares in another CIU, the first
institution shall also look through to the underlying exposures of the other
CIU. 2.
Where the institution does not meet the conditions for using the methods set out in this
Chapter for all or parts of the underlying exposures of the CIU, risk weighted
exposure amounts and expected loss amounts shall be calculated in accordance
with the following approaches: (a)
for exposures belonging to the 'equity' exposure
class referred to in Article 142(2)(e), institutions shall apply the simple
risk-weight approach set out in Article 150(2); (b)
for all other underlying exposures referred to
in paragraph 1, institutions shall apply the Standardised Approach laid down in
Chapter 2, subject to the following: (i) for exposures subject to a specific
risk weight for unrated exposures or subject to the credit quality step
yielding the highest risk weight for a given exposure class, the risk weight shall
be multiplied by a factor of two but must not be higher than 1250 %; (ii) for all other exposures, the risk
weight must be multiplied by a factor of 1,1 and shall be subject to a minimum
of 5 %. Where, for the purposes of point (a), the institution
is unable to differentiate between private equity, exchange-traded and other
equity exposures, it shall treat the exposures concerned as other equity exposures.
Where those exposures, taken together with the institution's direct exposures
in that exposure class, are not material within the meaning of Article 145(2),
Article 145(1) may be applied subject to the permission of the competent
authorities. 3.
Where exposures in the form of units or shares
in a CIU do not meet the criteria set out in Article 127(3), or the institution is not aware of all of the
underlying exposures of the CIU or of its underlying
exposures which is itself an exposure in the form of units or shares in a CIU, the institution
shall look through to those
underlying exposures and calculate risk-weighted exposure amounts and expected
loss amounts in accordance with the simple risk-weight approach set out in Article 150(2). Where the institution is unable to
differentiate between private equity, exchange-traded and other equity
exposures, it shall treat the exposures concerned as other equity exposures. It
shall assign non equity exposures to the other equity class. 4.
Alternatively to the method described in the
paragraph 4, institutions may
calculate themselves or may rely on the following third
parties to calculate and report the average risk
weighted exposure amounts based on the CIU's underlying exposures in accordance
with the approaches referred to in points (a) and (b) of
paragraph 2 for the following: (a)
the depository institution or financial
institution of the CIU provided that the CIU exclusively invests in securities
and deposits all securities at this depository institution or financial institution; (b)
for other CIUs, the CIU management company,
provided that the CIU management company meets the criteria set out in Article 127(3)(a). The correctness of the calculation shall be
confirmed by an external auditor. 5.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which competent authorities
may permit institutions to use Article 145(1) under point (b) of paragraph 2. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Sub-Section 2
Calculation of risk weighted exposure amounts for credit risk Article 148
Risk weighted exposure amounts for exposures to corporates, institutions and
central governments and central banks. 1.
Subject to the application of the specific
treatments laid down in paragraphs 2, 3 and 4, the risk weighted exposure
amounts for exposures to corporates, institutions and central governments and
central banks shall be calculated according to the following formulae: where the risk weight RW is defined as (i) if PD = 0, RW shall be 0; (ii) if PD = 1, i.e., for defaulted
exposures: –
where institutions apply the LGD values set out
in Article 157(1), RW shall be 0; –
where institutions use own estimates of LGDs, RW
shall be ; where the Expected Loss Best Estimate (hereinafter
referred to as ‘ELBE’) shall be the institution's best estimate of expected
loss for the defaulted exposure according to Article 177(1)(h); (iii) if , i.e., for any value other than under (i) or (ii) where N(x) = the cumulative distribution function
for a standard normal random variable (i.e. the probability that a normal
random variable with mean zero and variance of one is less than or equal to x); G (Z) = denotes the inverse cumulative
distribution function for a standard normal random variable (i.e. the value x
such that N(x) z) R = denotes the coefficient of
correlation, is defined as b = the
maturity adjustment factor, which is defined as 2.
For all exposures to large regulated financial
entities and to unregulated financial entities, the coefficient of correlation
of paragraph 1(iii) is multiplied by 1.25 as follows: 3.
The risk weighted exposure amount for each
exposure which meets the requirements set out in Article 198 and 212 may be
adjusted according to the following formula: where: PDpp = PD of the protection
provider. RW shall be calculated using the relevant risk
weight formula set out in point 3 for the exposure, the PD of the obligor and
the LGD of a comparable direct exposure to the protection provider. The
maturity factor (b) shall be calculated using the lower of the PD of the
protection provider and the PD of the obligor. 4.
For exposures to companies where the total
annual sales for the consolidated group of which the firm is a part is less
than EUR 50 million, institutions may use the following correlation formula in
paragraph 1 (iii) for the calculation of risk weights
for corporate exposures. In this formula S is expressed as total annual sales
in millions of Euros with EUR 5 million ≤ S ≤ EUR 50 million.
Reported sales of less than EUR 5 million shall be treated as if they were
equivalent to EUR 5 million. For purchased receivables the total annual sales
shall be the weighted average by individual exposures of the pool. Institutions shall
substitute total assets of the consolidated group for total annual sales when
total annual sales are not a meaningful indicator of firm size and total assets
are a more meaningful indicator than total annual sales. 5.
For specialised lending exposures in respect of
which an institution is not able to estimate PDs or the institutions' PD estimates do not
meet the requirements set out in Section 6, the institution shall assign risk weights to these exposures according to Table 1,
as follows: Table 1 Remaining Maturity || Category 1 || Category 2 || Category 3 || Category 4 || Category 5 Less than 2,5 years || 50 % || 70 % || 115 % || 250 % || 0 % Equal or more than 2,5 years || 70 % || 90 % || 115 % || 250 % || 0 % In assigning risk weights to specialised
lending exposures institutions shall take into account the following factors:
financial strength, political and legal environment, transaction and/or asset
characteristics, strength of the sponsor and developer, including any public
private partnership income stream, and security package. 6.
For their purchased corporate receivables institutions shall comply with the
requirements set out in Article 180. For purchased corporate receivables that
comply in addition with the conditions set out in Article 149(5), and where it
would be unduly burdensome for an institution to use the risk quantification standards for corporate exposures as
set out in Section 6 for these receivables, the risk quantification standards
for retail exposures as set out in Section 6 may be used. 7.
For purchased corporate receivables, refundable
purchase discounts, collateral or partial guarantees that provide first-loss
protection for default losses, dilution losses, or both, may be treated as
first-loss positions under the IRB securitisation framework. 8.
Where an institution provides credit protection
for a number of exposures under terms that the nth default among the exposures
shall trigger payment and that this credit event shall terminate the contract,
if the product has an external credit assessment from an eligible ECAI the risk
weights set out in Chapter 5 shall be applied. If the product is not rated by an eligible ECAI, the
risk weights of the exposures included in the basket will be aggregated,
excluding n-1 exposures where the sum of the expected loss amount multiplied by
12,5 and the risk weighted exposure amount shall not exceed the nominal amount
of the protection provided by the credit derivative multiplied by 12,5. The n-1
exposures to be excluded from the aggregation shall be determined on the basis
that they shall include those exposures each of which produces a lower
risk-weighted exposure amount than the risk-weighted exposure amount of any of
the exposures included in the aggregation. A 1250% risk
weight shall apply to positions in a basket for which an institution cannot
determine the risk-weight under the IRB approach. 9.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which institutions shall take
into account the factors referred to the second subparagraph of paragraph 5
when assigning risk weights to specialised lending exposures. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with procedure laid down in Articles 10 to 14 of Regulation (EU) No
1093/2010. Article 149
Risk weighted exposure amounts for retail exposures 1.
The risk-weighted exposure amounts for retail exposures shall be calculated
according to the following formulae: where the risk weight RW is defined as follows: (i) if PD = 0, RW shall be 0; (ii) if PD = 1, i.e., for defaulted
exposures, RW shall be ; where ELBE shall be the
institution's best estimate of expected loss for the defaulted exposure according
to Article 177(1)(h); (iii) if, i.e., for any value other than under (i) or (ii) where N(x) = the cumulative distribution function
for a standard normal random variable (i.e. the probability that a normal
random variable with mean zero and variance of one is less than or equal to x); G (Z) = the inverse cumulative distribution
function for a standard normal random variable (i.e. the value x such that N(x)
z); R = the coefficient of correlation
defined as 2.
The risk weighted exposure amount for each
exposure to small and medium sized enterprise as defined in Article 142(5)
which meets the requirements set out in Articles 198 and 212 may be calculated
according to Article 148(3). 3.
For retail exposures secured by immovable
property collateral a coefficient of correlation R of 0.15 shall replace
the figure produced by the correlation formula in paragraph 1. 4.
For qualifying revolving retail exposures as
defined in points (a) to (e), a coefficient of correlation R of 0.04
shall replace the figure produced by the correlation formula in paragraph 1. Exposures shall qualify as qualifying revolving
retail exposures if they meet the following conditions: (a)
the exposures are to individuals; (b)
the exposures are revolving, unsecured, and to
the extent they are not drawn immediately and unconditionally, cancellable by
the institution. In this context revolving exposures are defined as those where
customers' outstanding balances are permitted to fluctuate based on their
decisions to borrow and repay, up to a limit established by the institution.
Undrawn commitments may be considered as unconditionally cancellable if the
terms permit the institution to cancel them to the full extent allowable under
consumer protection and related legislation; (c)
the maximum exposure to a single individual in
the sub-portfolio is EUR 100000 or less; (d)
the use of the correlation of this paragraph is
limited to portfolios that have exhibited low volatility of loss rates,
relative to their average level of loss rates, especially within the low PD
bands; (e)
the treatment as a qualifying revolving retail
exposure shall be consistent with the underlying risk characteristics of the
sub-portfolio. By way of derogation from point (b), the
requirement to be unsecured does not apply in respect of collateralised credit
facilities linked to a wage account. In this case amounts recovered from the
collateral shall not be taken into account in the LGD estimate. Competent authorities shall review the relative
volatility of loss rates across the qualifying revolving retail sub-portfolios,
as well the aggregate qualifying revolving retail portfolio, and shall share
information on the typical characteristics of qualifying revolving retail loss
rates across Member States. 5.
To be eligible for the retail treatment,
purchased receivables shall comply with the requirements set out in Article 180
and the following conditions: (a)
The institution has purchased the receivables
from unrelated, third party sellers, and its exposure to the obligor of the
receivable does not include any exposures that are directly or indirectly
originated by the institution itself; (b)
The purchased receivables shall be generated on
an arm's-length basis between the seller and the obligor. As such,
inter-company accounts receivables and receivables subject to contra-accounts
between firms that buy and sell to each other are ineligible; (c)
The purchasing institution has a claim on all
proceeds from the purchased receivables or a pro-rata interest in the proceeds;
and (d)
The portfolio of purchased receivables is sufficiently
diversified. 6.
For purchased receivables, refundable purchase
discounts, collateral or partial guarantees that provide first-loss protection
for default losses, dilution losses, or both, may be treated as first-loss
positions under the IRB securitisation framework. 7.
For hybrid pools of purchased retail receivables
where purchasing institutions
cannot separate exposures secured by immovable property collateral and
qualifying revolving retail exposures from other retail exposures, the retail
risk weight function producing the highest capital requirements for those
exposures shall apply. Article 150
Risk weighted exposure amounts for equity exposures 1.
Institutions shall determine their risk-weighted
exposure amounts for equity exposures, excluding those deducted in accordance
with Part Two or subject to a 250 % risk weight in accordance with Article 45,
according to the different approaches set out in paragraphs (2), (3) and (4)
and apply them to different portfolios where the institution itself uses
different approaches internally. Where an institution uses different
approaches, the choice shall be made consistently and shall not be determined
by regulatory arbitrage considerations. Institutions may treat
equity exposures to ancillary services undertakings according to the treatment
of other non credit- obligation assets. 2.
Under the Simple risk weight approach, the risk weighted exposure amount shall be calculated according to
the following formula: Risk weight (RW) = 190 % for private equity
exposures in sufficiently diversified portfolios. Risk weight (RW) = 290 % for exchange traded
equity exposures. Risk weight (RW) = 370 % for all other equity
exposures. Risk-weighted exposure amount = RW * exposure
value. Short cash positions and derivative instruments
held in the non-trading book are permitted to offset long positions in the same
individual stocks provided that these instruments have been explicitly
designated as hedges of specific equity exposures and that they provide a hedge
for at least another year. Other short positions are to be treated as if they
are long positions with the relevant risk weight assigned to the absolute value
of each position. In the context of maturity mismatched positions, the method
is that for corporate exposures as set out in Article 158(5). Institutions may
recognise unfunded credit protection obtained on an equity exposure in
accordance with the methods set out in Chapter IV. 3.
Under the PD/LGD approach, risk weighted exposure amounts shall be calculated according to
the formulas in Article 148(1). If institutions do not have sufficient information to use the definition of default
set out in Article 174, a scaling factor of 1,5 shall be assigned to the risk
weights. At the individual exposure level the sum of the
expected loss amount multiplied by 12,5 and the risk weighted exposure amount
shall not exceed the exposure value multiplied by 12,5. Institutions may
recognise unfunded credit protection obtained on an equity exposure in
accordance with the methods set out in Chapter IV. This shall be subject to an
LGD of 90 % on the exposure to the provider of the hedge. For private equity
exposures in sufficiently diversified portfolios an LGD of 65 % may be used.
For these purposes M shall be 5 years. 4.
Under the internal models approach, the risk weighted exposure amount shall be the potential loss on
the institution’s equity
exposures as derived using internal value-at-risk models subject to the 99th
percentile, one-tailed confidence interval of the difference between quarterly
returns and an appropriate risk-free rate computed over a long-term sample
period, multiplied by 12.5. The risk weighted exposure amounts at the equity
portfolio level shall not be less than the total of the sums of the following: (a)
the risk weighted exposure amounts required
under the PD/LGD Approach; and (b)
the corresponding expected loss amounts
multiplied by 12.5. The amounts referred to in point (a) and (b)
shall be calculated on the basis of the PD values set
out in Article 161(1) and the corresponding LGD values set out in Article 161(2). Institutions may
recognise unfunded credit protection obtained on an equity position. Article 151
Risk weighted exposure amounts for equity exposures Risk weighted exposure amounts for
exposures arising from institution's pre-funded contribution to the default
fund of a CCP and trade exposures with a CCP shall be determined in accordance
with Articles 296 to 300 as applicable. Article 152
Risk weighted exposure amounts for other non credit-obligation assets The risk weighted exposure amounts for
other non credit-obligation assets shall be calculated according to the
following formula: , except for: (a) cash in hand and equivalent cash
items as well as gold bullion held in own vault or on an allocated basis to the
extent backed by bullion liabilities, in which case a 0% risk-weight shall be
assigned; (b) when the exposure is a residual
value of leased assets in which case it shall be calculated as follows: , where t is the greater of 1 and the nearest
number of whole years of the lease remaining. Sub Section 3
Calculation Of Risk Weighted Exposure Amounts For Dilution Risk Of Purchased
Receivables Article 153
Risk weighted exposure amounts for dilution risk of purchased receivables 1.
Institutions shall calculate the risk weighted
exposure amounts for dilution risk of purchased corporate and retail
receivables shall be calculated according to the formula set out in Article 148(1).
2.
Institutions shall determine the input
parameters PD and LGD in accordance with section 4. 3.
Institutions shall determine the exposure value
in accordance with Section 5. 4.
For the purposes of this Article, the value of M
is 1 year. 5.
The competent authorities shall exempt an
institution from the requirements for risk weighted exposure amounts for
dilution risk of purchased corporate and retail receivables where the
institution has demonstrated to the satisfaction of the competent authority
that dilution risk is immaterial for that institution. [1] The Basel Committee on Banking Supervision
provides a forum for regular cooperation on banking supervisory matters. It
seeks to promote and strengthen supervisory and risk management practices
globally. The Committee comprises representatives from Argentina, Australia, Brazil, Canada, China, Hong Kong SAR, India, Indonesia, Japan, Korea, Mexico, Russia, Saudi Arabia, Singapore, South Africa, Switzerland, Turkey, the United States and nine EU Member States: Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain, Sweden and the United Kingdom. [2] C(2011)4977. [3] For detailed discussion of all policy options please refer to the
accompanying impact assessment [4] Measures extent to which options achieve relevant objectives [5] Measures extent to which objectives can be achieved for a given
level of resources [6] COM(2009) 501, COM(2009) 502, COM(2009)
503. [7] OJ C , , p. . [8] http://www.g20.org/Documents/Fin_Deps_Fin_Reg_Annex_020409_-_1615_final.pdf. [9] OJ L 177, 30.6.2006, p. 1. [10] OJ L 177, 30.6.2006, p. 201. [11] OJ L 331, 15.12.2010, p. 12. [12] OJ L 372, 31.12.1986, p. 1. [13] OJ L 193, 18.7.1983, p. 1. [14] OJ L 243, 11.9.2002, p. 1. [15] COM/2010/0484 final. [16] OJ L 281, 23.11.1995, p. 31. [17] OJ L 8, 12.1.2001, p. 1. [18] OJ L 193, 18.7.1983, p. 1. [19] OJ L 222, 14.8.1978, p. 11. [20] OJ L 243, 11.9.2002, p. 1. [21] OJ L 372, 31.12.1986, p. 1. [22] Directive 2002/87/EC of the
European Parliament and of the Council of 16 December 2002 on the supplementary
supervision of credit institutions, insurance undertakings and investment firms
in a financial conglomerate (OJ L 35, 11.2.2003, p. 1). [23] OJ L 02, 17.11.2009, p. 2. Section 3
Expected loss amounts Article 154
Treatment by exposure type 1.
The calculation of expected loss amounts shall
be based on the same input figures of PD, LGD and the exposure value for each
exposure as being used for the calculation of risk-weighted exposure amounts in
accordance with Article 146. For defaulted exposures, where institutions use
own estimates of LGDs, expected loss (‘EL’) shall be the institution's best
estimate of EL (‘ELBE,’) for the defaulted exposure, in accordance
with Article 177(1)(h). 2.
The expected loss amounts for securitised
exposures shall be calculated in accordance with Chapter 5. 3.
The expected loss amount for exposures belonging
to the 'other non credit obligations assets' exposure class referred to in
point (g) of Article 142(2) shall be zero. 4.
The expected loss amounts for exposures in the
form of a collective investment undertaking referred to in Article 147 shall be
calculated in accordance with the methods set out in this Article. 5.
The expected loss amounts for exposures to
corporates, institutions, central governments and central banks and retail
exposures shall be calculated according to the following formulae: For defaulted exposures (PD =1) where institutions
use own estimates of LGDs, EL shall be ELBE, the institution's best
estimate of expected loss for the defaulted exposure according to Article 177(1)(h). For exposures subject to the treatment set out
in Article 148(3), EL shall be 0. 6.
The EL values for specialised lending exposures
where institutions use the methods set out in Article 148(6) for assigning risk
weights shall be assigned according to Table 2. Table 2 Remaining Maturity || Category 1 || Category 2 || Category 3 || Category 4 || Category 5 Less than 2,5 years || 0 % || 0,4 % || 2,8 % || 8 % || 50 % Equal to or more than 2,5 years || 0,4 % || 0,8 % || 2,8 % || 8 % || 50 % 7.
The expected loss amounts for equity exposures
where the risk weighted exposure amounts are calculated according to simple
risk weight approach shall be calculated according to the following formula: The EL values shall be the following: Expected loss (EL) = 0,8 % for private equity
exposures in sufficiently diversified portfolios Expected loss (EL) = 0,8 % for exchange traded
equity exposures Expected loss (EL) = 2,4 % for all other equity
exposures. 8.
The expected loss amounts for equity exposures
where the risk weighted exposure amounts are calculated according to the PD/LGD
approach shall be calculated according to the following formulae: 9.
The expected loss amounts for equity exposures
where the risk weighted exposure amounts are calculated according to the
internal models approach shall be 0 %. 10.
The expected loss amounts for dilution risk of
purchased receivables shall be calculated according to the following formula: 11.
For exposures arising from OTC derivatives, an institution
calculating the risk-weighted exposure amounts in accordance with this Chapter
may reduce the expected loss amounts for a given netting set by the amount of
the credit valuation adjustment for that netting set, which has already been
recognised by the institution as an incurred write-down. The resulting expected
loss amount shall not be lower than zero. Article 155
Treatment of expected loss amounts Institutions shall subtract the expected
loss amounts calculated in accordance with Article 154(2)(3) and (7) from the general
and specific credit risk adjustments related to these exposures. Discounts on
balance sheet exposures purchased when in default according to Article 162(1)
shall be treated in the same manner as specific credit risk adjustments Specific
credit risk adjustments on exposures in default shall not be used to cover
expected loss on other exposures. Expected loss amounts for securitised
exposures and general and specific credit risk adjustments related to these
exposures shall not be included in this calculation. Section 4
PD, LGD and maturity Sub-Section 1
Exposures to Corporates, institutions and central governments and central banks Article 156
Probability of default (PD) 1.
The PD of an exposure to a corporate or an
institution shall be at least 0,03 %. 2.
For purchased corporate receivables in respect
of which an institution is not able to estimate PDs or institution's PD
estimates do not meet the requirements set out in Section 6, the PDs for these
exposures shall be determined according to the following methods: (a)
for senior claims on purchased corporate
receivables PD shall be the institutions estimate of EL divided by LGD for
these receivables; (b)
for subordinated claims on purchased corporate
receivables PD shall be the institution's estimate of EL; (c)
an institution that has
received the permission of the competent authority to use own LGD estimates for
corporate exposures pursuant to Article 138 and it can decompose its EL
estimates for purchased corporate receivables into PDs and LGDs in a manner
that the competent authority considers to be reliable, may use PD estimate that
results from this decomposition. 3.
The PD of obligors in default shall be 100 %. 4.
Institutions may take
into account unfunded credit protection in the PD in accordance with the
provisions of Chapter 4. For dilution risk, in addition to the protection
providers referred to in Article 197(1)(g) the seller of the purchased
receivables is eligible if the following conditions are met: (a) the corporate entity has a credit assessment
by a recognised ECAI which has been determined by the EBA to be associated with
credit quality step 3 or above under the rules for the risk weighting of
exposures to corporates under Chapter 2; (b) the corporate entity, in the case of
institutions calculating risk-weighted exposure amounts and expected loss
amounts under the IRB Approach, does not have a credit assessment by a
recognised ECAI and are internally rated as having a PD equivalent to that
associated with the credit assessments of ECAIs determined by EBA to be
associated with credit quality step 3 or above under the rules for the risk
weighting of exposures to corporate under Chapter 2. 5.
Institutions using own
LGD estimates may recognise unfunded credit protection by adjusting PDs subject
to Article 157(3). 6.
For dilution risk of purchased corporate
receivables, PD shall be set equal to the EL estimate of the institution for
dilution risk. An institution that has received permission from the competent
authority pursuant to Article 138 to use own LGD estimates for corporate
exposures that can decompose its EL estimates for dilution risk of purchased
corporate receivables into PDs and LGDs in a manner that the competent
authority considers to be reliable, may use the PD estimate that results from this
decomposition. Institutions may recognise unfunded credit protection in the PD
in accordance with the provisions of Chapter 4. For dilution risk, in addition
to the protection providers referred to in Article 197(1)(g), the seller of the
purchased receivables is eligible provided that the conditions set out in
paragraph 4 are met. 7.
By derogation to Article 197(1)(g), the
corporate entities that meet the conditions set out in paragraph 4 are eligible An institution that has received the permission
of the competent authority pursuant to Article 138 to use own LGD estimates for
dilution risk of purchased corporate receivables, may recognise unfunded credit
protection by adjusting PDs subject to Article 157(3). Article 157
Loss Given Default (LGD) 1.
Institutions shall use the following LGD values
in accordance with Article 146(8): (a) senior exposures without eligible
collateral: 45 %; (b) subordinated exposures without
eligible collateral: 75 %; (c) institutions
may recognise funded and unfunded credit protection in the LGD in accordance
with Chapter 4; (d) covered bonds as defined in Article 124
may be assigned an LGD value of 11,25 %; (e) for senior purchased corporate
receivables exposures where institution's PD estimates do not meet the
requirements set out in Section 6: 45 %; (f) for subordinated purchased corporate
receivables exposures where an institution is not able to estimate PDs or the institution's
PD estimates do not meet the requirements set out in Section 6: 100 %; (g) For dilution risk of purchased
corporate receivables: 75 %. 2.
For dilution and default risk if an institution has
received permission from the competent authority to use own LGD estimates for
corporate exposures pursuant to Article 138 and it can decompose its EL
estimates for purchased corporate receivables into PDs and LGDs in a manner the
competent authority considers to be reliable, the LGD estimate for purchased
corporate receivables may be used. 3.
If an institution has received the permission of
the competent authority to use own LGD estimates for exposures to corporates,
institutions, central governments and central banks pursuant to Article 138,
unfunded credit protection may be recognised by adjusting PD or LGD subject to
requirements as specified in Section 6 and permission of the competent
authorities. An institution shall not assign guaranteed exposures an adjusted
PD or LGD such that the adjusted risk weight would be lower than that of a
comparable, direct exposure to the guarantor. 4.
For the purposes of the undertakings referred to
in Article 148(3), the LGD of a comparable direct exposure to the protection
provider shall either be the LGD associated with an unhedged facility to the
guarantor or the unhedged facility of the obligor, depending upon whether in
the event both the guarantor and obligor default during the life of the hedged
transaction, available evidence and the structure of the guarantee indicate
that the amount recovered would depend on the financial condition of the
guarantor or obligor, respectively. Article 158
Maturity 1.
Institutions that have
not received permission to use own LGDs and conversion factor for exposures to
corporates, institutions or central governments and central banks shall assign
to exposures arising from repurchase transactions or securities or commodities
lending or borrowing transactions a maturity value (M) of 0.5 years and to all
other exposures an M of 2,5 years. Alternatively, as part of the permission referred
to in Article 138, the competent authorities shall
decide on whether the institution shall use maturity (M) for each exposure as
set out under paragraph 2. 2.
Institutions that have
received the permission of the competent authority to use own LGDs and own
conversion factors for exposures to corporates, institutions or central governments
and central banks pursuant to Article 138 shall calculate M for each of these
exposures as set out in (a) to (e) and subject to paragraphs 3 to 5. In all
cases, M shall be no greater than 5 years: (a) for an instrument subject to a cash
flow schedule, M shall be calculated according to the following formula: where CFt denotes the cash flows
(principal, interest payments and fees) contractually payable by the obligor in
period t; (b) for derivatives subject to a master
netting agreement, M shall be the weighted average remaining maturity of the
exposure, where M shall be at least 1 year, and the notional amount of each
exposure shall be used for weighting the maturity; (c) for exposures arising from fully or
nearly-fully collateralised derivative instruments (listed in Annex II)
transactions and fully or nearly-fully collateralised margin lending
transactions which are subject to a master netting agreement, M shall be the
weighted average remaining maturity of the transactions where M shall be at least
10 days; (d) for repurchase transactions or
securities or commodities lending or borrowing transactions which are subject
to a master netting agreement, M shall be the weighted average remaining
maturity of the transactions where M shall be at least 5 days. The notional
amount of each transaction shall be used for weighting the maturity; (e) an institution that has received the
permission of the competent authority pursuant to Article 138 to use own PD
estimates for purchased corporate receivables, for drawn amounts M shall equal
the purchased receivables exposure weighted average maturity, where M shall be
at least 90 days. This same value of M shall also be used for undrawn amounts
under a committed purchase facility provided the facility contains effective
covenants, early amortisation triggers, or other features that protect the
purchasing institution against a significant deterioration in the quality of
the future receivables it is required to purchase over the facility's term.
Absent such effective protections, M for undrawn amounts shall be calculated as
the sum of the longest-dated potential receivable under the purchase agreement
and the remaining maturity of the purchase facility, where M shall be at least
90 days; (f) for any other instrument than those
mentioned in this point or when an institution is not in a position to
calculate M as set out in (a), M shall be the maximum remaining time (in years)
that the obligor is permitted to take to fully discharge its contractual
obligations, where M shall be at least 1 year; (g) for institutions using the Internal
Model Method set out in Section 6 of Chapter 6 to calculate the exposure
values, M shall be calculated for exposures to which they apply this method and
for which the maturity of the longest-dated contract contained in the netting
set is greater than one year according to the following formula: where: = a dummy variable whose value at future period tk is
equal to 0 if tk > 1 year and to 1 if tk ≤ 1 = the expected exposure at the future period tk; = the effective expected exposure at the future period tk ; = the risk-free discount factor for future time period tk; (h) an institution
that uses an internal model to calculate a one-sided credit valuation adjustment
(CVA) may use, subject to the permission of the competent authorities, the
effective credit duration estimated by the internal model as M. Subject to paragraph 2 , for netting sets in
which all contracts have an original maturity of less than one year the formula
in point (a) shall apply; (i) for institutions using the Internal
Model Method set out in Section 6 of Chapter 6, to calculate the exposure
values and having an internal model permission for specific risk associated
with traded debt positions in accordance with Part Three, Title IV, Chapter 5,
M shall be set to 1 in the formula laid out in Article 148(1), provided that an
institution can demonstrate to the competent authorities that its internal
model for Specific risk associated with traded debt positions applied in Article
373 contains effects of rating migrations; (j) for the purposes of Article 148(3), M
shall be the effective maturity of the credit protection but at least 1 year. 3.
Where the documentation requires daily
re-margining and daily revaluation and includes provisions that allow for the
prompt liquidation or set off of collateral in the event of default or failure
to remargin, M shall be at least one-day for: (a) fully or nearly-fully collateralised
derivative instruments listed in Annex II; (b) fully or nearly-fully collateralised
margin lending transactions; (c) repurchase transactions, securities or
commodities lending or borrowing transactions. In addition, for qualifying short-term
exposures which are not part of the institution's ongoing financing of the obligor,
M shall be at least one-day. Qualifying short term exposures shall include the
following: (a) exposures to institutions arising from
settlement of foreign exchange obligations; (b) self-liquidating short-term trade
financing transactions, import and export letters of credit and similar
transactions with a residual maturity of up to one year; (c) exposures arising from settlement of
securities purchases and sales within the usual delivery period or two business
days; (d) exposures arising from cash settlements
by wire transfer and settlements of electronic payment transactions and prepaid
cost, including overdrafts arising from failed transactions that do not exceed
a short, fixed agreed number of business days. 4.
For exposures to corporates situated in the Union and having consolidated sales and consolidated assets of less than EUR 500 million, institutions
may choose to consistently set M as set out in paragraph 1 instead of applying
paragraph 2. Institutions may replace EUR 500 million total assets with EUR
1000 million total assets for corporates which primarily own and let non-speculative
residential property. 5.
Maturity mismatches shall be treated as
specified in Chapter 4. Sub-Section 2
Retail Exposures Article 159
Probability of default 1.
PD of an exposure shall be at least 0.03 %. 2.
The PD of obligors or, where an obligation
approach is used, of exposures in default shall be 100 %. 3.
For dilution risk of purchased receivables PD
shall be set equal to EL estimates for dilution risk. If an institution can decompose
its EL estimates for dilution risk of purchased receivables into PDs and LGDs
in a manner the competent authorities consider to be reliable, the PD estimate
may be used. 4.
Unfunded credit protection may be taken into
account by adjusting PDs subject to Article 160(2). For dilution risk, in
addition to the protection providers referred to in Article 197(1)(g) , the
seller of the purchased receivables is eligible if the conditions set out in Article
156(4) are met. Article160
Loss Given Default (LGD) 1.
Institutions shall
provide own estimates of LGDs subject to requirements as specified in Section 6
and permission of the competent authorities granted in accordance with Article
138. For dilution risk of purchased receivables, an LGD value of 75 % shall be
used. If an institution can decompose its EL estimates for dilution risk of
purchased receivables into PDs and LGDs in a reliable manner, the institution
may use its own LGD estimate. 2.
Unfunded credit protection may be recognised as
eligible by adjusting PD or LGD estimates subject to requirements as specified
in Article 179(1)(2) and (3) and permission of the competent authorities either
in support of an individual exposure or a pool of exposures. An institution
shall not assign guaranteed exposures an adjusted PD or LGD such that the
adjusted risk weight would be lower than that of a comparable, direct exposure
to the guarantor. 3.
For the purposes of Article 149(2), the LGD of a
comparable direct exposure to the protection provider shall either be the LGD
associated with an unhedged facility to the guarantor or the unhedged facility
of the obligor, depending upon whether, in the event both the guarantor and
obligor default during the life of the hedged transaction, available evidence
and the structure of the guarantee indicate that the amount recovered would
depend on the financial condition of the guarantor or obligor, respectively. 4.
The exposure weighted average LGD for all retail
exposures secured by residential property and not benefiting from guarantees from
central governments shall not be lower than 10% The exposure weighted average LGD for all
retail exposures secured by commercial immovable property and not benefiting
from guarantees from central governments shall not be lower than 15% Sub-Section 3
Equity Exposures Subject To Pd/Lgd Method Article 161
Equity exposures subject to the PD/LGD method 1.
PDs shall be determined according to the methods
for corporate exposures. The following minimum PDs shall apply: (a) 0.09 % for exchange traded equity
exposures where the investment is part of a long-term customer relationship; (b) 0.09 % for non-exchange traded equity
exposures where the returns on the investment are based on regular and periodic
cash flows not derived from capital gains; (c) 0.40 % for exchange traded equity
exposures including other short positions as set out in Article 150(2); (d) 1.25 % for all other equity exposures
including other short positions as set out in Article 150(2). 2.
Private equity exposures in sufficiently
diversified portfolios may be assigned an LGD of 65 %. All other such exposures
shall be assigned an LGD of 90 %. 3.
M assigned to all exposures shall be 5 years. Section 5
Exposure Value Article162
Exposures to corporates, institutions, central governments and central banks
and retail exposures 1.
Unless noted otherwise, the exposure value of
on-balance sheet exposures shall be the accounting value measured without
taking into account any credit risk adjustments made. This rule also applies to assets purchased at a
price different than the amount owed. For purchased assets, the difference between
the amount owed and the accounting value remaining after specific credit risk
adjustments have been applied that has been recorded on the balance-sheet of
the institutions when purchasing the asset is denoted discount if the amount
owed is larger, and premium if it is smaller. 2.
Where institutions use Master netting agreements
in relation to repurchase transactions or securities or commodities lending or
borrowing transactions, the exposure value shall be calculated in accordance
with Chapter 4. 3.
For on-balance sheet netting of loans and
deposits, institutions shall apply for the calculation of the exposure value
the methods set out in Chapter 4. 4.
The exposure value for leases shall be the
discounted minimum lease payments. Minimum lease payments shall comprise the
payments over the lease term that the lessee is or can be required to make and
any bargain option (i.e. option the exercise of which is reasonably certain). If
a party other than the lessee may be required to make a payment related to the
residual value of a leased asset and this payment obligation fulfils the set of
conditions in Article 197 regarding the eligibility of protection providers as
well as the requirements for recognising other types of guarantees provided in
Article 208, the payment obligation may be taken into account as unfunded
credit protection in accordance with Chapter 4. 5.
In the case of any item listed in Annex II, the
exposure value shall be determined by the methods set out in Chapter 6 and
shall not take into account any credit risk adjustment made. 6.
The exposure value for the calculation of risk
weighted exposure amounts of purchased receivables shall be the value according
to paragraph 1 minus the own funds requirements for dilution risk prior to
credit risk mitigation. 7.
Where an exposure takes the form of securities
or commodities sold, posted or lent under repurchase transactions or securities
or commodities lending or borrowing transactions, long settlement transactions
and margin lending transactions, the exposure value shall be the value of the
securities or commodities determined in accordance with Article 94. Where the
Financial Collateral Comprehensive Method as set out under Article 218 is used,
the exposure value shall be increased by the volatility adjustment appropriate
to such securities or commodities, as set out therein. The exposure value of
repurchase transactions, securities or commodities lending or borrowing
transactions, long settlement transactions and margin lending transactions may
be determined either in accordance with Chapter 6 or Article 215(2). 8.
The exposure value for the following items shall
be calculated as the committed but undrawn amount multiplied by a conversion
factor. Institutions shall use the following conversion factors in accordance
with Article 146(8): (a) for credit lines that are
unconditionally cancellable at any time by the institution without prior
notice, or that effectively provide for automatic cancellation due to deterioration
in a borrower's credit worthiness, a conversion factor of 0 % shall apply. To
apply a conversion factor of 0 %, institutions shall actively monitor the
financial condition of the obligor, and their internal control systems shall
enable them to immediately detect deterioration in the credit quality of the
obligor. Undrawn credit lines may be considered as unconditionally cancellable
if the terms permit the institution to cancel them to the full extent allowable
under consumer protection and related legislation; (b) for short-term letters of credit
arising from the movement of goods, a conversion factor of 20 % shall apply for
both the issuing and confirming institutions; (c) for undrawn purchase commitments for
revolving purchased receivables that are able to be unconditionally cancelled
or that effectively provide for automatic cancellation at any time by the
institution without prior notice, a conversion factor of 0 % shall apply. To
apply a conversion factor of 0 %, institutions shall actively monitor the
financial condition of the obligor, and their internal control systems shall
enable them to immediately detect a deterioration in the credit quality of the
obligor; (d) for other credit lines, note issuance
facilities (NIFs), and revolving underwriting facilities (RUFs), a conversion
factor of 75 % shall apply; (e) institutions
which meet the requirements for the use of own estimates of conversion factors
as specified in Section 6 may use their own estimates of conversion factors
across different product types as mentioned in points (a) to (d), subject to
permission of the competent authorities. 9.
Where a commitment refers to the extension of
another commitment, the lower of the two conversion factors associated with the
individual commitment shall be used. 10.
For all off-balance sheet items other than those
mentioned in points 1 to 8, the exposure value shall be the following
percentage of its value: (a) 100 % if it is a full risk item; (b) 50 % if it is a medium-risk item; (c) 20 % if it is a medium/low-risk item; (d) 0 % if it is a low-risk item. For the purposes of this paragraph the
off-balance sheet items shall be assigned to risk categories as indicated in
Annex I. Article 163
Equity exposures 1.
The exposure value of equity exposures shall be
the accounting value remaining after specific credit risk adjustment have been
applied. 2.
The exposure value of off-balance sheet equity
exposures shall be its nominal value after reducing its nominal value by
specific credit risk adjustments for this exposure. Article 164
Other non credit-obligation assets The exposure value of other non
credit-obligation assets shall be the accounting value remaining after specific
credit risk adjustment have been applied Section 6
requirements for the IRB approach Sub-Section 1
Rating Systems Article 165
General principles 1.
Where an institution uses multiple rating
systems, the rationale for assigning an obligor or a transaction to a rating
system shall be documented and applied in a manner that appropriately reflects
the level of risk. 2.
Assignment criteria and processes shall be
periodically reviewed to determine whether they remain appropriate for the
current portfolio and external conditions. 3.
Where an institution uses direct estimates of
risk parameters these may be seen as the outputs of grades on a continuous
rating scale. Article 166
Structure of rating systems 1.
The structure of rating systems for exposures to
corporates, institutions and central governments and central banks shall comply
with the following requirements: (a) a rating system shall take into
account obligor and transaction risk characteristics; (b) a rating system shall have an obligor
rating scale which reflects exclusively quantification of the risk of obligor
default. The obligor rating scale shall have a minimum of 7 grades for
non-defaulted obligors and one for defaulted obligors; (c) an institution shall document the
relationship between obligor grades in terms of the level of default risk each
grade implies and the criteria used to distinguish that level of default risk; (d) institutions
with portfolios concentrated in a particular market segment and range of
default risk shall have enough obligor grades within that range to avoid undue
concentrations of obligors in a particular grade. Significant concentrations within
a single grade shall be supported by convincing empirical evidence that the
obligor grade covers a reasonably narrow PD band and that the default risk
posed by all obligors in the grade falls within that band; (e) to be permitted to be used for own funds requirement calculation of own estimates
of LGDs, a rating system shall incorporate a distinct facility rating scale
which exclusively reflects LGD related transaction characteristics. The facility
grade definition shall include both a description of how exposures are assigned
to the grade and of the criteria used to distinguish the level of risk across
grades; (f) significant concentrations within a
single facility grade shall be supported by convincing empirical evidence that
the facility grade covers a reasonably narrow LGD band, respectively, and that
the risk posed by all exposures in the grade falls within that band. 2.
Institutions using the
methods set out in IRB6(5) for assigning risk weights for specialised lending
exposures are exempt from the requirement to have an obligor rating scale which
reflects exclusively quantification of the risk of obligor default for these
exposures. These institutions shall have for these exposures at least 4 grades
for non-defaulted obligors and at least one grade for defaulted obligors. 3.
The structure of rating systems for retail
exposures shall comply with the following requirements: (a) rating systems shall reflect both
obligor and transaction risk, and shall capture all relevant obligor and
transaction characteristics; (b) the level of risk differentiation
shall ensure that the number of exposures in a given grade or pool is
sufficient to allow for meaningful quantification and validation of the loss
characteristics at the grade or pool level. The distribution of exposures and
obligors across grades or pools shall be such as to avoid excessive
concentrations; (c) the process of assigning exposures to
grades or pools shall provide for a meaningful differentiation of risk, for a
grouping of sufficiently homogenous exposures, and shall allows for accurate
and consistent estimation of loss characteristics at grade or pool level. For
purchased receivables the grouping shall reflect the seller's underwriting
practices and the heterogeneity of its customers; 4.
Institutions shall
consider the following risk drivers when assigning exposures to grades or
pools. (a) obligor risk characteristics; (b) transaction risk characteristics,
including product or collateral types or both. Institutions shall explicitly
address cases where several exposures benefit from the same collateral; (c) delinquency, except where institution demonstrates
to the satisfaction of its competent authority that delinquency is not a
material driver of risk for the exposure. Article 167
Assignment to grades or pools 1.
An institution shall
have specific definitions, processes and criteria for assigning exposures to
grades or pools within a rating system that comply with the following
requirements: (a) the grade or pool definitions and
criteria shall be sufficiently detailed to allow those charged with assigning
ratings to consistently assign obligors or facilities posing similar risk to
the same grade or pool. This consistency shall exist across lines of business,
departments and geographic locations; (b) the documentation of the rating
process shall allow third parties to understand the assignments of exposures to
grades or pools, to replicate grade and pool assignments and to evaluate the
appropriateness of the assignments to a grade or a pool; (c) the criteria shall also be consistent
with the institution's internal lending standards and its policies for handling
troubled obligors and facilities. 2.
An institution shall
take all relevant information into account in assigning obligors and facilities
to grades or pools. Information shall be current and shall enable the institution
to forecast the future performance of the exposure. The less information an
institution has, the more conservative shall be its assignments of exposures to
obligor and facility grades or pools. If an institution uses an external rating
as a primary factor determining an internal rating assignment, the institution
shall ensure that it considers other relevant information. Article 168
Assignment of exposures 1.
For exposures to corporates, institutions and
central governments and central banks, assignment of exposures shall be carried
out in accordance with the following criteria: (a) each obligor shall be assigned to an
obligor grade as part of the credit approval process; (b) for those institutions that have
received the permission of the competent authority to use own estimates of LGDs
and conversion factors pursuant to Article 138,each exposure shall also be
assigned to a facility grade as part of the credit approval process; (c) institutions
using the methods set out in Article 148(5) for assigning risk weights for
specialised lending exposures shall assign each of these exposures to a grade
in accordance with Article 166(2); (d) each separate legal entity to which
the institution is exposed shall be separately rated. An institution shall have
appropriate policies regarding the treatment of individual obligor clients and
groups of connected clients; (e) separate exposures to the same obligor
shall be assigned to the same obligor grade, irrespective of any differences in
the nature of each specific transaction. However, where separate exposures are
allowed to result in multiple grades for the same obligor, the following shall
apply: (i) country transfer risk, this being
dependent on whether the exposures are denominated in local or foreign
currency; (ii) where the treatment of associated
guarantees to an exposure may be reflected in an adjusted assignment to an
obligor grade; (iii) where consumer protection, bank
secrecy or other legislation prohibit the exchange of client data. 2.
For retail exposures,
each exposure shall be assigned to a grade or a pool as part of the credit
approval process. 3.
For grade and pool assignments institutions
shall document the situations in which human judgement may override the inputs
or outputs of the assignment process and the personnel responsible for
approving these overrides. Institutions shall document these overrides and note
down the personnel responsible. Institutions shall analyse the performance of
the exposures whose assignments have been overridden. This analysis shall
include an assessment of the performance of exposures whose rating has been
overridden by a particular person, accounting for all the responsible
personnel. Article 169
Integrity of assignment process 1.
For exposures to corporates, institutions and
central governments and central banks, the assignment process shall meet the
following requirements of integrity: (a) Assignments and periodic reviews of
assignments shall be completed or approved by an independent party that does
not directly benefit from decisions to extend the credit; (b) Institutions
shall update assignments at least annually. High risk obligors and problem
exposures shall be subject to more frequent review. Institutions shall
undertake a new assignment if material information on the obligor or exposure
becomes available; (c) An institution shall have an effective process to obtain and update relevant
information on obligor characteristics that affect PDs, and on transaction
characteristics that affect LGDs or conversion factors. 2.
For retail exposures, an
institution shall at least annually update obligor and facility assignments or
review the loss characteristics and delinquency status of each identified risk
pool, whichever applicable. An institution shall also at least annually review
in a representative sample the status of individual exposures within each pool
as a means of ensuring that exposures continue to be assigned to the correct
pool. 3. EBA shall develop
regulatory technical standards to specify the conditions according to which
institutions shall ensure the integrity of the assignment process and the regular
and independent assessment of risks. EBA shall submit the draft regulatory technical
standards referred to in the first sub-paragraph to the Commission by 31
December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 170
Use of models If an institution uses statistical models
and other mechanical methods to assign exposures to obligors or facilities
grades or pools, the following requirements shall be met: (a) the model shall have good
predictive power and capital requirements shall not be distorted as a result of
its use. The input variables shall form a reasonable and effective basis for
the resulting predictions. The model shall not have material biases; (b) the institution shall have in
place a process for vetting data inputs into the model, which includes an
assessment of the accuracy, completeness and appropriateness of the data; (c) the data used to build the model shall
be representative of the population of the institution's actual obligors or
exposures; (d) the institution shall have a
regular cycle of model validation that includes monitoring of model performance
and stability; review of model specification; and testing of model outputs
against outcomes; (e) the institution shall complement the
statistical model by human judgement and human oversight to review model-based
assignments and to ensure that the models are used appropriately. Review
procedures shall aim at finding and limiting errors associated with model
weaknesses. Human judgements shall take into account all relevant information
not considered by the model. The institution shall document how human judgement
and model results are to be combined. Article 171
Documentation of rating systems 1.
The institutions shall document the design and
operational details of its rating systems. The documentation shall provide evidence
of compliance with the requirements in this Section, and address topics
including portfolio differentiation, rating criteria, responsibilities of
parties that rate obligors and exposures, frequency of assignment reviews, and
management oversight of the rating process. 2.
The institution shall document the rationale for
and analysis supporting its choice of rating criteria. An institution shall
document all major changes in the risk rating process, and such documentation
shall support identification of changes made to the risk rating process
subsequent to the last review by the competent authorities. The organisation of
rating assignment including the rating assignment process and the internal
control structure shall also be documented. 3.
The institutions shall document the specific
definitions of default and loss used internally and ensure consistency with the
definitions set out in this Regulation. 4.
Where the institution employs statistical models
in the rating process, the institution shall document their methodologies. This
material shall: (a) provide a detailed outline of the
theory, assumptions and mathematical and empirical basis of the assignment of
estimates to grades, individual obligors, exposures, or pools, and the data
source(s) used to estimate the model; (b) establish a rigorous statistical
process including out-of-time and out-of-sample performance tests for
validating the model; (c) indicate any circumstances under which
the model does not work effectively. 5.
An institution shall demonstrate to the
satisfaction of the competent authority that the requirements of this Article are
met, where an institution has obtained a rating system, or model used within a
rating system, from a third-party vendor and that vendor refuses or restricts
the access of the institution to information pertaining to the methodology of
that rating system or model, or underlying data used to develop that
methodology or model, on the basis that such information is proprietary. Article 172
Data maintenance 1.
Institutions shall
collect and store data on aspects of their internal ratings as required under
Part Eight. 2.
For exposures to
corporates, institutions and central governments and central banks, institutions
shall collect and store: (a) complete rating histories on obligors
and recognised guarantors; (b) the
dates the ratings were assigned; (c) the
key data and methodology used to derive the rating; (d) the
person responsible for the rating assignment; (e) the
identity of obligors and exposures that defaulted; (f) the
date and circumstances of such defaults; (g) data on the PDs and realised default rates associated with
rating grades and ratings migration. 3.
Institutions not using
own estimates of LGDs and conversion factors shall collect and store data on
comparisons of realised LGDs to the values as set out in Article 157(1) and
realised conversion factors to the values as set out in Article 162(8). 4.
Institutions using own
estimates of LGDs and conversion factors shall collect and store: (a) complete histories of data on the
facility ratings and LGD and conversion factor estimates associated with each
rating scale; (b) the dates the ratings were assigned
and the estimates were done; (c) the key data and methodology used to
derive the facility ratings and LGD and conversion factor estimates; (d) the person who assigned the facility
rating and the person who provided LGD and conversion factor estimates; (e) data on the estimated and realised
LGDs and conversion factors associated with each defaulted exposure; (f) data on the LGD of the exposure
before and after evaluation of the effects of a guarantee/or credit derivative,
for those institutions that reflect the credit risk mitigating effects of
guarantees or credit derivatives through LGD; (g) data on the components of loss for
each defaulted exposure. 5.
For retail exposures, institutions
shall collect and store: (a) data used in the process of allocating
exposures to grades or pools; (b) data on the estimated PDs, LGDs and
conversion factors associated with grades or pools of exposures; (c) the identity of obligors and exposures
that defaulted; (d) for defaulted exposures, data on the
grades or pools to which the exposure was assigned over the year prior to
default and the realised outcomes on LGD and conversion factor; (e) data on loss rates for qualifying
revolving retail exposures. Article 173
Stress tests used in assessment of capital adequacy 1.
An institution shall
have in place sound stress testing processes for use in the assessment of its
capital adequacy. Stress testing shall involve identifying possible events or
future changes in economic conditions that could have unfavourable effects on an
institution's credit exposures and assessment of the institution's ability to
withstand such changes. 2.
An institution shall
regularly perform a credit risk stress test to assess the effect of certain
specific conditions on its total capital requirements for credit risk. The test
shall be one chosen by the institution, subject to supervisory review. The test
to be employed shall be meaningful and consider the effects of a severe, but
plausible, recession scenarios. An institution shall assess migration in its
ratings under the stress test scenarios. Stressed portfolios shall contain the
vast majority of an institution's total exposure. 3.
Institutions using the
treatment set out in Article 148(3) shall consider as part of their stress
testing framework the impact of a deterioration in the credit quality of
protection providers, in particular the impact of protection providers falling
outside the eligibility criteria. 4.
EBA shall develop draft implementing technical
standards to specify in greater detail the meaning of severe but plausible
recession scenarios referred to in paragraph 2. EBA shall submit those draft implementing technical standards to the
Commission by 1 January 2013. Power is conferred on the Commission to adopt the implementing
technical standards referred to in the first subparagraph in accordance with the
procedure laid down in Article 15 of Regulation (EU) No 1093/2010. Sub-Section 2
Risk quantification Article 174
Default of an obligor 1.
In quantifying the risk parameters to be
associated with rating grades and pools, institutions shall apply the following
approach to determining when an obligor has defaulted. For the purposes of this
Chapter, a default shall occur with regard to a particular obligor when either of
the following has taken place: (a) the institution considers that the
obligor is unlikely to pay its credit obligations to the institution, the
parent undertaking or any of its subsidiaries in full, without recourse by the institution
to actions such as realising security; (b) the obligor is past due more than 90
days on any material credit obligation to the institution, the parent
undertaking or any of its subsidiaries. For overdrafts, days past due commence once an
obligor has breached an advised limit, has been advised a limit smaller than
current outstandings, or has drawn credit without authorisation and the
underlying amount is material. In the case of retail exposures, default at
facility level shall also be considered for the purposes of paragraph 2. An advised limit comprises any credit limit
determined by the institution and about which the obligor has been informed by
the institution. Days past due for credit cards commence on the
minimum payment due date. In all cases, the exposure past due shall be
above a threshold, defined by the competent authorities. This threshold shall reflect
a level of risk that the competent authority considers to be reasonable. Institutions shall have documented policies in
respect of the counting of days past due, in particular in respect of the
re-ageing of the facilities and the granting of extensions, amendments or
deferrals, renewals, and netting of existing accounts. These policies shall be
applied consistently over time, and shall be in line with the internal risk
management and decision processes of the institution. 2.
For the purpose of point (a) of the paragraph 1,
elements to be taken as indications of unlikeliness to pay shall include: (a) the institution puts the credit
obligation on non-accrued status; (b) the institution recognises a specific
credit adjustment resulting from a significant perceived decline in credit
quality subsequent to the institution taking on the exposure; (c) the institution sells the credit
obligation at a material credit-related economic loss; (d) the institution consents to a
distressed restructuring of the credit obligation where this is likely to
result in a diminished financial obligation caused by the material forgiveness,
or postponement, of principal, interest or, where relevant fees. This includes,
in the case of equity exposures assessed under a PD/LGD Approach, distressed
restructuring of the equity itself; (e) the institution has filed for the
obligor's bankruptcy or a similar order in respect of an obligor's credit
obligation to the institution, the parent undertaking or any of its
subsidiaries; (f) the obligor has sought or has been
placed in bankruptcy or similar protection where this would avoid or delay
repayment of a credit obligation to the institution, the parent undertaking or
any of its subsidiaries. 3.
Institutions that use external data that is not
itself consistent with the determination of default laid down in paragraph 1,
shall make appropriate adjustments to achieve broad equivalence with the
definition of default. 4.
If the institution considers that a previously
defaulted exposure is such that no trigger of default continues to apply, the institution
shall rate the obligor or facility as they would for a non-defaulted exposure.
Should the definition of default subsequently be triggered, another default
would be deemed to have occurred. 5.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which a competent authority shall
set the threshold referred to in paragraph 1 which an exposure shall qualify as
past due. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. 6.
EBA shall issue guidelines on the application of
this Article. Those guidelines shall be adopted in accordance with Article 16
of Regulation (EU) No 1093/2010. Article 175
Overall requirements for estimation 1.
In quantifying the risk parameters to be associated
with rating grades or pools, institutions shall apply the following
requirements: (a) an institution's own estimates of the risk parameters PD, LGD, conversion factor and
EL shall incorporate all relevant data, information and methods. The estimates
shall be derived using both historical experience and empirical evidence, and
not based purely on judgemental considerations. The estimates shall be
plausible and intuitive and shall be based on the material drivers of the
respective risk parameters. The less data an institution has, the more
conservative it shall be in its estimation; (b) an institution shall be able to
provide a breakdown of its loss experience in terms of default frequency, LGD,
conversion factor, or loss where EL estimates are used, by the factors it sees
as the drivers of the respective risk parameters. The institution's estimates shall
be representative of long run experience; (c) any changes in lending practice or the
process for pursuing recoveries over the observation periods referred to in
Articles 176(1)(h), IRB 34(2)(e), IRB 35(2) and IRB 35(3) shall be taken into
account. An institution's estimates shall reflect the implications of technical
advances and new data and other information, as it becomes available. Institutions
shall review their estimates when new information comes to light but at least
on an annual basis; (d) the population of exposures
represented in the data used for estimation, the lending standards used when
the data was generated and other relevant characteristics shall be comparable
with those of the institution's exposures and standards. The economic or market
conditions that underlie the data shall be relevant to current and foreseeable
conditions. The number of exposures in the sample and the data period used for
quantification shall be sufficient to provide the institution with confidence
in the accuracy and robustness of its estimates; (e) for purchased receivables the
estimates shall reflect all relevant information available to the purchasing
institution regarding the quality of the underlying receivables, including data
for similar pools provided by the seller, by the purchasing institution, or by
external sources. The purchasing institution shall evaluate any data relied
upon which is provided by the seller; (f) an institution
shall add to its estimates a margin of conservatism that is related to the
expected range of estimation errors. Where methods and data are considered to
be less satisfactory by the institution or the competent authority,the expected
range of errors is larger, the margin of conservatism shall be larger. Where institutions use different estimates for
the calculation of risk weights and for internal purposes, it shall be
documented and be reasonable. If institutions can demonstrate to their
competent authorities that for data that have been collected prior to 1 January
2007 appropriate adjustments have been made to achieve broad equivalence with
the determination of default laid down in Article 174 or loss, competent
authorities may permit the institutions some flexibility in the application of
the required standards for data. 2.
Where an institution uses data that is pooled
across institutions it shall meet the following requirements : (a) the rating systems and criteria of
other institutions in the pool are similar with its own; (b) the pool is representative of the
portfolio for which the pooled data is used; (c) the pooled data is used consistently
over time by the institution for its estimates; (d) the institution shall remain
responsible for the integrity of its rating systems; (e) the institution shall maintain sufficient
in-house understanding of its rating systems, including the ability to effectively
monitor and audit the rating process. Article 176
Requirements specific to PD estimation 1.
In quantifying the risk parameters to be
associated with rating grades or pools, institutions shall apply the following
requirements specific to PD estimation to exposures to corporates, institutions
and central governments and central banks: (a) institutions shall estimate PDs by
obligor grade from long run averages of one-year default rates. PD estimates
for obligors that are highly leveraged or for obligors whose assets are
predominantly traded assets shall reflect the performance of the underlying assets
based on periods of stressed volatilities; (b) for purchased corporate receivables institutions
may estimate the Expected Loss (hereinafter EL) by obligor grade from long run
averages of one-year realised default rates; (c) if an institution derives long run
average estimates of PDs and LGDs for purchased corporate receivables from an
estimate of EL, and an appropriate estimate of PD or LGD, the process for
estimating total losses shall meet the overall standards for estimation of PD
and LGD set out in this part, and the outcome shall be consistent with the
concept of LGD as set out in Article 177(1)(a); (d) institutions
shall use PD estimation techniques only with supporting analysis. Institutions
shall recognise the importance of judgmental considerations in combining
results of techniques and in making adjustments for limitations of techniques
and information; (e) to the extent that an institution uses
data on internal default experience for the estimation of PDs, the estimates shall
be reflective of underwriting standards and of any differences in the rating
system that generated the data and the current rating system. Where
underwriting standards or rating systems have changed, the institution shall
add a greater margin of conservatism in its estimate of PD; (f) to the extent that an institution
associates or maps its internal grades to the scale used by an ECAI or similar
organisations and then attributes the default rate observed for the external
organisation's grades to the institution's grades, mappings shall be based on a
comparison of internal rating criteria to the criteria used by the external
organisation and on a comparison of the internal and external ratings of any
common obligors. Biases or inconsistencies in the mapping approach or underlying
data shall be avoided. The criteria of the external organisation underlying the
data used for quantification shall be oriented to default risk only and not
reflect transaction characteristics. The analysis undertaken by the institution
shall include a comparison of the default definitions used, subject to the
requirements in Article 174. The institution shall document the basis for the
mapping; (g) to the extent that an institution uses
statistical default prediction models it is allowed to estimate PDs as the
simple average of default-probability estimates for individual obligors in a
given grade. The institution's use of default probability models for this
purpose shall meet the standards specified in Article 28; (h) irrespective of whether an institution
is using external, internal, or pooled data sources, or a combination of the
three, for its PD estimation, the length of the underlying historical
observation period used shall be at least five years for at least one source.
If the available observation period spans a longer period for any source, and
this data is relevant, this longer period shall be used. This point also
applies to the PD/LGD Approach to equity. Subject to the permission of
competent authorities, institutions which have not received the
permission of the competent authority pursuant to Article 138 to use own
estimates of LGDs or conversion factors may use, when they implement the IRB
Approach, relevant data covering a period of two years. The period to be
covered shall increase by one year each year until relevant data cover a period
of five years. 2.
for retail exposures,
the following requirements shall apply: (a) institutions
shall estimate PDs by obligor grade or pool from long run averages of one-year
default rates; (b) PD estimates may also be derived from
realised losses and appropriate estimates of LGDs; (c) institutions
shall regard internal data for assigning exposures to grades or pools as the
primary source of information for estimating loss characteristics. Institutions
may use external data (including pooled data) or statistical models for
quantification provided a strong link exists between the following: (i) the institution's process of
assigning exposures to grades or pools and the process used by the external
data source; (ii) the institution's internal risk
profile and the composition of the external data; (d) if an institution derives long run
average estimates of PD and LGD for retail from an estimate of total losses and
an appropriate estimate of PD or LGD, the process for estimating total losses
shall meet the overall standards for estimation of PD and LGD set out in this
part, and the outcome shall be consistent with the concept of LGD as set out in
point (a) of Article 177(1); (e) irrespective of whether an institution
is using external, internal or pooled data sources or a combination of the
three, for their estimation of loss characteristics, the length of the
underlying historical observation period used shall be at least five years for
at least one source. If the available observation spans a longer period for any
source, and these data are relevant, this longer period shall be used. An
institution need not give equal importance to historic data if more recent data
is a better predictor of loss rates. Subject to the permission of the competent
authorities, institutions may use, when they implement the IRB Approach,
relevant data covering a period of two years. The period to be covered shall
increase by one year each year until relevant data cover a period of five years; (f) institutions
shall identify and analyse expected changes of risk parameters over the life of
credit exposures (seasoning effects). For purchased retail receivables, institutions
may use external and internal reference data. Institutions shall use all
relevant data sources as points of comparison. 3.
EBA shall develop draft regulatory technical
standards to specify the following: (a) the conditions according to which
competent authorities may grant the permissions referred to in point (h) of
paragraph 1 and point (e) of paragraph 2; (b) the conditions according to which competent
authorities shall assess the methodology of an institution for estimating PD
pursuant to Article 138. EBA shall submit the draft regulatory technical
standards referred to in the first sub-paragraph to the Commission by 31
December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 177
Requirements specific to own-LGD estimates 1.
In quantifying the risk parameters to be
associated with rating grades or pools, institutions shall apply the following
requirements specific to own-LGD estimates: (a) institutions
shall estimate LGDs by facility grade or pool on the basis of the average
realised LGDs by facility grade or pool using all observed defaults within the
data sources (default weighted average); (b) institutions
shall use LGD estimates that are appropriate for an economic downturn if those
are more conservative than the long-run average. To the extent a rating system
is expected to deliver realised LGDs at a constant level by grade or pool over
time, institutions shall make adjustments to their estimates of risk parameters
by grade or pool to limit the capital impact of an economic downturn; (c) an institution
shall consider the extent of any dependence between the risk of the obligor
with that of the collateral or collateral provider. Cases where there is a
significant degree of dependence shall be addressed in a conservative manner; (d) currency mismatches between the
underlying obligation and the collateral shall be treated conservatively in the
institution's assessment of LGD; (e) to the extent that LGD estimates take
into account the existence of collateral, these estimates shall not solely be
based on the collateral's estimated market value. LGD estimates shall take into
account the effect of the potential inability of institutions to expeditiously
gain control of their collateral and liquidate it; (f) to the extent that LGD estimates take
into account the existence of collateral, institutions shall establish internal
requirements for collateral management, legal certainty and risk management
that are generally consistent with those set out in Chapter 4, Section 3; (g) to the extent that an institution
recognises collateral for determining the exposure value for counterparty
credit risk according to Chapter 6, Section 5 or 6, any amount expected to be
recovered from the collateral shall not be taken into account in the LGD
estimates; (h) for the specific case of exposures
already in default, the institution shall use the sum of its best estimate of
expected loss for each exposure given current economic circumstances and
exposure status and the possibility of additional unexpected losses during the
recovery period; (i) to the extent that unpaid late fees
have been capitalised in the institution's income statement, they shall be
added to the institution's measure of exposure and loss; (j) for exposures to corporates,
institutions and central governments and central banks, estimates of LGD shall
be based on data over a minimum of five years, increasing by one year each year
after implementation until a minimum of seven years is reached, for at least
one data source. If the available observation period spans a longer period for
any source, and the data is relevant, this longer period shall be used. 2.
For retail exposures, institutions
may do the following: (a) derive LGD
estimates from realised losses and appropriate estimates of PDs; (b) reflect future drawings either in
their conversion factors or in their LGD estimates; (c) For purchased retail receivables use
external and internal reference data to estimate LGDs. For retail exposures, estimates of LGD shall be
based on data over a minimum of five years. An institution needs not give equal
importance to historic data if more recent data is a better predictor of loss
rates. Subject to the permission of the competent authorities, institutions may
use, when they implement the IRB Approach, relevant data covering a period of
two years. The period to be covered shall increase by one year each year until
relevant data cover a period of five years. 3.
EBA shall develop draft regulatory technical
standards to specify the following: (a) the nature, severity and duration of
an economic downturn referred to in paragraph 1; (b) the conditions according to which a
competent authority may permit and institution pursuant to paragraph 3 to use
relevant data covering a period of two years when the institution implements
the IRB approach. EBA shall submit the draft regulatory technical
standards referred to in the first subparagraph to the Commission by 31
December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 178
Requirements specific to own-conversion factor estimates 1.
In quantifying the risk parameters to be
associated with rating grades or pools, institutions shall apply the following
requirements specific to own-conversion factor estimates: (a) institutions
shall estimate conversion factors by facility grade or pool on the basis of the
average realised conversion factors by facility grade or pool using the default
weighted average resulting from all observed defaults within the data sources; (b) institutions
shall use conversion factor estimates that are appropriate for an economic
downturn if those are more conservative than the long-run average. To the
extent a rating system is expected to deliver realised conversion factors at a
constant level by grade or pool over time, institutions shall make adjustments
to their estimates of risk parameters by grade or pool to limit the capital
impact of an economic downturn; (c) institutions'
estimates of conversion factors shall reflect the possibility of additional
drawings by the obligor up to and after the time a default event is triggered.
The conversion factor estimate shall incorporate a larger margin of
conservatism where a stronger positive correlation can reasonably be expected
between the default frequency and the magnitude of conversion factor; (d) in arriving at estimates of conversion
factors institutions shall consider their specific policies and strategies
adopted in respect of account monitoring and payment processing. Institutions
shall also consider their ability and willingness to prevent further drawings
in circumstances short of payment default, such as covenant violations or other
technical default events; (e) institutions
shall have adequate systems and procedures in place to monitor facility
amounts, current outstandings against committed lines and changes in
outstandings per obligor and per grade. The institution shall be able to
monitor outstanding balances on a daily basis; (f) if institutions use different
estimates of conversion factors for the calculation of risk weighted exposure
amounts and internal purposes it shall be documented and be reasonable. 2.
For exposures to
corporates, institutions and central governments and central banks, estimates
of conversion factors shall be based on data over a minimum of five years,
increasing by one year each year after implementation until a minimum of seven
years is reached, for at least one data source. If the available observation
period spans a longer period for any source, and the data is relevant, this
longer period shall be used. 3.
For retail exposures, institutions
may reflect future drawings either in their conversion factors or in their LGD
estimates. For retail exposures, estimates of conversion factors shall be based on data over a minimum of five
years. An institution need not give equal importance to historic data requirements
referred to in paragraph 1(a) if more recent data is a better predictor of draw
downs. Subject to the permission of competent authorities, institutions may
use, when they implement the IRB Approach, relevant data covering a period of
two years. The period to be covered shall increase by one year each year until
relevant data cover a period of five years. 4.
EBA shall develop draft regulatory technical
standards to specify the following: (a) the nature, severity and duration of
an economic downturn referred to in paragraph 1; (b) conditions according to which a
competent authority may permit and institution to use relevant data covering a
period of two years at the time an institution first implements the IRB
approach. EBA shall submit the draft regulatory technical
standards referred to in the first subparagraph to the Commission by 31
December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 179
Requirements for assessing the effect of guarantees and credit derivatives for
exposures to corporates, institutions and central governments and central banks
where own estimates of LGD are used and retail exposures 1.
The following requirements shall apply in
relation to eligible guarantors and guarantees: (a) institutions
shall have clearly specified criteria for the types of guarantors they
recognise for the calculation of risk weighted exposure amounts; (b) for recognised guarantors the same
rules as for obligors as set out in Articles 167, 168 and 169 shall apply; (c) the guarantee shall be evidenced in
writing, non-cancellable on the part of the guarantor, in force until the
obligation is satisfied in full (to the extent of the amount and tenor of the
guarantee) and legally enforceable against the guarantor in a jurisdiction
where the guarantor has assets to attach and enforce a judgement. Conditional guarantees
prescribing conditions under which the guarantor may not be obliged to perform
may be recognised subject to permission of the competent authorities. The
assignment criteria shall adequately address any potential reduction in the
risk mitigation effect. 2.
An institution shall
have clearly specified criteria for adjusting grades, pools or LGD estimates,
and, in the case of retail and eligible purchased receivables, the process of
allocating exposures to grades or pools, to reflect the impact of guarantees
for the calculation of risk weighted exposure amounts. These criteria shall
comply with the requirements set out in Articles 167 to 169. The criteria shall be plausible and intuitive.
They shall address the guarantor's ability and willingness to perform under the
guarantee, the likely timing of any payments from the guarantor, the degree to
which the guarantor's ability to perform under the guarantee is correlated with
the obligor's ability to repay, and the extent to which residual risk to the
obligor remains. 3.
The requirements for guarantees in this Article shall
apply also for single-name credit derivatives. In relation to a mismatch
between the underlying obligation and the reference obligation of the credit
derivative or the obligation used for determining whether a credit event has
occurred, the requirements set out under Article 211(2) shall apply. For retail
exposures and eligible purchased receivables, this paragraph applies to the
process of allocating exposures to grades or pools. The criteria shall address the payout structure
of the credit derivative and conservatively assess the impact this has on the
level and timing of recoveries. The institution shall consider the extent to
which other forms of residual risk remain. 4.
The requirements set out in paragraphs 1 to 3
shall not apply for guarantees provided by institutions, central governments
and central banks, and corporate entities which meet the requirements laid down
in Article 197(1)(g) if the institution has received permission to apply the Standardised
Approach for exposures to such entities pursuant to Article 145. In this case
the requirements of Chapter 4 shall apply. 5.
For retail guarantees, the requirements set out
in paragraphs 1 to 3 also apply to the assignment of exposures to grades or pools,
and the estimation of PD. 6.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which
competent authorities may permit conditional guarantees to be recognised. EBA shall submit the draft regulatory technical
standards referred to in the first sub-paragraph to the Commission by 31
December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 180
Requirements for purchased receivables 1.
In quantifying the risk parameters to be
associated with rating grades or pools for purchased receivables, institutions
shall ensure the conditions laid down in paragraphs 2 to 6 are met. 2.
The structure of the facility shall ensure that
under all foreseeable circumstances the institution has effective ownership and
control of all cash remittances from the receivables. When the obligor makes
payments directly to a seller or servicer, the institution shall verify
regularly that payments are forwarded completely and within the contractually
agreed terms. Institutions shall have procedures to ensure that ownership over
the receivables and cash receipts is protected against bankruptcy stays or
legal challenges that could materially delay the lender's ability to liquidate
or assign the receivables or retain control over cash receipts. 3.
The institution shall monitor both the quality
of the purchased receivables and the financial condition of the seller and
servicer. The following shall apply: (a) the institution shall assess the
correlation among the quality of the purchased receivables and the financial
condition of both the seller and servicer, and have in place internal policies
and procedures that provide adequate safeguards to protect against any
contingencies, including the assignment of an internal risk rating for each
seller and servicer; (b) the institution shall have clear and
effective policies and procedures for determining seller and servicer
eligibility. The institution or its agent shall conduct periodic reviews of
sellers and servicers in order to verify the accuracy of reports from the
seller or servicer, detect fraud or operational weaknesses, and verify the
quality of the seller's credit policies and servicer's collection policies and
procedures. The findings of these reviews shall be documented; (c) the institution shall assess the
characteristics of the purchased receivables pools, including over-advances;
history of the seller's arrears, bad debts, and bad debt allowances; payment
terms, and potential contra accounts; (d) the institution shall have effective
policies and procedures for monitoring on an aggregate basis single-obligor
concentrations both within and across purchased receivables pools; (e) the institution shall ensure that it
receives from the servicer timely and sufficiently detailed reports of
receivables ageings and dilutions to ensure compliance with the institution's
eligibility criteria and advancing policies governing purchased receivables,
and provide an effective means with which to monitor and confirm the seller's
terms of sale and dilution. 4.
The institution shall have systems and
procedures for detecting deteriorations in the seller's financial condition and
purchased receivables quality at an early stage, and for addressing emerging
problems pro-actively. In particular, the institution shall have clear and
effective policies, procedures, and information systems to monitor covenant violations,
and clear and effective policies and procedures for initiating legal actions
and dealing with problem purchased receivables. 5.
The institution shall have clear and effective
policies and procedures governing the control of purchased receivables, credit,
and cash. In particular, written internal policies shall specify all material
elements of the receivables purchase programme, including the advancing rates,
eligible collateral, necessary documentation, concentration limits, and the way
cash receipts are to be handled. These elements shall take appropriate account
of all relevant and material factors, including the seller and servicer's
financial condition, risk concentrations, and trends in the quality of the
purchased receivables and the seller's customer base, and internal systems
shall ensure that funds are advanced only against specified supporting
collateral and documentation. 6.
The institution shall have an effective internal
process for assessing compliance with all internal policies and procedures. The
process shall include regular audits of all critical phases of the institution's
receivables purchase programme, verification of the separation of duties
between firstly the assessment of the seller and servicer and the assessment of
the obligor and secondly between the assessment of the seller and servicer and
the field audit of the seller and servicer, and evaluations of back office
operations, with particular focus on qualifications, experience, staffing
levels, and supporting automation systems. Sub-Section 3
Validation of internal estimates Article 181
Validation of internal estimates Institutions shall validate their internal
estimates subject to the following requirements: (a) institutions shall have robust systems in place to validate the accuracy and
consistency of rating systems, processes, and the estimation of all relevant
risk parameters. The internal validation process shall enable the institution
to assess the performance of internal rating and risk estimation systems
consistently and meaningfully; (b) institutions shall regularly compare realised default rates with estimated PDs
for each grade and, where realised default rates are outside the expected range
for that grade, institutions shall specifically analyse the reasons for the
deviation. Institutions using own estimates of LGDs and conversion factors
shall also perform analogous analysis for these estimates. Such comparisons
shall make use of historical data that cover as long a period as possible. The institution
shall document the methods and data used in such comparisons. This analysis and
documentation shall be updated at least annually; (c) institutions shall also use other quantitative validation tools and comparisons
with relevant external data sources. The analysis shall be based on data that
are appropriate to the portfolio, are updated regularly, and cover a relevant
observation period. Institutions' internal assessments of the performance of
their rating systems shall be based on as long a period as possible; (d) the methods and data used for
quantitative validation shall be consistent through time. Changes in estimation
and validation methods and data (both data sources and periods covered) shall
be documented; (e) institutions shall have sound internal standards for situations where deviations
in realised PDs, LGDs, conversion factors and total losses, where EL is used,
from expectations, become significant enough to call the validity of the
estimates into question. These standards shall take account of business cycles
and similar systematic variability in default experience. Where realised values
continue to be higher than expected values, institutions shall revise estimates
upward to reflect their default and loss experience; Sub-Section 4
Requirements for equity exposures under the internal models approach Article 182
Own funds requirement and risk quantification For the purpose of calculating own funds
requirements institutions shall meet the following standards: (a)
the estimate of potential loss shall be robust
to adverse market movements relevant to the long-term risk profile of the institution's
specific holdings. The data used to represent return distributions shall
reflect the longest sample period for which data is available and meaningful in
representing the risk profile of the institution's specific equity exposures.
The data used shall be sufficient to provide conservative, statistically
reliable and robust loss estimates that are not based purely on subjective or
judgmental considerations. The shock employed shall provide a conservative
estimate of potential losses over a relevant long-term market or business
cycle. The institution shall combine empirical analysis of available data with
adjustments based on a variety of factors in order to attain model outputs that
achieve appropriate realism and conservatism. In constructing Value at Risk
(VaR) models estimating potential quarterly losses, institutions may use
quarterly data or convert shorter horizon period data to a quarterly equivalent
using an analytically appropriate method supported by empirical evidence and
through a well-developed and documented thought process and analysis. Such an
approach shall be applied conservatively and consistently over time. Where only
limited relevant data is available the institution shall add appropriate
margins of conservatism; (b)
the models used shall capture adequately all of
the material risks embodied in equity returns including both the general market
risk and specific risk exposure of the institution's equity portfolio. The
internal models shall adequately explain historical price variation, capture
both the magnitude and changes in the composition of potential concentrations,
and be robust to adverse market environments. The population of risk exposures
represented in the data used for estimation shall be closely matched to or at
least comparable with those of the institution's equity exposures; (c)
the internal model shall be appropriate for the
risk profile and complexity of an institution's equity portfolio. Where an institution
has material holdings with values that are highly non-linear in nature the
internal models shall be designed to capture appropriately the risks associated
with such instruments; (d)
mapping of individual positions to proxies,
market indices, and risk factors shall be plausible, intuitive, and
conceptually sound; (e)
institutions shall
demonstrate through empirical analyses the appropriateness of risk factors,
including their ability to cover both general and specific risk; (f)
the estimates of the return volatility of equity
exposures shall incorporate relevant and available data, information, and
methods. Independently reviewed internal data or data from external sources
including pooled data shall be used; (g)
a rigorous and comprehensive stress-testing
programme shall be in place. Article 183
Risk management process and controls With regard to the development and use of
internal models for own funds requirement purposes, institutions shall
establish policies, procedures, and controls to ensure the integrity of the
model and modelling process. These policies, procedures, and controls shall
include the following: (a)
full integration of the internal model into the
overall management information systems of the institution and in the management
of the non-trading book equity portfolio. Internal models shall be fully
integrated into the institution's risk management infrastructure if they are
particularly used in measuring and assessing equity portfolio performance
including the risk-adjusted performance, allocating economic capital to equity
exposures and evaluating overall capital adequacy and the investment management
process; (b)
established management systems, procedures, and
control functions for ensuring the periodic and independent review of all
elements of the internal modelling process, including approval of model
revisions, vetting of model inputs, and review of model results, such as direct
verification of risk computations. These reviews shall assess the accuracy,
completeness, and appropriateness of model inputs and results and focus on both
finding and limiting potential errors associated with known weaknesses and
identifying unknown model weaknesses. Such reviews may be conducted by an
internal independent unit, or by an independent external third party; (c)
adequate systems and procedures for monitoring
investment limits and the risk exposures of equity exposures; (d)
the units responsible for the design and
application of the model shall be functionally independent from the units
responsible for managing individual investments; (e)
parties responsible for any aspect of the
modelling process shall be adequately qualified. Management shall allocate
sufficient skilled and competent resources to the modelling function. Article 184
Validation and documentation Institutions shall
have robust systems in place to validate the accuracy and consistency of their
internal models and modelling processes. All material elements of the internal
models and the modelling process and validation shall be documented. The validation and documentation of institutions'
internal models and modelling processes shall be subject to the following
requirements: (a)
institutions shall use
the internal validation process to assess the performance of its internal
models and processes in a consistent and meaningful way; (b)
the methods and data used for quantitative
validation shall be consistent through time. Changes in estimation and
validation methods and data both data sources and periods covered shall be
documented; (c)
institutions shall
regularly compare actual equity returns computed using realised and unrealised
gains and losses with modelled estimates. Such comparisons shall make use of
historical data that cover as long a period as possible. The institution shall
document the methods and data used in such comparisons. This analysis and
documentation shall be updated at least annually; (d)
institutions shall make
use of other quantitative validation tools and comparisons with external data
sources. The analysis shall be based on data that are appropriate to the
portfolio, are updated regularly, and cover a relevant observation period. Institutions'
internal assessments of the performance of their models shall be based on as
long a period as possible; (e)
institutions shall have
sound internal standards for addressing situations where comparison of actual
equity returns with the models estimates calls the validity of the estimates or
of the models as such into question. These standards shall take account of
business cycles and similar systematic variability in equity returns. All adjustments
made to internal models in response to model reviews shall be documented and
consistent with the institution's model review standards; (f)
the internal model and the modelling process
shall be documented, including the responsibilities of parties involved in the
modelling, and the model approval and model review processes. Sub-Section 5
internal governance and oversight Article 185
Corporate Governance 1.
All material aspects of the rating and
estimation processes shall be approved by the institution's management body or
a designated committee thereof and senior management. These parties shall
possess a general understanding of the rating systems of the institution and
detailed comprehension of its associated management reports. 2.
Senior management shall be subject to the
following requirements: (a) they shall
provide notice to the management body or a designated committee thereof of
material changes or exceptions from established policies that will materially
impact the operations of the institution's rating systems; (b) they shall
have a good understanding of the rating systems designs and operations; (c) they shall
ensure, on an ongoing basis that the rating systems are operating properly; Senior management shall be regularly informed
by the credit risk control units about the performance of the rating process,
areas needing improvement, and the status of efforts to improve previously
identified deficiencies. 3.
Internal ratings-based analysis of the institution's
credit risk profile shall be an essential part of the management reporting to
these parties. Reporting shall include at least risk profile by grade,
migration across grades, estimation of the relevant parameters per grade, and
comparison of realised default rates, and to the extent that own estimates are
used of realised LGDs and realised conversion factors against expectations and
stress-test results. Reporting frequencies shall depend on the significance and
type of information and the level of the recipient. 4.
EBA shall develop draft regulatory technical standards
to specify in greater detail the requirements on the
management body, a designated committee thereof and senior management laid down
in this Article. EBA shall submit the draft regulatory technical
standards referred to in the first sub-paragraph to the Commission by 31
December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 186
Credit risk control 1.
The credit risk control unit shall be
independent from the personnel and management functions responsible for
originating or renewing exposures and report directly to senior management. The
unit shall be responsible for the design or selection, implementation,
oversight and performance of the rating systems. It shall regularly produce and
analyse reports on the output of the rating systems. 2.
The areas of responsibility for the credit risk
control unit or units shall include: (a) testing and monitoring grades and
pools; (b) production and analysis of summary
reports from the institution's rating systems; (c) implementing procedures to verify that
grade and pool definitions are consistently applied across departments and
geographic areas; (d) reviewing and documenting any changes
to the rating process, including the reasons for the changes; (e) reviewing the rating criteria to
evaluate if they remain predictive of risk. Changes to the rating process,
criteria or individual rating parameters shall be documented and retained; (f) active participation in the design or
selection, implementation and validation of models used in the rating process; (g) oversight and supervision of models
used in the rating process; (h) ongoing review and alterations to
models used in the rating process. 3.
Institutions using pooled data according to
Articles 175(2) and 175(3) may outsource the following tasks: (a) production of information relevant to
testing and monitoring grades and pools; (b) production of summary reports from the
institution's rating systems; (c) production of information relevant to
review of the rating criteria to evaluate if they remain predictive of risk; (d) documentation of changes to the rating
process, criteria or individual rating parameters; (e) production of information relevant to
ongoing review and alterations to models used in the rating process. 4.
Institutions making use of paragraph 3 shall
ensure that the competent authorities have access to all relevant information
from the third party that is necessary for examining compliance with the
requirements and that the competent authorities may perform on-site
examinations to the same extent as within the institution. Article 187
Internal Audit Internal audit or another comparable independent
auditing unit shall review at least annually the institution's rating systems
and its operations, including the operations of the credit function and the
estimation of PDs, LGDs, ELs and conversion factors. Areas of review shall
include adherence to all applicable requirements. Chapter 4
Credit risk mitigation Section 1
Definitions and general requirements Article 188
Definitions For the purposes of this Chapter, the
following definitions shall apply: (1)
‘lending institution’ means the institution
which has the exposure in question; (2)
‘secured lending transaction’ means any
transaction giving rise to an exposure secured by collateral which does not
include a provision conferring upon the institution the right to receive margin
at least daily; (3)
‘capital market-driven transaction’ means any
transaction giving rise to an exposure secured by collateral which includes a
provision conferring upon the institution the right to receive margin at least
daily; (4)
'underlying collective investment undertaking'
means a collective investment undertaking in the shares or units of which
another collective investment undertaking has invested. Article 189
Principles for recognising the effect of credit risk mitigation techniques 1.
No exposure in respect of which an institution
obtains credit risk mitigation shall produce a higher risk-weighted exposure
amount or expected loss amount than an otherwise identical exposure in respect
of which an institution has no credit risk mitigation. 2.
Where the risk-weighted exposure amount already
takes account of credit protection under Chapter 2 or Chapter 3, as relevant,
institutions shall not take into account that credit protection in the
calculations under this Chapter. 3.
Where the provisions in Sections 2 and 3 are met,
institutions may modify the calculation of risk-weighted exposure amounts under
the Standardised Approach and the calculation of risk-weighted exposure amounts
and expected loss amounts under the IRB Approach in accordance with the
provisions of Sections 4, 5 and 6. 4.
Institutions shall treat cash, securities or
commodities purchased, borrowed or received under a repurchase transaction or
securities or commodities lending or borrowing transaction as collateral. 5.
Where an institution calculating risk-weighted
exposure amounts under the Standardised Approach has more than one form of
credit risk mitigation covering a single exposure it shall do both of the
following: (a) subdivide the exposure into parts
covered by each type of credit risk mitigation tool; (b) calculate the risk-weighted exposure
amount for each part obtained in point (a) separately in accordance with the
provisions of Chapter 2 and this Chapter. 6.
When an institution calculating risk-weighted
exposure amounts under the Standardised Approach covers a single exposure with credit
protection provided by a single protection provider and that protection has
differing maturities, it shall do both of the following: (a) subdivide the exposure into parts
covered by each credit risk mitigation tool; (b) calculate the risk-weighted exposure
amount for each part obtained in point (a) separately in accordance with the
provisions of Chapter 2 and this Chapter. Article 190
Principles governing the eligibility of credit risk mitigation techniques 1.
The technique used by the lending institution to
provide the credit protection together with the actions and steps taken and
procedures and policies implemented by that lending institution shall be such
as to result in credit protection arrangements which are legally effective and
enforceable in all relevant jurisdictions. 2.
The lending institution shall take all
appropriate steps to ensure the effectiveness of the credit protection
arrangement and to address the risks related to that arrangement. 3.
In the case of funded credit protection, the
assets relied upon for protection shall qualify as eligible assets for the
purpose of credit risk mitigation only where they meet both the following
conditions: (a) they are included in the list of
eligible assets set out in Articles 193 to 196, as applicable; (b) they are sufficiently liquid and their
value over time sufficiently stable to provide appropriate certainty as to the
credit protection achieved having regard to the approach used to calculate
risk-weighted exposure amounts and to the degree of recognition allowed. 4.
In the case of funded credit protection, the
lending institution shall have the right to liquidate or retain, in a timely
manner, the assets from which the protection derives in the event of the
default, insolvency or bankruptcy — or other credit event set out in the
transaction documentation — of the obligor and, where applicable, of the
custodian holding the collateral. The degree of correlation between the value
of the assets relied upon for protection and the credit quality of the obligor shall
not be too high. 5.
In the case of unfunded credit protection, a
protection provider shall qualify as an eligible protection provider only where
all of the following conditions are met: (a) the protection provider is included in
the list of eligible protection providers set out in Section 2; (b) the protection provider is
sufficiently reliable; (c) the protection agreement meets all the
criteria laid down in paragraph 6. 6.
In the case of unfunded credit protection, a
protection agreement shall qualify as an eligible protection agreement only
where it meets both the following conditions: (a) it is included in the list of eligible
protection agreements set out in Articles 197 to 199, as applicable; (b) it is legally effective and
enforceable in the relevant jurisdictions, to provide appropriate certainty as
to the credit protection achieved having regard to the approach used to
calculate risk-weighted exposure amounts and to the degree of recognition
allowed. 7.
Credit protection shall comply with the
requirements set out in Section 3. 8.
An institution shall be able to demonstrate to
competent authorities that it has adequate risk management processes to control
those risks to which it may be exposed as a result of carrying out credit risk
mitigation practices. 9.
Notwithstanding the presence of credit risk
mitigation taken into account for the purposes of calculating risk-weighted
exposure amounts and, where relevant, expected loss amounts, institutions shall
continue to undertake a full credit risk assessment of the underlying exposure
and be in a position to demonstrate the fulfilment of this requirement to the
competent authorities. In the case of repurchase transactions or securities or
commodities lending or borrowing transactions the underlying exposure shall,
for the purposes of this paragraph only, be deemed to be the net amount of the
exposure. 10.
EBA shall develop draft regulatory technical
standards to specify the following: (a) what constitutes sufficiently liquid
assets and when can asset values be considered as sufficiently stable for the
purpose of paragraph 3; (b) which degree of correlation between
the value of the assets relied upon for protection and the credit quality of
the obligor is considered as too high for the purpose of paragraph 4; (c) when is a protection provider
considered to be sufficiently reliable for the purpose of point b of paragraph
5. EBA shall develop those draft regulatory
technical standards for submission to the Commission by 31 December 2013. Power is delegated to the Commission to adopt the
regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Section 2
Eligible forms of credit risk mitigation Sub-section 1
Funded credit protection Article 191
On-balance sheet netting An institution may use on-balance sheet netting of mutual claims between itself and its
counterparty as an eligible form of credit risk mitigation. Without prejudice to Article 192,
eligibility is limited to reciprocal cash balances between the institution and
the counterparty. Institutions may modify risk-weighted exposure amounts and,
as relevant, expected loss amounts only for loans and deposits that they have
received themselves and that are subject to an on-balance sheet netting
agreement. Article 192
Master netting agreements covering repurchase transactions or securities or
commodities lending or borrowing transactions or other capital market-driven
transactions Institutions adopting the Financial Collateral
Comprehensive Method set out in Article 218 may take into account the effects
of bilateral netting contracts covering repurchase transactions, securities or
commodities lending or borrowing transactions, or other capital market-driven
transactions with a counterparty. Without prejudice to Article 293, the
collateral taken and securities or commodities borrowed within such agreements or
transactions shall comply with the eligibility requirements for collateral set
out in Articles 193 and 194. Article 193
Eligibility of collateral under all approaches and methods 1.
Institutions may use the following items as
eligible collateral under all approaches and methods: (a) cash on deposit with, or cash
assimilated instruments held by, the lending institution; (b) debt securities issued by central
governments or central banks, which securities have a credit assessment by an
ECAI or export credit agency recognised as eligible for the purposes of Chapter
2 which has been determined by EBA to be associated with credit quality step 4
or above under the rules for the risk weighting of exposures to central
governments and central banks under Chapter 2; (c) debt securities issued by
institutions, which securities have a credit assessment by an eligible ECAI
which has been determined by EBA to be associated with credit quality step 3 or
above under the rules for the risk weighting of exposures to institutions under
Chapter 2; (d) debt securities issued by other
entities which securities have a credit assessment by an eligible ECAI which
has been determined by EBA to be associated with credit quality step 3 or above
under the rules for the risk weighting of exposures to corporates under Chapter
2; (e) debt securities with a short-term
credit assessment by an eligible ECAI which has been determined by EBA to be
associated with credit quality step 3 or above under the rules for the risk
weighting of short term exposures under Chapter 2; (f) equities or convertible bonds that
are included in a main index; (g) gold; (h) securitisation positions that are not
re-securitisation positions, which have an external credit assessment by an
eligible ECAI which has been determined by EBA to be associated with credit
quality step 3 or above under the rules for the risk weighting of securitisation
exposures under the approach specified in Chapter 5, Section 3, Sub-section 3. 2.
For the purposes of point (b) of paragraph 1,
‘debt securities issued by central governments or central banks’ shall include
all the following: (a) debt securities issued by regional
governments or local authorities, exposures to which are treated as exposures
to the central government in whose jurisdiction they are established under
Article 110(2); (b) debt securities issued by public
sector entities which are treated as exposures to central governments in
accordance with Article 111(4); (c) debt securities issued by multilateral
development banks to which a 0 % risk weight is assigned under Article 112(2); (d) debt securities issued by
international organisations which are assigned a 0 % risk weight under Article 113. 3.
For the purposes of point (c) of paragraph 1,
‘debt securities issued by institutions’ shall include all the following: (a) debt securities issued by regional
governments or local authorities other than those exposures to which are
treated as exposures to the central government in whose jurisdiction they are
established under Article 110; (b) debt securities issued by public
sector entities, exposures to which are treated according to Article 111(1) and
111(2); (c) debt securities issued by multilateral
development banks other than those to which a 0 % risk weight is assigned under
Article 112(2). 4.
An institution may use debt securities that are
issued by other institutions and that do not have a credit assessment by an
eligible ECAI as eligible collateral where those debt securities fulfil all the
following criteria: (a) they are listed on a recognised
exchange; (b) they qualify as senior debt; (c) all other rated issues by the issuing
institution of the same seniority have a credit assessment by an eligible ECAI
which has been determined by the EBA to be associated with credit quality step
3 or above under the rules for the risk weighting of exposures to institutions
or short term exposures under Chapter 2; (d) the lending institution has no
information to suggest that the issue would justify a credit assessment below
that indicated in (c); (e) the market liquidity of the instrument
is sufficient for these purposes. 5.
Institutions may use units or shares in
collective investment undertakings as eligible collateral where both the
following conditions are satisfied: (a) the units or shares have a daily
public price quote; (b) the collective investment undertakings
are limited to investing in instruments that are eligible for recognition under
paragraphs 1 and 2. Where a CIU invests in shares or units of
another CIU, conditions laid down in points (a) and (b) of the first
subparagraph shall apply equally to any such underlying CIU. The use by a collective investment undertaking
of derivative instruments to hedge permitted investments shall not prevent
units or shares in that undertaking from being eligible as collateral. 6.
For the purposes of paragraph 5, where a
collective investment undertaking or any of its underlying collective
investment undertakings are not limited to investing in instruments that are
eligible under paragraphs 1 and 4, institutions may use units or shares in that
CIU as collateral to an amount equal to the value of the eligible assets held
by that CIU under the assumption that that CIU or any of its underlying
collective investment undertakings have invested in non-eligible assets to the
maximum extent allowed under their respective mandates. Where non-eligible assets can have a negative
value due to liabilities or contingent liabilities resulting from ownership,
institutions shall do both of the following: (a) calculate the total value of the
non-eligible assets; (b) where the amount obtained under point
(a) is negative, subtract that amount from the total value of the eligible
assets. 7.
With regard to points (b) to (e) of paragraph 1,
where a security has two credit assessments by eligible ECAIs, institutions
shall apply the less favourable assessment. Where a security has more than two
credit assessments by eligible ECAIs, institutions shall apply the two most
favourable assessments. Where the two most favourable credit assessments are
different, institutions shall apply the less favourable of the two. 8.
ESMA shall develop draft regulatory technical
standards to specify the conditions for identifying a main index referred to in
point (f) of paragraph 1, in point (a) of Article 194(1), in Article 219(1) and
(4), and in point (e) of Article 293(2). ESMA shall submit those draft regulatory
technical standards to the Commission by 31 December 2013. Power is delegated to the Commission to adopt the
regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010. 9.
EBA shall develop draft regulatory technical
standards to specify the methodology for the calculation of the amount of units
or shares in a CIU that institutions may use as collateral referred to in
paragraph 6 and in Article 194(2). EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2013. Power is delegated to the Commission to adopt the
regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. 10.
ESMA shall develop draft implementing technical
standards to specify the following: (a) the main indices identified in
accordance with the conditions referred to in paragraph 8; (b) the recognised exchanges referred to
in point (a) of paragraph 4 and of Article 194(1), in Article 219(1) and (4),
in point (e) of Article 293(2), in point (k) of Article 389(2), in point (d) of
Article 404(3), in point (c) of Article 415(1), and in point 17 of Annex IV,
Part 3. ESMA shall submit those draft implementing
technical standards to the Commission by 31 December 2014. Power is conferred on the Commission to adopt the
implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No 1095/2010. Article 194
Additional eligibility of collateral under the Financial Collateral
Comprehensive Method 1.
In addition to the collateral established in
Article 193, where an institution uses the Financial Collateral Comprehensive
Method set out in Article 218, that institution may use the following items as
eligible collateral: (a) equities or convertible bonds not
included in a main index but traded on a recognised exchange; (b) units or shares in collective
investment undertakings where both the following conditions are met: (i) the units or shares have a daily
public price quote; (ii) the collective investment
undertaking is limited to investing in instruments that are eligible for
recognition under Article 193(1) and (2) and the items mentioned in point (a)
of this subparagraph. In the case a CIU invests in units or shares of
another CIU, conditions (a) and (b) of this paragraph equally apply to any such
underlying CIU. The use by a collective investment undertaking
of derivative instruments to hedge permitted investments shall not prevent shares
in that undertaking from being eligible as collateral. 2.
Where the collective investment undertaking or any
underlying collective investment undertaking are not limited to investing in
instruments that are eligible for recognition under Article 193(1) and (2) and
the items mentioned in point (a) of paragraph 1, institutions may use units or shares
in that CIU as collateral to an amount equal to the value of the eligible
assets held by that CIU under the assumption that that CIU or any of its
underlying collective investment undertakings have invested in non-eligible
assets to the maximum extent allowed under their respective mandates. Where non-eligible assets can have a negative
value due to liabilities or contingent liabilities resulting from ownership, institutions
shall do both of the following: (a) calculate the total value of the
non-eligible assets; (b) where the amount obtained under point
(a) is negative, subtract that amount from the total value of the eligible
assets. Article 195
Additional eligibility for collateral under the IRB Approach 1.
In addition to the collateral established in
Articles 193 and 194, institutions that calculate risk-weighted exposure
amounts and expected loss amounts under the IRB Approach may also use the
following forms of collateral: (a) immovable property collateral in
accordance with paragraphs 2 to 6; (b) receivables in accordance with
paragraph 7; (c) other physical collateral in accordance
with paragraphs 8 and 10; (d) leasing in accordance with paragraph 9. 2.
Unless otherwise specified under Article 119(2), institutions may use as eligible collateral residential property
which is or will be occupied or let by the owner, or the beneficial owner in the
case of personal investment companies, and commercial immovable property,
including offices and other commercial premises, where both the following
conditions are met: (a) the value of the property does not
materially depend upon the credit quality of the obligor. Institutions may exclude
situations where purely macro-economic factors affect both the value of the
property and the performance of the borrower from their determination of the
materiality of such dependence; (b) the risk of the borrower does not
materially depend upon the performance of the underlying property or project,
but on the underlying capacity of the borrower to repay the debt from other
sources, and as a consequence the repayment of the facility does not materially
depend on any cash flow generated by the underlying property serving as
collateral. 3.
Institutions may use as
eligible residential property collateral shares in Finnish residential housing
companies operating in accordance with the Finnish Housing Company Act of 1991
or subsequent equivalent legislation in respect of residential property which
is or will be occupied or let by the owner provided that the conditions in
paragraph 2 are met. 4.
Institutions may use as
eligible commercial immovable property collateral shares in Finnish housing
companies operating in accordance with the Finnish Housing Company Act of 1991
or subsequent equivalent legislation as commercial immovable property collateral,
provided that the conditions in paragraph 2 are met. 5.
Institutions may derogate
from point (b) of paragraph 2 for exposures secured by residential property
situated within the territory of a Member State, where the competent authority
of that Member State has published evidence showing that a well-developed and
long-established residential property market is present in that territory with
loss rates that do not exceed any of the following limits: (a) losses stemming from loans
collateralised by residential property up to 80 % of the market value or 80 %
of the mortgage-lending-value, unless otherwise provided under Article 119(2),
do not exceed 0.3 % of the outstanding loans collateralised by residential
property in any given year; (b) overall losses stemming from loans
collateralised by residential property do not exceed 0.5 % of the outstanding
loans collateralised by residential property in any given year. 6.
Institutions may derogate from point (b) of paragraph
2 for commercial immovable property situated within the territory of a Member
State, where the competent authority of that Member State has published evidence
showing that a well-developed and long-established commercial property market is
present in that territory with loss rates that meet both the following conditions:
(a)
losses stemming from loans collateralised by
commercial immovable property up to 50 % of the market value or 60 % of the
mortgage-lending-value do not exceed 0.3 % of the outstanding loans
collateralised by commercial immovable property in any given year; (b)
overall losses stemming from loans
collateralised by commercial immovable property do not exceed 0.5 % of the
outstanding loans collateralised by commercial immovable property in any given
year. Where either of the conditions in points (a)
and (b) of the first subparagraph is not met in a given year, institutions shall
not use the treatment specified in that subparagraph until both the conditions
are satisfied in a subsequent year. 7.
Institutions may use as
eligible collateral amounts receivable linked to a commercial transaction or
transactions with an original maturity of less than or equal to one year.
Eligible receivables do not include those associated with securitisations,
sub-participations or credit derivatives or amounts owed by affiliated parties. 8.
Competent authorities shall permit an institution
to use as eligible collateral physical collateral of a type other than those
indicated in paragraphs 2 to 6 where all the following conditions are met: (a) there are liquid markets, evidenced by
frequent transactions, for the disposal of the collateral in an expeditious and
economically efficient manner. Institutions shall carry out the assessment of
this condition periodically and where information indicates material changes in
the market; (b) there are well-established, publicly
available market prices for the collateral. Institutions may consider market
prices as well-established where they come from reliable sources of information
such as public indices and reflect the price of the transactions under normal
conditions. Institutions may consider market prices as publicly available,
where these prices are disclosed, easily accessible, and obtainable regularly
and without any undue administrative or financial burden; (c) the institution analyses the market
prices, time and costs required to realise the collateral and the realised
proceeds from the collateral; (d) the institution demonstrates that the
realised proceeds from the collateral are not below 70% of the collateral value
in more than 10% of all liquidations for a given type of collateral. Where
there is material volatility in the market prices, institutions demonstrate to
the satisfaction of the competent authorities that their valuation of the
collateral is sufficiently conservative. Institutions shall document the fulfilment of
the conditions specified in points (a) to (d) of the first subparagraph and
those specified in Article 205. After the entry into force of the implementing
technical standards referred to in paragraph 10, competent authorities shall
permit institutions to use only those types of other physical collaterals that
are included in those standards. 9.
Subject to the provisions of Article 225(2),
where the requirements set out in Article 206 are met, exposures arising from
transactions whereby an institution leases property to a third party may be
treated in the same manner as loans collateralised by the type of property
leased. 10.
EBA shall develop draft implementing technical
standards to specify the types of physical collaterals for which the conditions
referred to in points (a) and (b) of paragraph 8 are met, based on the criteria
set out in those points. EBA shall submit those draft implementing
technical standards to the Commission by 31 December 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Article 196
Other funded credit protection Institutions may use the following other
funded credit protection as eligible collateral: (a) cash on deposit with, or cash
assimilated instruments held by, a third party institution in a non-custodial
arrangement and pledged to the lending institution; (b) life insurance policies pledged
to the lending institution; (c) instruments issued by third party
institutions which will be repurchased by that institution on request. Sub-section 2
Unfunded credit protection Article 197
Eligibility of protection providers under all approaches 1.
Institutions may use the
following parties as eligible providers of unfunded credit protection: (a) central governments and central banks; (b) regional governments or local
authorities; (c) multilateral development banks; (d) international organisations exposures
to which a 0 % risk weight under Article 112 is assigned; (e) public sector entities, claims on
which are treated in accordance with Article 111; (f) institutions; (g) other corporate entities, including
parent, subsidiary and affiliate corporate entities of the institution, where
either of the following conditions is met: (i) those other corporate entities have a
credit assessment by a recognised ECAI which has been determined by EBA to be
associated with credit quality step 2 or above under the rules for the risk
weighting of exposures to corporates under Chapter 2; (ii) in the case of institutions
calculating risk-weighted exposure amounts and expected loss amounts under the
IRB Approach, those other corporate entities do not have a credit assessment
by a recognised ECAI and are internally rated as having a PD equivalent to that
associated with the credit assessments of ECAIs determined by EBA to be
associated with credit quality step 2 or above the rules for risk weighting of
exposures to corporates under Chapter 2. 2.
Where institutions calculate risk-weighted
exposure amounts and expected loss amounts under the IRB Approach, to be
eligible as a provider of unfunded credit protection a guarantor shall be
internally rated by the institution in accordance with the provisions of
Section 6 of Chapter 3. Institutions may use as
eligible providers of unfunded credit protection other financial institutions
authorised and supervised by the competent authorities responsible for the
authorisation and supervision of institutions and subject to prudential
requirements equivalent to those applied to institutions. Competent authorities shall publish and
maintain the list of those other eligible providers of
unfunded credit protection, or the guiding criteria for identifying such other
eligible providers of unfunded credit protection, together with a description
of the applicable prudential requirements, and share their list with other
competent authorities in accordance with Article 112 of Directive [inserted by
OP]. Article 198
Eligibility of protection providers under the IRB Approach which qualify for
the treatment set out in Article IRB 6(4) An institution may use institutions,
insurance and reinsurance undertakings and export credit agencies as eligible
providers of unfunded credit protection which qualify for the treatment set out
in Article 148(4) where they meet all the following conditions: (a) they have sufficient expertise in
providing unfunded credit protection; (b) they are regulated in a manner
equivalent to the rules laid down in this Regulation, or had, at the time the
credit protection was provided, a credit assessment by a recognised ECAI which
had been determined by EBA to be associated with credit quality step 3, or
above, in accordance with the rules for the risk weighting of exposures to
corporates set out in Chapter 2; (c) they had, at the time the credit
protection was provided, or for any period of time thereafter, an internal
rating with a PD equivalent to or lower than that associated with credit
quality step 2 or above in accordance with the rules for the risk weighting of
exposures to corporates set out in Chapter 2; (d) they have an internal rating with
a PD equivalent to or lower than that associated with credit quality step 3 or
above in accordance with the rules for the risk weighting of exposures to
corporates set out in Chapter 2. For the purpose of this Article, credit
protection provided by export credit agencies shall not benefit from any
explicit central government counter-guarantee. Sub-section 3
Types of credit derivatives Article 199
Eligibility of credit derivatives 1.
Institutions may use the following types of
credit derivatives, and instruments that may be composed of such credit
derivatives or that are economically effectively similar, as eligible credit
protection: (a) credit default swaps; (b) total return swaps; (c) credit linked notes to the extent of
their cash funding. Where an institution buys credit protection
through a total return swap and records the net payments received on the swap
as net income, but does not record the offsetting deterioration in the value of
the asset that is protected either through reductions in fair value or by an
addition to reserves, that credit protection does not qualify as eligible
credit protection. 2.
Where an institution conducts an internal hedge
using a credit derivative, in order for the credit protection to qualify as
eligible credit protection for the purposes of this Chapter, the credit risk
transferred to the trading book shall be transferred out to a third party or
parties. Where an internal hedge has been conducted in
accordance with the first subparagraph and the requirements in Sub-section 2
have been met, institutions shall apply the rules set out in Sections 4 to 6
for the calculation of risk-weighted exposure amounts and expected loss amounts
where they acquire unfunded credit protection. Section 3
requirements Sub-section 1
Funded credit protection Article 200
Requirements for on-balance sheet netting agreements (other than master netting
agreements covering repurchase transactions, securities or commodities lending
or borrowing transactions or other capital market-driven transactions) On-balance sheet netting agreements, other
than master netting agreements covering repurchase transactions, securities or
commodities lending or borrowing transactions or other capital market-driven
transactions, shall qualify as an eligible form of credit risk mitigation where
all the following conditions are met: (a) those agreements are legally
effective and enforceable in all relevant jurisdictions, including in the event
of the insolvency or bankruptcy of a counterparty; (b) institutions are able to
determine at any time the assets and liabilities that are subject to those
agreements; (c) institutions monitor and control
the risks associated with the termination of the credit protection on an
ongoing basis; (d) institutions monitor and control
the relevant exposures on a net basis and do so on an ongoing basis. Article 201
Requirements for master netting agreements covering repurchase transactions or
securities or commodities lending or borrowing transactions or other capital
market driven transactions Master netting agreements covering
repurchase transactions, securities or commodities lending or borrowing
transactions or other capital market driven transactions shall qualify as an eligible
form of credit risk mitigation where the collateral provided under those
agreements meets all the requirements referred to in Article 202(1) and where
all the following conditions are met: (a) they are legally effective and
enforceable in all relevant jurisdictions, including in the event of the
bankruptcy or insolvency of the counterparty; (b) they give the non-defaulting
party the right to terminate and close-out in a timely manner all transactions
under the agreement upon the event of default, including in the event of the
bankruptcy or insolvency of the counterparty; (c) they provide for the netting of
gains and losses on transactions closed out under a agreement so that a single
net amount is owed by one party to the other. Article 202
Requirements for financial collateral 1.
Under all approaches and methods, financial
collateral and gold shall qualify as eligible collateral where all the
requirements laid down in paragraphs 2 to 4 are met. 2.
The credit quality of the obligor and the value of
the collateral shall not have a material positive correlation. Securities issued by the obligor, or any
related group entity, shall not qualify as eligible collateral. This
notwithstanding, the obligor's own issues of covered bonds falling within the
terms of Article 124 qualify as eligible collateral when they are posted as
collateral subject to a repurchase transactions, provided that they comply with
the condition set out in the first subparagraph. 3.
Institutions shall
fulfil any contractual and statutory requirements in respect of, and take all
steps necessary to ensure, the enforceability of the collateral arrangements
under the law applicable to their interest in the collateral. Institutions shall have
conducted sufficient legal review confirming the enforceability of the
collateral arrangements in all relevant jurisdictions. They shall re-conduct
such review as necessary to ensure continuing enforceability. 4.
Institutions shall fulfil all the following
operational requirements: (a) they shall properly document the
collateral arrangements and have in place clear and robust procedures for the
timely liquidation of collateral; (b) they shall use robust procedures and
processes to control risks arising from the use of collateral, including risks
of failed or reduced credit protection, valuation risks, risks associated with
the termination of the credit protection, concentration risk arising from the
use of collateral and the interaction with the institution's overall risk
profile; (c) they shall have in place documented
policies and practices concerning the types and amounts of collateral accepted; (d) they shall calculate the market value
of the collateral, and revalue it accordingly, with a minimum frequency of once
every six months and whenever they have reason to believe that a significant
decrease in the market value of the collateral has occurred; (e) where the collateral is held by a
third party, they shall take reasonable steps to ensure that the third party
segregates the collateral from its own assets; (f) they shall ensure that they devote sufficient
resources to the orderly operation of margin agreements with OTC derivatives
and securities-financing counterparties, as measured by the timeliness and
accuracy of their outgoing calls and response time to incoming calls; (g) they shall have in place collateral
management policies to control, monitor and report the following: (i) the risks to which margin agreements
expose them; (ii) the concentration risk to particular
types of collateral assets; (iii) the reuse of collateral including
the potential liquidity shortfalls resulting from the reuse of collateral
received from counterparties; (iv) the surrender of rights on collateral
posted to counterparties. 5.
In addition to the requirements set out in
paragraphs 1 to 4, for financial collateral to qualify as eligible collateral under
the Financial Collateral Simple Method the residual maturity of the protection shall
be at least as long as the residual maturity of the exposure. Article 203
Requirements for immovable property collateral 1.
Immovable property shall qualify as eligible collateral
only where all the requirements laid down in paragraphs 2 to 5 are met. 2.
The following requirements on legal certainly shall
be met: (a) a mortgage or charge is enforceable in
all jurisdictions which are relevant at the time of the conclusion of the
credit agreement and shall be properly filed on a timely basis; (b) all legal requirements for
establishing the pledge have been fulfilled; (c) the protection agreement and the legal
process underpinning it enable the institution to realise the value of the
protection within a reasonable timeframe. 3.
The following requirements on monitoring of
property values and on property valuation shall be met: (a) institutions monitor the value of the
property on a frequent basis and at a minimum once every year for commercial immovable
property and once every three years for residential real estate. Institutions
carry out more frequent monitoring where the market is subject to significant
changes in conditions; (b) the property valuation is reviewed
when information available to institutions indicates that the value of the
property may have declined materially relative to general market prices and
that review is carried out by a valuer who possesses the necessary
qualifications, ability and experience to execute a valuation and who is
independent from the credit decision process. For loans exceeding EUR 3 million
or 5 % of the own funds of an institution, the property valuation shall be
reviewed by such valuer at least every three years. Institutions may use statistical methods to
monitor the value of the property and to identify property that needs
revaluation. 4.
Institutions shall clearly document the types of
residential and commercial immovable property they accept and their lending
policies in this regard. 5.
Institutions shall have in place procedures to
monitor that the property taken as credit protection is adequately insured
against the risk of damage. Article 204
Requirements for receivables 1.
Receivables shall qualify as eligible collateral
where all the requirements laid down in paragraphs 2 and 3 are met. 2.
The following requirements on legal certainty shall
be met: (a) the legal mechanism by which the
collateral is provided to a lending institution shall be robust and effective
and ensure that that institution has clear rights over the proceeds; (b) institutions shall take all steps
necessary to fulfil local requirements in respect of the enforceability of
security interest. Lending institutions shall have a first priority claim over
the collateral although such claims may still be subject to the claims of
preferential creditors provided for in legislative provisions; (c) institutions shall have conducted
sufficient legal review confirming the enforceability of the collateral
arrangements in all relevant jurisdictions; (d) institutions shall properly document their
collateral arrangements and shall have in place clear and robust procedures for
the timely collection of collateral; (e) institutions shall have in place procedures
that ensure that any legal conditions required for declaring the default of a
borrower and timely collection of collateral are observed; (f) in the event of a borrower's
financial distress or default, institutions shall have legal authority to sell
or assign the receivables to other parties without consent of the receivables
obligors. 3.
The following requirements on risk management shall
be met: (a) an institution shall have in place a
sound process for determining the credit risk associated with the receivables.
Such a process shall include analyses of a borrower's business and industry and
the types of customers with whom that borrower does business. Where institutions
rely on their borrowers to ascertain the credit risk of the customers, the institution
shall review the borrower's credit practices to ascertain their soundness and
credibility; (b) the margin between the amount of the
exposure and the value of the receivables shall reflect all appropriate
factors, including the cost of collection, concentration within the receivables
pool pledged by an individual borrower, and potential concentration risk within
the institution's total exposures beyond that controlled by the institution's
general methodology. Institutions shall maintain a continuous monitoring
process appropriate to the receivables. They shall also review, on a regular
basis, compliance with loan covenants, environmental restrictions, and other
legal requirements; (c) receivables pledged by a borrower
shall be diversified and not be unduly correlated with that borrower. Where
there is material positive correlation, institutions shall take into account the
attendant risks in the setting of margins for the collateral pool as a whole; (d) institutions shall not use receivables
from affiliates of a borrower, including subsidiaries and employees, as eligible
credit protection; (e) institution shall have in place a
documented process for collecting receivable payments in distressed situations.
Institutions shall have in place the requisite facilities for collection even
when they normally rely on their borrowers for collections. Article 205
Requirements for other physical collateral Physical collateral other than immovable
property collateral shall qualify as eligible collateral under the IRB Approach
where all the following conditions are met: (a) the collateral arrangement under
which the physical collateral is provided to an institution shall be legally
effective and enforceable in all relevant jurisdictions and shall enable that institution
to realise the value of the collateral within a reasonable timeframe; (b) with the sole exception of
permissible prior claims referred to in Article 204(2)(b), only first liens on,
or charges over, collateral shall qualify as eligible collateral and an institution
shall have priority over all other lenders to the realised proceeds of the
collateral; (c) institutions shall monitor the
value of the collateral on a frequent basis and at a minimum once every year. Institutions
shall carry out more frequent monitoring where the market is subject to
significant changes in conditions; (d) the loan agreement shall include
detailed descriptions of the collateral as well as detailed specifications of
the manner and frequency of revaluation; (e) institutions shall clearly
document in internal credit policies and procedures available for examination the
types of physical collateral they accept and the policies and practices they
have in place in respect of the appropriate amount of each type of collateral
relative to the exposure amount ; (f) institutions' credit policies
with regard to the transaction structure shall address appropriate collateral
requirements relative to the exposure amount, the ability to liquidate the
collateral readily, the ability to establish objectively a price or market
value, the frequency with which the value can readily be obtained, including a
professional appraisal or valuation, and the volatility or a proxy of the
volatility of the value of the collateral; (g) both initial valuation and
revaluation shall take fully into account any deterioration or obsolescence of
the collateral. When conducting valuation and revaluation institutions shall
pay particular attention to the effects of the passage of time on fashion- or
date-sensitive collateral; (h) institutions shall have the right
to physically inspect the collateral. They shall also have in place policies
and procedures addressing their exercise of the right to physical inspection; (i) the collateral taken as
protection shall be adequately insured against the risk of damage and institutions
shall have in place procedures to monitor this. Article 206
Requirements for treating lease exposures as collateralised Institutions shall treat exposures arising
from leasing transactions as collateralised by the type of property leased, where
all the following conditions are met: (a) the conditions set out in
Articles 203 or 205, as appropriate, for the type of property leased to qualify
as eligible collateral are met; (b) the lessor has in place robust
risk management with respect to the use to which the leased asset is put, its
location, its age and the planned duration of its use, including appropriate
monitoring of the value of the security; (c) the lessor has legal ownership of
the asset and is able to exercise its rights as owner in a timely fashion; (d) where this has not already been
ascertained in calculating the LGD level, the difference between the value of
the unamortised amount and the market value of the security is not so large as
to overstate the credit risk mitigation attributed to the leased assets. Article 207
Requirements for other funded credit protection 1.
To be eligible for the treatment set out in
Article 227(1), cash on deposit with, or cash assimilated instruments held by,
a third party institution all the following conditions shall be met: (a) the borrower's claim against the third
party institution is openly pledged or assigned to the lending institution and
such pledge or assignment is legally effective and enforceable in all relevant
jurisdictions; (b) the third party institution is
notified of the pledge or assignment; (c) as a result of the notification, the
third party institution is able to make payments solely to the lending institution
or to other parties only with the lending institution's prior consent; (d) the pledge or assignment is
unconditional and irrevocable. 2.
Life insurance policies
pledged to the lending institution shall qualify as eligible collateral where
all the following conditions are met: (a) the life insurance policy is openly
pledged or assigned to the lending institution; (b) the company providing the life
insurance is notified of the pledge or assignment and may not pay amounts
payable under the contract without the prior consent of the lending institution; (c) the lending institution has the right
to cancel the policy and receive the surrender value in the event of the
default of the borrower; (d) the lending institution is informed of
any non-payments under the policy by the policy-holder; (e) the credit protection is provided for
the maturity of the loan. Where this is not possible because the insurance
relationship ends before the loan relationship expires, the institution shall
ensure that the amount deriving from the insurance contract serves the institution
as security until the end of the duration of the credit agreement; (f) the pledge or assignment is legally
effective and enforceable in all jurisdictions which are relevant at the time
of the conclusion of the credit agreement; (g) the surrender value is declared by the
company providing the life insurance and is non-reducible; (h) the surrender value is to be paid by
the company providing the life insurance in a timely manner upon request; (i) the surrender value shall not be
requested without the prior consent of the institution; (j) the company providing the life
insurance is subject to Directive 2009/138/EC of the European Parliament and of
the Council or is subject to supervision by a competent authority of a third
country which applies supervisory and regulatory arrangements at least
equivalent to those applied in the Union. Sub-section 2
Unfunded credit protection and credit linked notes Article 208
Requirements common to guarantees and credit derivatives 1.
Subject to Article 209(1), credit protection
deriving from a guarantee or credit derivative shall qualify as eligible unfunded
credit protection where all the following conditions are met: (a) the credit protection is direct; (b) the extent of the credit protection is
clearly defined; (c) the credit protection contract does
not contain any clause, the fulfilment of which is outside the direct control
of the lender, that: (i) would allow the protection provider
to cancel the protection unilaterally; (ii) would increase the effective cost of
protection as a result of deteriorating credit quality of the protected
exposure; (iii) could prevent the protection
provider from being obliged to pay out in a timely manner in the event that the
original obligor fails to make any payments due, or when the leasing contract
has expired for the purposes of recognising guaranteed residual value under
Articles 129(7) and 162(4); (iv) could allow the maturity of the
credit protection to be reduced by the protection provider; (d) is legally effective and enforceable
in all jurisdictions which are relevant at the time of the conclusion of the
credit agreement. 2.
An institution shall demonstrate to competent
authorities that it has in place systems to manage potential concentration of
risk arising from its use of guarantees and credit derivatives. An institution shall
be able to demonstrate to the satisfaction of the competent authorities how its
strategy in respect of its use of credit derivatives and guarantees interacts
with its management of its overall risk profile. 3.
Institutions shall fulfil any contractual and
statutory requirements in respect of, and take all steps necessary to ensure,
the enforceability of its unfunded credit protection under the law applicable
to their interest in the credit protection. Institutions shall have conducted sufficient
legal review confirming the enforceability of the unfunded credit protection in
all relevant jurisdictions. They shall repeat such review as necessary to
ensure continuing enforceability. Article 209
Sovereign and other public sector counter-guarantees 1.
Institutions may treat the exposure listed in
paragraph 2 as protected by a guarantee provided by the entities listed in that
paragraph, provided all the following conditions are satisfied: (a) the counter-guarantee covers all
credit risk elements of the claim; (b) both the original guarantee and the
counter-guarantee meet the requirements for guarantees set out in Articles 208
and 210(1), except that the counter-guarantee need not be direct; (c) the cover is robust and nothing in the
historical evidence suggests that the coverage of the counter-guarantee is less
than effectively equivalent to that of a direct guarantee by the entity in
question. 2.
The treatment laid down in paragraph 1 shall
apply to exposures protected by a guarantee which is counter-guaranteed by any
of the following entities: (a) a central government or central bank; (b) a regional government or local
authority; (c) a public sector entity, claims on
which are treated as claims on the central government in accordance with
Article 111(4); (d) a multilateral development bank or an
international organisation, to which a 0 % risk weight is assigned under or by
virtue of Chapter 2; (e) a public sector entity, claims on
which are treated in accordance with Article 111(1) and 111(2). 3.
Institutions shall apply the treatment set out
in paragraph 1 also to an exposure which is not counter-guaranteed by any
entity listed in paragraph 2 where that exposure's counter-guarantee is in turn
directly guaranteed by one of those entities and the conditions listed in paragraph
1 are satisfied. Article 210
Additional requirements for guarantees 1.
Guarantees shall qualify as eligible unfunded
credit protection where all the conditions in Article 208 and all the following
conditions are met: (a) on the qualifying default of or
non-payment by the counterparty, the lending institution has the right to
pursue, in a timely manner, the guarantor for any monies due under the claim in
respect of which the protection is provided and the payment by the guarantor
shall not be subject to the lending institution first having to pursue the
obligor; In the case of unfunded credit protection
covering residential mortgage loans, the requirements in Article 208(1)(c)(iii)
and in the first subparagraph have only to be satisfied within 24 months; (b) the guarantee is an explicitly
documented obligation assumed by the guarantor; (c) either of the following conditions is
met: (i) the guarantee covers all types of
payments the obligor is expected to make in respect of the claim; (ii) where certain types of payment are
excluded from the guarantee, the lending institution has adjusted the value of
the guarantee to reflect the limited coverage. 2.
In the case of guarantees provided in the
context of mutual guarantee schemes or provided by or counter-guaranteed by
entities referred to in Article 209(1), the requirements in point (a) of paragraph
1 shall be considered to be satisfied where either of the following conditions is
met: (a) the lending institution has the right
to obtain in a timely manner a provisional payment by the guarantor that meets
both the following conditions: (i) it represents a robust estimate of
the amount of the loss, including losses resulting from the non-payment of
interest and other types of payment which the borrower is obliged to make, that
the lending institution is likely to incur; (ii) it is proportional to the coverage
of the guarantee; (b) the lending institution can
demonstrate to the satisfaction of the competent authorities that the effects
of the guarantee, which shall also cover losses resulting from the non-payment
of interest and other types of payments which the borrower is obliged to make,
justify such treatment. Article 211
Additional requirements for credit derivatives 1.
Credit derivative shall qualify as eligible unfunded
credit protection where all the conditions in Article 208 and all the following
conditions are met: (a) the credit events specified in the
credit derivative contract include: (i) the failure to pay the amounts due
under the terms of the underlying obligation that are in effect at the time of
such failure, with a grace period that is closely in line with or shorter than
the grace period in the underlying obligation; (ii) the bankruptcy, insolvency or
inability of the obligor to pay its debts, or its failure or admission in
writing of its inability generally to pay its debts as they become due, and
analogous events; (iii) the restructuring of the underlying
obligation involving forgiveness or postponement of principal, interest or fees
that results in a credit loss event; (b) where credit derivatives allow for
cash settlement: (i) institutions have in place a robust
valuation process in order to estimate loss reliably; (ii) there is a clearly specified period
for obtaining post-credit-event valuations of the underlying obligation; (c) where the protection purchaser's right
and ability to transfer the underlying obligation to the protection provider is
required for settlement, the terms of the underlying obligation provide that
any required consent to such transfer shall not be unreasonably withheld; (d) the identity of the parties
responsible for determining whether a credit event has occurred is clearly
defined; (e) the determination of the credit event is
not the sole responsibility of the protection provider; (f) the protection buyer has the right or
ability to inform the protection provider of the occurrence of a credit event. Where the credit events do not include
restructuring of the underlying obligation as described in point (a)(iii), the
credit protection may nonetheless be eligible subject to a reduction in the
value as specified in Article 228(2); 2.
A mismatch between the underlying obligation and
the reference obligation under the credit derivative which is the obligation
used for the purposes of determining the cash settlement value or or between
the underlying obligation and the obligation used for purposes of determining
whether a credit event has occurred is permissible only where both the following
conditions are met: (a) the reference obligation or the
obligation used for purposes of determining whether a credit event has
occurred, as the case may be, ranks concurrently with or is junior to the
underlying obligation; (b) the underlying obligation and the
reference obligation or the obligation used for purposes of determining whether
a credit event has occurred, as the case may be, share the same obligor and
legally enforceable cross-default or cross-acceleration clauses are in place. Article 212
Requirements to qualify for the treatment set out in Article 148(4) 1.
To be eligible for the treatment set out in
Article 148(4), credit protection deriving from a guarantee or credit
derivative shall meet the following conditions: (a) the underlying obligation is to one of
the following exposures: (i) a corporate exposure as defined in
Article 142, excluding insurance and reinsurance undertakings; (ii) an exposure to a regional
government, local authority or public sector entity which is not treated as an exposure
to a central government or a central bank according to Article 142; (iii) an exposure to a small or medium
sized enterprise, classified as a retail exposure according to Article 142(5); (b) the underlying obligors are not
members of the same group as the protection provider; (c) the exposure is hedged by one of the
following instruments: (i) single-name unfunded credit
derivatives or single-name guarantees; (ii) first-to-default basket products; (iii) nth-to-default basket products; (d) the credit protection meets the
requirements set out in Articles 208, 210 and 211; (e) the risk weight that is associated
with the exposure prior to the application of the treatment in Article 148(4),
does not already factor in any aspect of the credit protection; (f) an institution has the right and
expectation to receive payment from the protection provider without having to
take legal action in order to pursue the counterparty for payment. To the
extent possible, the institution shall take steps to satisfy itself that the
protection provider is willing to pay promptly should a credit event occur; (g) the purchased credit protection absorbs
all credit losses incurred on the hedged portion of an exposure that arise due
to the occurrence of credit events outlined in the contract; (h) where the payout structure of the
credit protection provides for physical settlement, there is legal certainty
with respect to the deliverability of a loan, bond, or contingent liability; (i) where an institution intends to
deliver an obligation other than the underlying exposure, it shall ensure that
the deliverable obligation is sufficiently liquid so that the institution would
have the ability to purchase it for delivery in accordance with the contract; (j) the terms and conditions of credit
protection arrangements are legally confirmed in writing by both the protection
provider and the institution; (k) institutions have in place a process
to detect excessive correlation between the creditworthiness of a protection
provider and the obligor of the underlying exposure due to their performance
being dependent on common factors beyond the systematic risk factor; (l) in the case of protection against
dilution risk, the seller of purchased receivables is not a member of the same
group as the protection provider. 2.
For the purpose of point (c)(ii) of paragraph 1,
institutions shall apply the treatment set out in Article 148(4) to the asset
within the basket with the lowest risk-weighted exposure amount. 3.
For the purpose of point (c)(iii) of paragraph
1, the protection obtained is only eligible for consideration under this
framework where eligible (n-1)th default protection has also been obtained or
where (n-1) of the assets within the basket has or have already defaulted.
Where this is the case, institutions shall apply the treatment set out in Article
148(4) to the asset within the basket with the lowest risk-weighted exposure
amount. Section 4
Calculating the effects of credit risk mitigation Sub-section 1
Funded credit protection Article 213
Credit linked notes Investments in credit linked notes issued
by the lending institution may be treated as cash collateral for the purpose of
calculating the effect of funded credit protection in accordance with this
Sub-section, provided that the credit default swap embedded in the credit
linked note qualifies as eligible unfunded credit protection. Article 214
On-balance sheet netting Loans and deposits with the lending
institution subject to on-balance sheet netting are to be treated as cash
collateral for the purpose of calculating the effect of funded credit
protection for those loans and deposits of the lending institution subject to
on-balance sheet netting which are denominated in the same currency. Article 215
Using the Supervisory Volatility Adjustments Approach or the Own Estimates Volatility
Adjustments Approach for master netting agreements 1.
When institutions calculate the ‘fully adjusted
exposure value’ (E*) for the exposures subject to an eligible master
netting agreement covering repurchase transactions or securities or commodities
lending or borrowing transactions or other capital market-driven transactions,
they shall calculate the volatility adjustments that they need to apply either by
using the Supervisory Volatility Adjustments Approach or the Own Estimates
Volatility Adjustments Approach ('Own Estimates Approach') as set out in
Articles 218 to 221 for the Financial Collateral Comprehensive Method. The use of the Own Estimates Approach shall be
subject to the same conditions and requirements as apply under the Financial
Collateral Comprehensive Method. 2.
For the purpose of calculating E*,
the following conditions shall be met: (a) institutions shall calculate the net
position in each group of securities or in each type of commodity by
subtracting the amount in point (i) from the amount in point (ii): (i) the total
value of a group of securities or of commodities of the same type lent, sold or
provided under the master netting agreement; (ii) the total
value of a group of securities or of commodities of the same type borrowed,
purchased or received under the agreement; (b) institutions
shall calculate the net position in each currency, other than the settlement
currency of the master netting agreement, by subtracting the amount in point
(i) from the amount in point (ii): (i) the sum
of the total value of securities denominated in that currency lent, sold or
provided under the master netting agreement and the amount of cash in that
currency lent or transferred under the agreement; (ii) the sum
of the total value of securities denominated in that currency borrowed,
purchased or received under the agreement and the amount of cash in that
currency borrowed or received under the agreement; (c) institutions shall apply the
volatility adjustment appropriate to a given group of securities or to a cash
position to the absolute value of the positive or negative net position in the
securities in that group; (d) institutions shall apply the foreign
exchange risk (fx) volatility adjustment to the net positive or negative
position in each currency other than the settlement currency of the master
netting agreement. 3.
Institutions shall calculate E*
according to the following formula: where: Ei = the exposure
value for each separate exposure i under the agreement that would apply in the
absence of the credit protection, where institutions calculate risk-weighted
exposure amounts under the Standardised Approach or where they calculate the risk-weighted
exposure amounts and expected loss amounts under the IRB Approach; Ci = the value of
securities in each group or commodities of the same type borrowed, purchased or
received or the cash borrowed or received in respect of each exposure I; = the
net position (positive or negative) in a given group of securities j; = the
net position (positive or negative) in a given currency k other than the
settlement currency of the agreement as calculated under point (b) of
paragraph 2; = the
volatility adjustment appropriate to a particular group of securities j; = the
foreign exchange volatility adjustment for currency k. 4.
For the purpose of calculating risk-weighted
exposure amounts and expected loss amounts for repurchase transactions or
securities or commodities lending or borrowing transactions or other capital
market-driven transactions covered by master netting agreements, institutions
shall use E* as calculated under paragraph 3 as the exposure value
of the exposure to the counterparty arising from the transactions subject to
the master netting agreement for the purposes of Article 108 under the
Standardised Approach or Chapter 3 under the IRB Approach. 5.
For the purposes of paragraphs 2 and 3, 'group
of securities’ means securities which are issued by the same entity, have the
same issue date, the same maturity, are subject to the same terms and
conditions, and are subject to the same liquidation periods as indicated in
Articles 219 and 220, as applicable. Article 216
Using the Internal Models Approach for Master netting agreements 1.
Subject to permission of competent authorities,
institutions may, as an alternative to using the Supervisory Volatility Adjustments
Approach or the Own Estimates Approach in calculating the fully adjusted
exposure value (E*) resulting from the application of an eligible
master netting agreement covering repurchase transactions, securities or
commodities lending or borrowing transactions, or other capital market driven
transactions other than derivative transactions, use an internal models
approach which takes into account correlation effects between security
positions subject to the master netting agreement as well as the liquidity of
the instruments concerned. 2.
Subject to the permission of the competent
authorities, institutions may also use their internal models for margin lending
transactions, where the transactions are covered under a bilateral master
netting agreement that meets the requirements set out in Chapter 6, Section 7. 3.
An institution may choose to use an internal
models approach independently of the choice it has made between the
Standardised Approach and the IRB Approach for the calculation of risk-weighted
exposure amounts. However, where an institution seeks to use an internal models
approach, it shall do so for all counterparties and securities, excluding immaterial
portfolios where it may use the Supervisory Volatility Adjustments Approach or
the Own Estimates Approach as laid down in Article 215. Institutions that have
received permission for an internal risk-management model under Title IV,
Chapter 5 may use the internal models approach. Where an institution has not
received such permission, it may still apply for permission to the competent
authorities to use an internal models approach for the purposes of this Article. 4.
Competent authorities shall
permit an institution to use an internal models approach only where they are
satisfied that the institution's system for managing the risks arising from the
transactions covered by the master netting agreement is conceptually sound and
implemented with integrity and where the following qualitative standards are
met: (a) the internal risk-measurement model
used for calculating the potential price volatility for the transactions is
closely integrated into the daily risk-management process of the institution and
serves as the basis for reporting risk exposures to the senior management of
the institution; (b) the institution has a risk control
unit that meets all the following requirements: (i) it is
independent from business trading units and reports directly to senior
management; (ii) it is
responsible for designing and implementing the institution's risk-management
system; (iii) it
produces and analyses daily reports on the output of the risk-measurement model
and on the appropriate measures to be taken in terms of position limits; (c) the daily reports produced by the
risk-control unit are reviewed by a level of management with sufficient
authority to enforce reductions of positions taken and of overall risk
exposure; (d) the institution has sufficient staff
skilled in the use of sophisticated models in the risk control unit; (e) the institution has established
procedures for monitoring and ensuring compliance with a documented set of
internal policies and controls concerning the overall operation of the
risk-measurement system; (f) the institution's models have a
proven track record of reasonable accuracy in measuring risks demonstrated
through the back-testing of its output using at least one year of data; (g) the institution frequently conducts a
rigorous programme of stress testing and the results of these tests are
reviewed by senior management and reflected in the policies and limits it sets; (h) the institution conducts, as part of
its regular internal auditing process, an independent review of its
risk-measurement system. This review shall include both the activities of the
business trading units and of the independent risk-control unit; (i) at least once a year, the institution
conducts a review of its risk-management system; (j) the internal model meets the
requirements set out in Article 286(8) and (9) and in Article 288. 5.
The internal risk-measurement model shall
capture a sufficient number of risk factors in order to capture all material
price risks. An institutions may use
empirical correlations within risk categories and across risk categories where its
system for measuring correlations is sound and implemented with integrity. 6.
Institutions using the internal models approach
shall calculate E* according to the following formula: where: Ei = the exposure
value for each separate exposure i under the agreement that would apply in the
absence of the credit protection, where institutions calculate the risk-weighted
exposure amounts under the Standardised Approach or where they calculate risk-weighted
exposure amounts and expected loss amounts under the IRB Approach; Ci = the value of the
securities borrowed, purchased or received or the cash borrowed or received in
respect of each such exposure i. When calculating risk-weighted exposure amounts
using internal models, institutions shall use the previous business day's model
output. 7.
The calculation of the potential change in value
referred to in paragraph 6 shall be subject to all the following standards: (a) it shall be carried out at least
daily; (b) it shall be based on a 99th
percentile, one-tailed confidence interval; (c) it shall be based on a 5-day
equivalent liquidation period, except in the case of transactions other than
securities repurchase transactions or securities lending or borrowing
transactions where a 10-day equivalent liquidation period shall be used; (d) it shall be based on an effective
historical observation period of at least one year except where a shorter
observation period is justified by a significant upsurge in price volatility; (e) the data set used in the calculation
shall be updated every three months. Where an institution has a repurchase transaction,
a securities or commodities lending or borrowing transaction and margin lending
or similar transaction or netting set which meets the criteria set out in
Article 279(2) and (3), the minimum holding period shall be brought in line
with the margin period of risk that would apply under those points, in
combination with Article 279(4). 8.
For the purpose of
calculating risk-weighted exposure amounts and expected loss amounts for
repurchase transactions or securities or commodities lending or borrowing
transactions or other capital market-driven transactions covered by master
netting agreements, institutions shall use E* as calculated under
paragraph 6 as the exposure value of the exposure to the counterparty arising
from the transactions subject to the master netting agreement for the purposes
of Article 108 under the Standardised Approach or Chapter 3 under the IRB
Approach. 9.
EBA shall develop draft regulatory technical
standards to specify the following: (a) what represents an immaterial
portfolio for the purpose of paragraph 3; (b) the criteria for determining whether
an internal model is sound and implemented with integrity for the purposes of
paragraphs 4 and 5. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 217
Financial Collateral Simple Method 1.
Institutions may use the Financial Collateral
Simple Method only where they calculate risk-weighted exposure amounts under
the Standardised Approach. Institution shall not use both the Financial
Collateral Simple Method and the Financial Collateral Comprehensive Method, except
for the purposes of Articles 143(1) and 145(1). Institutions shall not use this
exception selectively with the purpose of achieving reduced own funds
requirements or with the purpose of conducting regulatory arbitrage. 2.
Under the Financial Collateral Simple Method institutions
shall assign to eligible financial collateral a value equal to its market value
as determined in accordance with point (d) of Article 202(4). 3.
Institutions shall assign to those portions of
exposure values that are collateralised by the market value of eligible
collateral the risk weight that they would assign under Chapter 2 where the lending
institution had a direct exposure to the collateral instrument. For this
purpose, the exposure value of an off-balance sheet item listed in Annex I
shall be equal to 100 % of the item's value rather than the exposure value
indicated in Article 106(1). The risk weight of the collateralised portion
shall be at least 20 % except as specified in paragraphs 4 to 6. Institutions
shall apply to the remainder of the exposure value the risk weight that they would
assign to an unsecured exposure to the counterparty under Chapter 2. 4.
Institutions shall assign a risk weight of 0 %
to the collateralised portion of the exposure arising from repurchase transaction
and securities lending or borrowing transactions which fulfil the criteria in
Article 222. Where the counterparty to the transaction is not a core market
participant, institutions shall assign a risk weight of 10 %. 5.
Institutions shall assign a risk weight of 0 %,
to the extent of the collateralisation, to the exposure values determined under
Chapter 6 for the derivative instruments listed in Annex II and subject to
daily marking-to-market, collateralised by cash or cash-assimilated instruments
where there is no currency mismatch. Institutions shall assign a risk weight of 10 %,
to the extent of the collateralisation, to the exposure values of such
transactions collateralised by debt securities issued by central governments or
central banks which are assigned a 0 % risk weight under Chapter 2. 6.
For transactions other
than those referred to in paragraphs 4 and 5, institutions may assign a 0 %
risk weight where the exposure and the collateral are denominated in the same
currency, and either of the following conditions is met: (a) the collateral is cash on deposit or a
cash assimilated instrument; (b) the collateral is in the form of debt
securities issued by central governments or central banks eligible for a 0 %
risk weight under Article 109, and its market value has been discounted by 20
%. 7.
For the purpose of paragraphs 5 and 6 debt
securities issued by central governments or central banks shall include: (a) debt securities issued by regional
governments or local authorities exposures to which are treated as exposures to
the central government in whose jurisdiction they are established under Article
110; (b) debt securities issued by multilateral
development banks to which a 0 % risk weight is assigned under or by virtue of
Article 112(2); (c) debt securities issued by international
organisations which are assigned a 0 % risk weight under Article 113. Article 218
Financial Collateral Comprehensive Method 1.
In order to take account of price volatility,
institutions shall apply volatility adjustments to the market value of
collateral, as set out in Articles 219 to 222, when valuing financial
collateral for the purposes of the Financial Collateral Comprehensive Method. Where collateral is denominated in a currency
that differs from the currency in which the underlying exposure is denominated,
institutions shall add an adjustment reflecting currency volatility to the
volatility adjustment appropriate to the collateral as set out in Articles 219 to
222. In the case of OTC derivatives transactions
covered by netting agreements recognised by the competent authorities under
Chapter 6, institutions shall apply a volatility adjustment reflecting currency
volatility when there is a mismatch between the collateral currency and the
settlement currency. Even where multiple currencies are involved in the
transactions covered by the netting agreement, institutions shall apply a
single volatility adjustment. 2.
Institutions shall calculate the
volatility-adjusted value of the collateral (CVA) they need to take
into account as follows: where: C = the value of the collateral; HC = the volatility
adjustment appropriate to the collateral, as calculated under Articles 219 and 222; Hfx = the volatility
adjustment appropriate to currency mismatch, as calculated under Articles 219
and 222. Institutions shall use the formula in this
paragraph when calculating the volatility-adjusted value of the collateral for
all transactions except for those transactions subject to recognised master
netting agreements to which the provisions set out in Articles 215 and 216 apply. 3.
Institutions shall calculate the
volatility-adjusted value of the exposure (EVA) they need to take
into account as follows: where: E = the exposure value as would
be determined under Chapter 2 or Chapter 3 as appropriate where the exposure
was not collateralised; HE = the volatility
adjustment appropriate to the exposure, as calculated under Articles 219 and 222. In the case of OTC derivative transactions
institutions shall calculate EVA as follows: . 4.
For the purpose of calculating E in paragraph 3,
the following shall apply: (a) for institutions calculating
risk-weighted exposure amounts under the Standardised Approach, the exposure
value of an off-balance sheet item listed in Annex I shall be 100 % of that
item's value rather than the exposure value indicated in Article 106(1); (b) for institutions calculating
risk-weighted exposure amounts under the IRB Approach, they shall calculate the
exposure value of the items listed in Article 162(8) to (10) by using a
conversion factor of 100 % rather than the conversion factors or percentages
indicated in those paragraphs. 5.
Institutions shall calculate the fully adjusted
value of the exposure, taking into account both volatility and the
risk-mitigating effects of collateral as follows: where: CVAM = CVA
further adjusted for any maturity mismatch in accordance with the provisions of
Section 5; E* = is the fully
adjusted exposure value. 6.
Institutions may calculate volatility
adjustments either by using the Supervisory Volatility Adjustments Approach referred
to in Article 219 or the Own Estimates Approach referred to in Article 220. An institution may
choose to use the Supervisory Volatility Adjustments Approach or the Own Estimates
Approach independently of the choice it has made between the Standardised
Approach and the IRB Approach for the calculation of risk-weighted exposure
amounts. However, where an institution uses the Own Estimates
Approach, it shall do so for the full range of instrument types, excluding
immaterial portfolios where it may use the Supervisory Volatility Adjustments Approach. 7.
Where the collateral consists of a number of eligible
items, institutions shall calculate the volatility adjustment as follows: where: ai = the proportion of
the value of an eligible item i in the total value of collateral; Hi = the volatility adjustment
applicable to eligible item i. Article 219
Supervisory volatility adjustment under the Financial Collateral Comprehensive
Method 1.
The volatility adjustments to be applied by
institutions under the Supervisory Volatility Adjustments Approach, assuming
daily revaluation, shall be those set out in Tables 1 to 4 of this paragraph. VOLATILITY
ADJUSTMENTS Table 1 Credit quality step with which the credit assessment of the debt security is associated || Residual Maturity || Volatility adjustments for debt securities issued by entities described in Part 1, point 7(b) || Volatility adjustments for debt securities issued by entities described in Part 1, point 7(c) and (d) || Volatility adjustments for securitisation positions and meeting the criteria in Part 1 point 7 (h) || || 20-day liquidation period ( %) || 10-day liquidation period ( %) || 5-day liquidation period ( %) || 20-day liquidation period ( %) || 10-day liquidation period ( %) || 5-day liquidation period ( %) || 20-day liquidation period ( %) || 10-day liquidation period ( %) || 5-day liquidation period ( %) 1 || ≤ 1 year || 0.707 || 0.5 || 0.354 || 1.414 || 1 || 0.707 || 2.829 || 2 || 1.414 || >1 ≤ 5 years || 2.828 || 2 || 1.414 || 5.657 || 4 || 2.828 || 11.314 || 8 || 5.657 || > 5 years || 5.657 || 4 || 2.828 || 11.314 || 8 || 5.657 || 22.628 || 16 || 11.313 2-3 || ≤ 1 year || 1.414 || 1 || 0.707 || 2.828 || 2 || 1.414 || 5.657 || 4 || 2.828 || >1 ≤ 5 years || 4.243 || 3 || 2.121 || 8.485 || 6 || 4.243 || 16.971 || 12 || 8.485 || > 5 years || 8.485 || 6 || 4.243 || 16.971 || 12 || 8.485 || 33.942 || 24 || 16.970 4 || ≤ 1 year || 21.213 || 15 || 10.607 || N/A || N/A || N/A || N/A || N/A || N/A || >1 ≤ 5 years || 21.213 || 15 || 10.607 || N/A || N/A || N/A || N/A || N/A || N/A || > 5 years || 21.213 || 15 || 10.607 || N/A || N/A || N/A || N/A || N/A || N/A Table 2 Credit quality step with which the credit assessment of a short term debt security is associated || Volatility adjustments for debt securities issued by entities described in Part 1, point 7(b) with short-term credit assessments || Volatility adjustments for debt securities issued by entities described in Part 1, point 7(c) and (d) with short-term credit assessments || 20-day liquidation period ( %) || 10-day liquidation period ( %) || 5-day liquidation period ( %) || 20-day liquidation period ( %) || 10-day liquidation period ( %) || 5-day liquidation period ( %) 1 || 0.707 || 0.5 || 0.354 || 1.414 || 1 || 0.707 2-3 || 1.414 || 1 || 0.707 || 2.828 || 2 || 1.414 Table 3 Other collateral or exposure types || 20-day liquidation period ( %) || 10-day liquidation period ( %) || 5-day liquidation period ( %) Main Index Equities, Main Index Convertible Bonds || 21.213 || 15 || 10.607 Other Equities or Convertible Bonds listed on a recognised exchange || 35.355 || 25 || 17.678 Cash || 0 || 0 || 0 Gold || 21.213 || 15 || 10.607 Table 4 Volatility adjustment for currency mismatch 20-day liquidation period ( %) || 10-day liquidation period ( %) || 5-day liquidation period (%) 11.314 || 8 || 5.657 2.
The calculation of volatility adjustments in
accordance with paragraph 1 shall be subject to the following conditions: (a) for secured lending transactions the
liquidation period shall be 20 business days; (b) for repurchase transactions, except
insofar as such transactions involve the transfer of commodities or guaranteed
rights relating to title to commodities, and securities lending or borrowing
transactions the liquidation period shall be 5 business days; (c) for other capital market driven
transactions, the liquidation period shall be 10 business days. Where an institution has a transaction or
netting set which meets the criteria set out in of Article 279(2) and (3), the
minimum holding period shall be brought in line with the margin period of risk
that would apply under those paragraphs. 3.
In Tables 1 to 4 of paragraph 1 and in paragraphs
4 to 6, the credit quality step with which a credit assessment of the debt
security is associated is the credit quality step with which the credit
assessment is determined by EBA to be associated under Chapter 2. For the purpose of determining the credit
quality step with which a credit assessment of the debt security is associated
referred to in the first subparagraph, Article 193(7) also applies. 4.
For non-eligible securities or for commodities
lent or sold under repurchase transactions or securities or commodities lending
or borrowing transactions, the volatility adjustment is the same as for
non-main index equities listed on a recognised exchange. 5.
For eligible units in collective investment
undertakings the volatility adjustment is the weighted average volatility
adjustments that would apply, having regard to the liquidation period of the
transaction as specified in paragraph 2, to the assets in which the fund has
invested. Where the assets in which the fund has invested
are not known to the institution, the volatility adjustment is the highest
volatility adjustment that would apply to any of the assets in which the fund
has the right to invest. 6.
For unrated debt securities issued by
institutions and satisfying the eligibility criteria in Article 193(4) the
volatility adjustments is the same as for securities issued by institutions or
corporates with an external credit assessment associated with credit quality
steps 2 or 3. Article 220
Own estimates of volatility adjustments under the Financial Collateral
Comprehensive Method 1.
The competent authorities shall permit
institutions to use their own volatility estimates for
calculating the volatility adjustments to be applied to collateral and
exposures where those institutions comply with the requirements set out in
paragraphs 2 and 3. Institutions which have obtained permission to use their
own volatility estimates shall not revert to the use of other methods except
for demonstrated good cause and subject to the permission of the competent
authorities. For debt securities that have a credit
assessment from a recognised ECAI equivalent to investment grade or better, institutions
may calculate a volatility estimate for each category of security. For debt securities that have a credit
assessment from a recognised ECAI equivalent to below investment grade, and for
other eligible collateral, institutions shall calculate the volatility
adjustments for each individual item. Institutions using the Own Estimates Approach shall
estimate volatility of the collateral or foreign exchange mismatch without
taking into account any correlations between the unsecured exposure, collateral
or exchange rates. In determining relevant categories, institutions
shall take into account the type of issuer of the security, the external credit
assessment of the securities, their residual maturity, and their modified
duration. Volatility estimates shall be representative of the securities
included in the category by the institution. 2.
The calculation of the volatility adjustments shall
be subject to all the following criteria: (a) institutions shall base the
calculation on a 99th percentile, one-tailed confidence interval; (b) institutions shall base the
calculation on the following liquidation periods: (i) 20
business days for secured lending transactions; (ii) 5
business days for repurchase transaction, except insofar as such transactions involve
the transfer of commodities or guaranteed rights relating to title to
commodities and securities lending or borrowing transactions; (iii) 10
business days for other capital market driven transactions; (c) institutions may use volatility
adjustment numbers calculated according to shorter or longer liquidation
periods, scaled up or down to the liquidation period set out in point (b) for
the type of transaction in question, using the square root of time formula: where: TM = the
relevant liquidation period; HM = the
volatility adjustment based on the liquidation period TM; HN = the
volatility adjustment based on the liquidation period TN. (d) institutions shall take into account
the illiquidity of lower-quality assets. They shall adjust the liquidation
period upwards in cases where there is doubt concerning the liquidity of the
collateral. They shall also identify where historical data may understate
potential volatility. Such cases shall be dealt with by means of a stress
scenario; (e) the length of the historical
observation period institutions use for calculating volatility adjustments
shall be at least one year. For institutions that use a weighting scheme or
other methods for the historical observation period, the length of the effective
observation period shall be at least one year. The competent authorities may
also require an institution to calculate its volatility adjustments using a
shorter observation period where, in the competent authorities' judgement, this
is justified by a significant upsurge in price volatility; (f) institutions shall update their data
sets and calculate volatility adjustments at least once every three months.
They shall also reassess their data sets whenever market prices are subject to
material changes. 3.
The estimation of volatility adjustments shall
meet all the following qualitative criteria: (a) an institutions shall use the
volatility estimates in the day-to-day risk management process including in
relation to its internal exposure limits; (b) where the liquidation period used by an
institution in its day-to-day risk management process is longer than that set
out in this Part for the type of transaction in question, that institution shall
scale up its volatility adjustments in accordance with the square root of time
formula set out in point (c) of paragraph 2; (c) an institution shall have in place established
procedures for monitoring and ensuring compliance with a documented set of
policies and controls for the operation of its system for the estimation of volatility
adjustments and for the integration of such estimations into its risk
management process; (d) an independent review of the institution's
system for the estimation of volatility adjustments shall be carried out
regularly within the institution's own internal auditing process. A review of
the overall system for the estimation of volatility adjustments and for the integration
of those adjustments into the institution's risk management process shall take
place at least once a year. The subject of that review shall include at least
the following: (i) the integration of estimated
volatility adjustments into daily risk management; (ii) the validation of any significant
change in the process for the estimation of volatility adjustments; (iii) the verification of the consistency,
timeliness and reliability of data sources used to run the system for the
estimation of volatility adjustments, including the independence of such data
sources; (iv) the accuracy and appropriateness of
the volatility assumptions. Article 221
Scaling up of volatility adjustment under the Financial Collateral
Comprehensive method The volatility adjustments set out in
Article 219 are the volatility adjustments an institution shall apply where
there is daily revaluation. Similarly, where an institution uses its own
estimates of the volatility adjustments in accordance with Article 220, it
shall calculate them in the first instance on the basis of daily revaluation. Where
the frequency of revaluation is less than daily, institutions shall apply larger
volatility adjustments. Institutions shall calculate them by scaling up the
daily revaluation volatility adjustments, using the following square-root-of-time
formula: where: H = the volatility adjustment to
be applied; HM = the volatility adjustment
where there is daily revaluation; NR = the actual number
of business days between revaluations; TM = the liquidation period for the type of transaction in
question. Article 222
Conditions for applying a 0% volatility adjustment under the Financial
Collateral Comprehensive method 1.
In relation to repurchase transactions and
securities lending or borrowing transactions, where an institution uses the
Supervisory Volatility Adjustments Approach under Article 219 or the Own
Estimates Approach under Article 220 and where the conditions set out in points
(a) to (h) of paragraph 2 are satisfied, institutions may, instead of applying
the volatility adjustments calculated under Articles 219 to 221, apply a 0 %
volatility adjustment. Institutions using the internal models approach set out
in Article 216 shall not use the treatment laid down in this Article. 2.
Institutions may apply a 0% volatility
adjustment where all the following conditions are met: (a) both the exposure and the collateral
are cash or debt securities issued by central governments or central banks
within the meaning of Article 193(1)(b) and eligible for a 0 % risk weight
under Chapter 2; (b) both the exposure and the collateral
are denominated in the same currency; (c) either the maturity of the transaction
is no more than one day or both the exposure and the collateral are subject to
daily marking-to-market or daily re-margining; (d) the time between the last
marking-to-market before a failure to re-margin by the counterparty and the
liquidation of the collateral is no more than four business days; (e) the transaction is settled across a
settlement system proven for that type of transaction; (f) the documentation covering the
agreement or transaction is standard market documentation for repurchase transactions
or securities lending or borrowing transactions in the securities concerned; (g) the transaction is governed by
documentation specifying that where the counterparty fails to satisfy an
obligation to deliver cash or securities or to deliver margin or otherwise
defaults, then the transaction is immediately terminable; (h) the counterparty is considered a core
market participant by the competent authorities. 3.
The core market participants referred to in
point (h) of paragraph 2 shall include the following entities: (a) the entities mentioned in Article 193(1)(b)
exposures to which are assigned a 0 % risk weight under Chapter 2; (b) institutions; (c) other financial undertakings,
including insurance undertakings, exposures to which are assigned a 20 % risk
weight under the Standardised Approach or which, in the case of institutions
calculating risk-weighted exposure amounts and expected loss amounts under the
IRB Approach, do not have a credit assessment by a recognised ECAI and are
internally rated as having a PD equivalent to that associated with the credit
assessments of ECAIs determined by EBA to be associated with credit quality
step 2 or above under the rules for the risk weighting of exposures to
corporates under Chapter 2; (d) regulated collective investment
undertakings that are subject to capital or leverage requirements; (e) regulated pension funds; (f) recognised clearing organisations. Article 223
Calculating risk-weighted exposure amounts and expected loss amounts under the
Financial Collateral Comprehensive method 1.
Under the Standardised
Approach, institutions shall use E* as calculated under Article 218(5)
as the exposure value for the purposes of Article 108. In the case of
off-balance sheet items listed in Annex I, institutions shall use E*
as the value to which the percentages indicated in Article 106(1) shall be
applied to arrive at the exposure value. 2.
Under the IRB Approach, institutions
shall use the effective LGD (LGD*) as the LGD for the purposes of Chapter
3. Institutions shall calculate LGD* as follows: where: LGD = the LGD that would apply to the
exposure under Chapter 3 where the exposure was not collateralised; E = the exposure value as
described under Article 29(2); E* = the fully adjusted
exposure value as calculated under Article 29(2). Article 224
Valuation principles for other eligible collateral under the IRB Approach 1.
For immovable property collateral,
the collateral shall be valued by an independent valuer at or less than the
market value. An institution shall require the independent valuer to document
the market value in a transparent and clear manner. In those Member States that have laid down
rigorous criteria for the assessment of the mortgage lending value in statutory
or regulatory provisions the property may instead be valued by an independent
valuer at or less than the mortgage lending value. The independent valuer shall
not take into account speculative elements in the assessment of the mortgage
lending value and shall document that value in a transparent and clear manner. The value of the collateral shall be the market
value or mortgage lending value reduced as appropriate to reflect the results
of the monitoring required under Article 203(3) and to take account of any
prior claims on the property. 2.
For receivables, the
value of receivables shall be the amount receivable. 3.
Institutions shall value physical collateral
other than immovable property at its market value which they shall calculate as
the estimated amount for which the property would exchange on the date of
valuation between a willing buyer and a willing seller in an arm's-length
transaction. Article 225
Calculating risk-weighted exposure amounts and expected loss amounts for other
eligible collateral under the IRB Approach 1.
Institutions shall use LGD* calculated
in accordance with this paragraph and paragraph 2 as the LGD for the purposes
of Chapter 3. Where the ratio of the value of the collateral
to the exposure value is below the required minimum collateralisation level of
the exposure (C*) as laid down in Table 5, LGD* shall be
the LGD laid down in Chapter 3 for uncollateralised exposures to the
counterparty. For this purpose, institutions shall calculate the exposure value
of the items listed in Articles 162(8) to (10) by using a conversion factor or
percentage of 100 % rather than the conversion factors or percentages indicated
in those points. Where the ratio of the value of the collateral
to the exposure value exceeds a second, higher threshold level of C**
as laid down in Table 5, LGD* shall be that prescribed in Table 5. Where the required level of collateralisation C**
is not achieved in respect of the exposure as a whole, institutions shall
consider the exposure to be two exposures — one corresponding to the part in
respect of which the required level of collateralisation C** is
achieved and one corresponding to the remainder. 2.
The applicable LGD* and required
collateralisation levels for the secured parts of exposures are set out in
Table 5 of this paragraph. Table 5 Minimum LGD for secured parts of exposures || LGD* for senior claims or contingent claims || LGD* for subordinated claims or contingent claims || Required minimum collateralisation level of the exposure (C*) || Required minimum collateralisation level of the exposure (C**) Receivables || 35 % || 65 % || 0 % || 125 % Residential real estate/commercial real estate || 35 % || 65 % || 30 % || 140 % Other collateral || 40 % || 70 % || 30 % || 140 % 3.
As an alternative to the treatment in paragraphs
1 and 2, and subject to Article 119(2), institutions may assign a 50 % risk
weight to the part of the exposure that is, within the limits set out in
Articles 120(2)(d) and 121(2)(d) respectively, fully collateralised by
residential property or commercial immovable property situated within the
territory of a Member State where all the conditions in Article 195(6) are met. Article 226
Calculating risk-weighted exposure amounts and expected loss amounts in the
case of mixed pools of collateral 1.
An institution shall calculate the value of LGD*
that it shall use as the LGD for the purposes of Chapter 3 in accordance with
paragraphs 2 and 3 where both the following conditions are met: (a) the institution uses the IRB Approach
to calculate risk-weighted exposure amounts and expected loss amounts; (b) an exposure is collateralised by both
financial collateral and other eligible collateral. 2.
Institutions shall be required to subdivide the
volatility-adjusted value of the exposure, obtained by applying the volatility
adjustment as set out in Article 218(5) to the value of the exposure, into
parts so as to obtain a part covered by eligible financial collateral, a part
covered by receivables, a part covered by commercial immovable property
collateral or residential property collateral, a part covered by other eligible
collateral, and the unsecured part, as relevant. 3.
Institutions shall calculate LGD* for
each part of the exposure obtained in paragraph 2 separately in accordance with
the relevant provisions of this Chapter. Article 227
Other funded credit protection 1.
Where the conditions set out in Article 207(1)
are met, deposits with third party institutions may be treated as a guarantee
by the third party institution. 2.
Where the conditions set out in Article 207(2)
are met, institutions shall subject the portion of the exposure collateralised
by the current surrender value of life insurance policies pledged to the
lending institution to the following treatment: (a) where the exposure is subject to the
Standardised Approach, it shall be risk-weighted by using the risk weights
specified in paragraph 3; (b) where the exposure is subject to the
IRB Approach but not subject to the institution’s own estimates of LGD, it
shall be assigned an LGD of 40 %. In case of a currency mismatch, institutions
shall reduce the current surrender value in accordance with Article 228(3), the
value of the credit protection being the current surrender value of the life
insurance policy. 3.
For purposes of point (a) of paragraph 2, institutions
shall assign the following risk weights on the basis of the risk weight
assigned to a senior unsecured exposure to the undertaking providing the life
insurance: (a) a risk weight of 20 %, where the
senior unsecured exposure to the company providing the life insurance is
assigned a risk weight of 20 %; (b) a risk weight of 35 %, where the
senior unsecured exposure to the company providing the life insurance is
assigned a risk weight of 50 %; (c) a risk weight of 70 %, where the
senior unsecured exposure to the company providing the life insurance is
assigned a risk weight of 100 %; (d) a risk weight of 150 %, where the
senior unsecured exposure to the company providing the life insurance is
assigned a risk weight of 150 %. 4.
Institution may treat instruments repurchased on
request that are eligible under Article 196(c) as a
guarantee by the issuing institution. The value of the eligible credit
protection shall be the following: (a) where the instrument will be
repurchased at its face value, the value of the protection shall be that
amount; (b) where the instrument will be
repurchased at market price, the value of the protection shall be the value of
the instrument valued in the same way as the debt securities specified in
Article 193(4). Sub-section 2
Unfunded credit protection Article 228
Valuation 1.
For the purpose of calculating the effects of
unfunded credit protection in accordance with this Sub-section, the value of
unfunded credit protection (G) shall be the amount that the protection provider
has undertaken to pay in the event of the default or non-payment of the
borrower or on the occurrence of other specified credit events. 2.
In the case of credit derivatives which do not
include as a credit event restructuring of the underlying obligation involving
forgiveness or postponement of principal, interest or fees that result in a
credit loss event the following shall apply: (a) where the amount that the protection
provider has undertaken to pay is not higher than the exposure value, institutions
shall reduce the value of the credit protection calculated under paragraph 1 by
40 %; (b) where the amount that the protection
provider has undertaken to pay is higher than the exposure value, the value of
the credit protection shall be no higher than 60 % of the exposure value. 3.
Where unfunded credit protection is denominated
in a currency different from that in which the exposure is denominated,
institutions shall reduce the value of the credit protection by the application
of a volatility adjustment as follows: where: G* = the amount of
credit protection adjusted for foreign exchange risk, G = the nominal amount of the credit
protection; Hfx = the volatility
adjustment for any currency mismatch between the credit protection and the
underlying obligation determined in accordance with paragraph 4. Where there is no currency mismatch Hfx
is equal to zero. 4.
Institutions shall base the volatility
adjustments for any currency mismatch on a 10 business day liquidation period,
assuming daily revaluation, and may calculate them based on the Supervisory Volatility
Adjustments approach or the Own Estimates Approach as set out in Articles 219
and 220 respectively. Institutions shall scale up the volatility adjustments in
accordance with Article 221. Article 229
Calculating risk-weighted exposure amounts and expected loss amounts in case of
partial protection and tranching Where an institution transfers a part of
the risk of a loan in one or more tranches, the rules set out in Chapter 5
shall apply. Institutions may consider materiality thresholds on payments below
which no payment shall be made in the event of loss to be equivalent to retained
first loss positions and to give rise to a tranched transfer of risk. Article 230
Calculating risk-weighted exposure amounts under the Standardised Approach 1.
For the purposes of Article 108(3) institutions
shall calculate the risk-weighted exposure amounts in accordance with the
following formula: where: E = the exposure value according
to Article 106; for this purpose, the exposure value of an off-balance sheet
item listed in Annex I shall be 100 % of its value rather than the exposure
value indicated in Article 106(1); GA = the amount of credit
risk protection as calculated under Article 228(3) (G*) further
adjusted for any maturity mismatch as laid down in Section 5; r = the risk weight of exposures
to the obligor as specified under Chapter 2; g = the risk weight of exposures
to the protection provider as specified under Chapter 2. 2.
Where the protected amount (GA) is
less than the exposure (E), institutions may apply the formula specified in
paragraph 1 only where the protected and unprotected parts of the exposure are
of equal seniority. 3.
Institutions may extend
the treatment provided for in Article 109(4) and (5) to exposures or parts of
exposures guaranteed by the central government or central bank, where the
guarantee is denominated in the domestic currency of the borrower and the
exposure is funded in that currency. Article 231
Calculating risk-weighted exposure amounts and expected loss amounts under the
IRB Approach 1.
For the covered portion of the exposure value
(E), based on the adjusted value of the credit protection GA, the PD
for the purposes of Section 3 of Chapter 3 may be the PD of the protection
provider, or a PD between that of the borrower and that of the guarantor where
a full substitution is deemed not to be warranted. In the case of subordinated
exposures and non-subordinated unfunded protection, the LGD to be applied by
institutions for the purposes of Section 3 of Chapter 3 may be that associated
with senior claims. 2.
For any uncovered portion of the exposure value
(E) the PD shall be that of the borrower and the LGD shall be that of the
underlying exposure. 3.
GA is the value of G* as
calculated under Article 228(3) further adjusted for any maturity mismatch as
laid down in Section 5. E is the exposure value according to Section 4 of Chapter
3. For this purpose, institutions shall calculate the exposure value of the
items listed in Article 162(8) to (10) by using a conversion factor or
percentage of 100 % rather than the conversion factors or percentages indicated
in those points. Section 5
Maturity mismatches Article 232
Definition of maturity mismatch Maturity mismatch 1.
For the purpose of calculating risk-weighted
exposure amounts, a maturity mismatch occurs when the residual maturity of the
credit protection is less than that of the protected exposure. Where protection
has a residual maturity of less than three months and the maturity of the
protection is less than the maturity of the underlying exposure that protection
does not qualify as eligible credit protection. 2.
Where there is a maturity mismatch the credit
protection shall not qualify as eligible where either of the following
conditions is met: (a) the original maturity of the
protection is less than 1 year; (b) the exposure is a short term exposure
specified by the competent authorities as being subject to a one-day floor
rather than a one-year floor in respect of the maturity value (M) under Article
158(3). Article 233
Maturity of credit protection 1.
Subject to a maximum of 5 years, the effective
maturity of the underlying shall be the longest possible remaining time before
the obligor is scheduled to fulfil its obligations. Subject to paragraph 2, the
maturity of the credit protection shall be the time to the earliest date at
which the protection may terminate or be terminated. 2.
Where there is an option to terminate the
protection which is at the discretion of the protection seller, institutions
shall take the maturity of the protection to be the time to the earliest date
at which that option may be exercised. Where there is an option to terminate
the protection which is at the discretion of the protection buyer and the terms
of the arrangement at origination of the protection contain a positive
incentive for the institution to call the transaction before contractual maturity,
an institution shall take the maturity of the protection to be the time to the
earliest date at which that option may be exercised; otherwise the institution
may consider that such an option does not affect the maturity of the
protection. 3.
Where a credit derivative is not prevented from
terminating prior to expiration of any grace period required for a default on
the underlying obligation to occur as a result of a failure to pay institutions
shall reduce the maturity of the protection by the length of the grace period. Article 234
Valuation of protection 1.
For transactions subject
to funded credit protection under the Financial Collateral Simple Method, where
there is a mismatch between the maturity of the exposure and the maturity of
the protection, the collateral does not qualify as eligible funded credit
protection. 2.
For transactions subject to funded credit protection under the
Financial Collateral Comprehensive Method, institutions shall reflect the
maturity of the credit protection and of the exposure in the adjusted value of
the collateral according to the following formula: where: CVA = the volatility
adjusted value of the collateral as specified in Article 218(2) or the amount
of the exposure, whichever is the lowest; t = the number of years remaining
to the maturity date of the credit protection calculated in accordance with
Article 233, or the value of T, whichever is lower; T = the number of years remaining
to the maturity date of the exposure calculated in accordance with Article 233,
or 5 years, whichever is lower; t* = 0.25. Institutions shall use CVAM as CVA
further adjusted for maturity mismatch in the formula for the calculation of
the fully adjusted value of the exposure (E*) set out in Article 218(5). 3.
For transactions subject
to unfunded credit protection, institutions shall reflect the maturity of the
credit protection and of the exposure in the adjusted value of the credit
protection according to the following formula: where: G* = the amount of the protection
adjusted for any currency mismatch; GA = G*
adjusted for any maturity mismatch; t = is the number of years
remaining to the maturity date of the credit protection calculated in
accordance with Article 233, or the value of T, whichever is lower; T = is the number of years remaining
to the maturity date of the exposure calculated in accordance with Article 233,
or 5 years, whichever is lower; t* = 0.25. Institutions shall use GA as the
value of the protection for the purposes of Articles 228 to 231. Section 6
Basket CRM techniques Article 235
First-to-default credit derivatives Where an institution obtains credit
protection for a number of exposures under terms that the first default among
the exposures shall trigger payment and that this credit event shall terminate
the contract, the institution may modify the calculation of the risk-weighted
exposure amount and, as relevant, the expected loss amount of the exposure
which would, in the absence of the credit protection, produce the lowest of the
two following amounts in accordance with this Chapter, but only where the
exposure value is less than or equal to the value of the credit protection: (a) risk-weighted exposure amount
under the Standardised Approach; (b) risk-weighted exposure amount
under the IRB Approach plus 12.5 times the expected loss amount. Article 236
Nth-to-default credit derivatives Where the nth default among the exposures
triggers payment under the credit protection, the institution purchasing the
protection may only recognise the protection for the calculation of risk-weighted
exposure amounts and, as relevant, expected loss amounts where protection has
also been obtained for defaults 1 to n-1 or when n-1 defaults have already
occurred. In such cases, the institution may modify the calculation of the
risk-weighted exposure amount and, as relevant, the expected loss amount of the
exposure which would, in the absence of the credit protection, produce the n-th
lowest of the two amounts referred to in points (a) and (b) in Article 235. All exposures in the basket shall meet the
requirements laid down in Article CRM 199(2) and CRM 211(1)(d). Chapter 5
Securitisation Section 1
Definitions Article 237
Definitions For the purposes of this Chapter, the
following definitions shall apply: (1)
‘excess spread’ means finance charge collections
and other fee income received in respect of the securitised exposures net of
costs and expenses; (2)
‘clean-up call option’ means a contractual
option for the originator to repurchase or extinguish the securitisation
positions before all of the underlying exposures have been repaid, when the
amount of outstanding exposures falls below a specified level; (3)
‘liquidity facility’ means the securitisation
position arising from a contractual agreement to provide funding to ensure
timeliness of cash flows to investors; (4)
‘KIRB’ means 8 % of the risk-weighted
exposure amounts that would be calculated under Chapter 3 in respect of the
securitised exposures, had they not been securitised, plus the amount of
expected losses associated with those exposures calculated under those
Articles; (5)
‘ratings based method’ means the method of
calculating risk-weighted exposure amounts for securitisation positions in
accordance with Article 256; (6)
‘supervisory formula method’ means the method of
calculating risk-weighted exposure amounts for securitisation positions in
accordance with Article 257; (7)
‘unrated position’ means a securitisation
position which does not have an eligible credit assessment by an eligible ECAI
as defined in Section 4; (8)
‘rated position’ means a securitisation position
which has an eligible credit assessment by an eligible ECAI as defined in
Section 4; (9)
‘asset-backed commercial paper (ABCP) programme’
means a programme of securitisations the securities issued by which
predominantly take the form of commercial paper with an original maturity of
one year or less; (10)
‘traditional securitisation’ means a
securitisation involving the economic transfer of the exposures being
securitised. This shall be accomplished by the transfer of ownership of the
securitised exposures from the originator institution or through
sub-participation. The securities issued do not represent payment obligations
of the originator institution; (11)
‘synthetic securitisation’ means a
securitisation where the transfer of risk is achieved by the use of credit
derivatives or guarantees, and the exposures being securitised remain exposures
of the originator institution; (12)
‘revolving exposure’ means an exposure whereby
customers' outstanding balances are permitted to fluctuate based on their
decisions to borrow and repay, up to an agreed limit; (13)
'early amortisation provision' means a
contractual clause in a securitisations of revolving exposures which requires,
on the occurrence of defined events, investors' positions to be redeemed before
the originally stated maturity of the securities issued; (14)
'first loss tranche' means the most subordinated
tranche in a securitisation that bears the first loss incurred on the
securitised exposures and thereby provides protection to the second loss and,
where relevant, higher ranking tranches. Section 2
Recognition of significant risk transfer Article 238
Traditional securitisation 1.
The originator institution of a traditional
securitisation may exclude securitised exposures from the calculation of
risk-weighted exposure amounts and expected loss amounts if either of the
following conditions is fulfilled: (a) significant credit risk associated
with the securitised exposures is considered to have been transferred to third
parties; (b) the originator institution applies a
1250 % risk weight to all securitisation positions it holds in this
securitisation or deducts these securitisation positions from Common Equity
Tier 1 items in accordance with Article 33(1)(k). 2.
Significant credit risk shall be considered to
have been transferred in the following cases: (a) the risk-weighted exposure amounts of
the mezzanine securitisation positions held by the originator institution in
this securitisation do not exceed 50 % of the risk weighted exposure amounts of
all mezzanine securitisation positions existing in this securitisation; (b) where there are no mezzanine
securitisation positions in a given securitisation and the originator can
demonstrate that the exposure value of the securitisation positions that would
be subject to deduction from own funds or a 1250 % risk weight exceeds a
reasoned estimate of the expected loss on the securitised exposures by a
substantial margin, the originator institution does not hold more than 20 % of
the exposure values of the securitisation positions that would be subject to
deduction from own funds or a 1250 % risk weight. Where the possible reduction in risk weighted
exposure amounts, which the originator institution would achieve by this
securitisation is not justified by a commensurate transfer of credit risk to third
parties, competent authority may decide on a case-by-case basis that significant
credit risk shall not be considered to have been transferred to third parties. 3.
For the purposes of paragraph 2, mezzanine
securitisation positions mean securitisation positions to which a risk weight
lower than 1250 % applies and that are more junior than the most senior
position in this securitisation and more junior than any securitisation
position in this securitisation to which either of the following is assigned in
accordance with Section 4: (a) in the case of a securitisation
position subject to Section 3, Sub-section 3 a credit quality step 1; (b) in the case of a securitisation
position subject to points Section 3, Sub-section 4 a credit quality step 1 or
2. 4.
As an alternative to paragraphs 2 and 3,
competent authorities shall grant permission to originator institutions to
consider significant credit risk as having been transferred where the
originator institution is able to demonstrate, in every case of a securitisation,
that the reduction of own funds requirements which the originator achieves by
the securitisation is justified by a commensurate transfer of credit risk to
third parties. Permission shall be granted only where the
institution meets all of the following conditions: (a) the institution has appropriately
risk-sensitive policies and methodologies in place to assess the transfer of
risk; (b) the institution has also recognised
the transfer of credit risk to third parties in each case for purposes of the
institution’s internal risk management and its internal capital allocation. 5.
In addition to the requirements set out in
paragraphs 1 to 4, as applicable, all the following conditions shall be met: (a) the securitisation documentation
reflects the economic substance of the transaction; (b) the securitised exposures are put
beyond the reach of the originator institution and its creditors, including in
bankruptcy and receivership. This shall be supported by the opinion of
qualified legal counsel; (c) the securities issued do not represent
payment obligations of the originator institution; (d) the
originator institution does not maintain effective or indirect control over the
transferred exposures. An originator shall be considered to have maintained
effective control over the transferred exposures if it has the right to
repurchase from the transferee the previously transferred exposures in order to
realise their benefits or if it is obligated to re-assume transferred risk. The
originator institution's retention of servicing rights or obligations in
respect of the exposures shall not of itself constitute indirect control of the
exposures; (e) the securitisation documentation meets
all the following conditions: (i) it does not contain clauses that other
than in the case of early amortisation provisions, require positions in the
securitisation to be improved by the originator institution including but not
limited to altering the underlying credit exposures or increasing the yield
payable to investors in response to a deterioration in the credit quality of
the securitised exposures; (ii) it does not contain clauses that increase
the yield payable to holders of positions in the securitisation in response to
a deterioration in the credit quality of the underlying pool; (iii) it makes it clear, where applicable,
that any purchase or repurchase of securitisation positions by the originator
or sponsor beyond its contractual obligations may only be made at arms' lengths
conditions; (f) where there is a clean-up call
option, that option shall also meet the following conditions: (i) it is exercisable at the discretion
of the originator institution; (ii) it may only be exercised when 10 %
or less of the original value of the exposures securitised remains unamortised; (iii) it is not structured to avoid
allocating losses to credit enhancement positions or other positions held by
investors and is not otherwise structured to provide credit enhancement. 6.
The competent authorities shall keep EBA
informed about the specific cases, referred to in paragraph 2, where the
possible reduction in risk-weighted exposure amounts is not justified by a
commensurate transfer of credit risk to third parties, and the use institutions
make of paragraph 4. EBA shall monitor the range of practices in this area and
shall, in accordance with Article 16 of Regulation (EU) No. 1093/2010, issue
guidelines. Article 239
Synthetic securitisation 1.
An originator institution of a synthetic
securitisation may calculate risk-weighted exposure amounts, and, as relevant,
expected loss amounts, for the securitised exposures in accordance with Article
244, if either of the following is met: (a) significant credit risk is considered
to have been transferred to third parties either through funded or unfunded
credit protection; (b) the originator institution applies a
1250 % risk weight to all securitisation positions it holds in this
securitisation or deducts these securitisation positions from Common Equity
Tier 1 items in accordance with Article 33(1)(k). 2.
Significant credit risk shall be considered to
have been transferred if either of the following conditions is met: (a) the risk-weighted exposure amounts of
the mezzanine securitisation positions which are held by the originator institution
in this securitisation do not exceed 50 % of the risk weighted exposure amounts
of all mezzanine securitisation positions existing in this securitisation; (b) where there are no mezzanine
securitisation positions in a given securitisation and the originator can
demonstrate that the exposure value of the securitisation positions that would
be subject to deduction from own funds or a 1250 % risk weight exceeds a
reasoned estimate of the expected loss on the securitised exposures by a
substantial margin, the originator institution does not hold more than 20 % of
the exposure values of the securitisation positions that would be subject to
deduction from own funds or a 1250 % risk weight; (c) where the possible reduction in risk
weighted exposure amounts, which the originator institution would achieve by
this securitisation, is not justified by a commensurate transfer of credit risk
to third parties, competent authority may decide on a case- by-case basis that significant
credit risk shall not be considered to have been transferred to third parties. 3.
For the purposes of paragraph 2, mezzanine
securitisation positions means securitisation positions to which a risk weight
lower than 1250 % applies and that are more junior than the most senior
position in this securitisation and more junior than any securitisation
positions in this securitisation to which either of the following is assigned
in accordance with Section 4: (a) in the case of a securitisation
position subject to Section 3, Sub-section 3 a credit quality step 1; (b) in the case of a securitisation
position subject to Section 3, Sub-section 4 a credit quality step 1 or 2. 4.
As an alternative to paragraphs 2 and 3,
competent authorities shall grant permission to originator institutions to
consider significant credit risk as having been transferred where the
originator institution is able to demonstrate, in every case of a
securitisation, that the reduction of own funds requirements which the
originator achieves by the securitisation is justified by a commensurate
transfer of credit risk to third parties. Permission shall be granted only where the
institution meets all of the following conditions: (a) the institution has appropriately
risk-sensitive policies and methodologies in place to assess the transfer of
risk; (b) the institution has also recognised
the transfer of credit risk to third parties in each case for purposes of the
institution’s internal risk management and its internal capital allocation. 5.
In addition to the requirements set out in
paragraphs 1 to 4, as applicable, the transfer shall comply with the following
conditions: (a) the securitisation documentation
reflects the economic substance of the transaction; (b) the credit protection by which the
credit risk is transferred complies with Article 242(2); (c) the instruments used to transfer
credit risk do not contain terms or conditions that: (i) impose significant materiality
thresholds below which credit protection is deemed not to be triggered if a
credit event occurs; (ii) allow for the termination of the
protection due to deterioration of the credit quality of the underlying
exposures; (iii) other than
in the case of early amortisation provisions, require positions in the
securitisation to be improved by the originator institution; (iv) increase the institution's cost of
credit protection or the yield payable to holders of positions in the
securitisation in response to a deterioration in the credit quality of the
underlying pool; (d) an opinion is obtained from qualified
legal counsel confirming the enforceability of the credit protection in all
relevant jurisdictions; (e) the securitisation documentation shall
make clear, where applicable, that any purchase or repurchase of securitisation
positions by the originator or sponsor beyond its contractual obligations may
only be made at arms' lengths conditions; (f) where there is a clean-up call
option, that option meets all the following conditions: (i) it is exercisable at the discretion
of the originator institution; (ii) it may only be exercised when 10 %
or less of the original value of the exposures securitised remains unamortised; (iii) it is not structured to avoid
allocating losses to credit enhancement positions or other positions held by
investors and is not otherwise structured to provide credit enhancement. 6.
The competent authorities shall keep EBA
informed about the specific cases, referred to in paragraph 2, where the
possible reduction in risk-weighted exposure amounts is not justified by a
commensurate transfer of credit risk to third parties, and the use institutions
make of paragraph 4. The European Banking Authority shall monitor the range of
practices in this area and shall, in accordance with Article 16 of Regulation
(EU) No. 1093/2010, issue guidelines. Section 3
Calculation of the Risk Weighted Exposure Amounts Sub-section 1
Principles Article 240
Calculation of risk-weighted exposure amounts 1.
Where an originator institution has transferred
significant credit risk associated with securitised exposures in accordance
with Section 2, that institution may: (a) in the case
of a traditional securitisation, exclude from its calculation of risk-weighted
exposure amounts, and, as relevant, expected loss amounts, the exposures which
it has securitised; (b) in the case
of a synthetic securitisation, calculate risk-weighted exposure amounts, and,
as relevant, expected loss amounts, in respect of the securitised exposures in
accordance with Articles 244 and 245. 2.
Where the originator institution has decided to apply
paragraph 1, it shall calculate the risk-weighted exposure amounts prescribed
in this Chapter for the positions that it may hold in the securitisation. Where the originator institution has not transferred
significant credit risk or has decided not to apply paragraph 1, it need not
calculate risk-weighted exposure amounts for any positions it may have in the
securitisation in question but shall continue including the securitised
exposures in its calculation of risk-weighted exposure amounts as if they had
not been securitised. 3.
Where there is an exposure to different tranches
in a securitisation, the exposure to each tranche shall be considered a
separate securitisation position. The providers of credit protection to
securitisation positions shall be considered to hold positions in the
securitisation. Securitisation positions shall include exposures to a
securitisation arising from interest rate or currency derivative contracts. 4.
Unless a securitisation position is deducted
from Common Equity Tier 1 items pursuant to Article 33(1)(k), the risk-weighted
exposure amount shall be included in the institution's total of risk-weighted
exposure amounts for the purposes of Article 87(3). 5.
The risk-weighted exposure amount of a
securitisation position shall be calculated by applying to the exposure value
of the position, calculated as set out in Article 241, the relevant total risk
weight. 6.
The total risk weight shall be determined as the
sum of the risk weight set out in this Chapter and any additional risk weight
in accordance with Article 396. Article 241
Exposure value 1.
The exposure value shall be calculated as
follows: (a) where an institution calculates
risk-weighted exposure amounts under Sub-section 3, the exposure value of an
on-balance sheet securitisation position shall be its accounting value
remaining after specific credit risk adjustments have been applied; (b) where an institution calculates
risk-weighted exposure amounts under Sub-section 4, the exposure value of an
on-balance sheet securitisation position shall be the accounting value measured
without taking into account any credit risk adjustments made; (c) where an institution calculates
risk-weighted exposure amounts under Sub-section 3, the exposure value of an
off-balance sheet securitisation position shall be its nominal value, less any
specific credit risk adjustment of that securitisation position, multiplied by
a conversion factor as prescribed in this Chapter. The conversion factor shall
be 100 % unless otherwise specified; (d) where an institution calculates
risk-weighted exposure amounts under Sub-section 4, the exposure value of an
off-balance sheet securitisation position shall be its nominal value multiplied
by a conversion factor as prescribed in this Chapter. The conversion factor
shall be 100 % unless otherwise specified; (e) The exposure value for the
counterparty credit risk of a derivative instrument listed in Annex II, shall
be determined in accordance with Chapter 6. 2.
Where an institution has two or more overlapping positions in a securitisation, it shall, to the extent that they overlap include in its calculation of
risk-weighted exposure amounts only the position or portion of a position
producing the higher risk-weighted exposure amounts. The institution may also recognise such overlap
between specific risk own funds
requirements for positions in the trading book and own
funds requirements for securitisation
positions in the non-trading book, provided that the institution is able to calculate and compare the own funds requirements for the
relevant positions. For the purpose of this paragraph, overlapping occurs when
the positions, wholly or partially, represent an exposure to the same risk such
that, to the extent of the overlap, there is a single exposure. 3.
Where Article 263(c) applies to positions in the
ABCP, the institution may, use the
risk-weight assigned to a liquidity facility in order to calculate the
risk-weighted exposure amount for the ABCP provided
that 100 % of the ABCP issued by the programme is covered by this or other
liquidity facilities and all of those liquidity facilities rank pari passu with the ABCP so that they
form overlapping positions. The institution shall notify to the competent
authorities the use it makes of this treatment. Article 242
Recognition of credit risk mitigation for securitisation positions 1.
An institution may recognise funded or unfunded
credit protection obtained in respect of a securitisation position in
accordance with Chapter 4 and subject to the requirements laid down in this
Chapter and in Chapter 4. Eligible funded credit protection is limited to
financial collateral which is eligible for the calculation of risk-weighted
exposure amounts under Chapter 2 as laid down under Chapter 4 and recognition
is subject to compliance with the relevant requirements as laid down under
Chapter 4. 2.
Eligible unfunded credit protection and unfunded
credit protection providers are limited to those which are eligible under
Chapter 4 and recognition is subject to compliance with the relevant
requirements laid down under that Chapter 4. 3.
By derogation from paragraph 2, the eligible
providers of unfunded credit protection listed in Article 197 shall have a credit
assessment by a recognised ECAI which has been determined to be associated with
credit quality step 3 or above under Article 131 and shall have been associated
with credit quality step 2 or above at the time the credit protection was first
recognised. Institutions that have a permission to apply the IRB approach to a
direct exposure to the protection provider may assess eligibility according to
the first sentence based on the equivalence of the PD for the protection
provider to the PD associated with the credit quality steps referred to in that
point. 4.
By derogation from paragraph 2, SSPEs are
eligible protection providers where they own assets that qualify as eligible
financial collateral and to which there are no rights or contingent rights
preceding or ranking pari passu to the contingent rights of the institution
receiving unfunded credit protection and all requirements for the recognition
of financial collateral in Chapter 4 are fulfilled. In those cases, GA (the
amount of the protection adjusted for any currency mismatch and maturity
mismatch in accordance with the provisions of Chapter 4) shall be limited to
the volatility adjusted market value of those assets and g (the risk weight of exposures
to the protection provider as specified under the Standardised Approach) shall
be determined as the weighted-average risk weight that would apply to those
assets as financial collateral under the Standardised Approach. Article 243
Implicit support 1.
A sponsor institution, or an originator institution
which in respect of a securitisation has made use of Article 240(1) and (2) in
the calculation of risk-weighted exposure amounts or has sold instruments from
its trading book to the effect that it is no longer required to hold own funds
for the risks of those instruments shall not, with a view to reducing potential
or actual losses to investors, provide support to the securitisation beyond its
contractual obligations. A transaction shall not be considered to provide
support if it is executed at arm's length conditions and taken into account in
the assessment of significant risk transfer. Any such transaction shall be,
regardless of whether it provides support, notified to the competent
authorities and subject to the institution's credit review and approval
process. The institution shall, when assessing whether the transaction is not
structured to provide support, adequately consider at least all the following: (a) the price of the repurchase; (b) the institutions' capital and
liquidity position before and after repurchase; (c) the performance of the securitised
exposures; (d) the performance of the securitisation
positions; 2.
EBA shall issue, in accordance with Article 16
or Regulation (EU) No 1093/2010, guidelines on what constitutes arm's length
conditions and when a transaction is not structured to provide support. 3.
If an originator institution or a sponsor institution
fails to comply with paragraph 1 in respect of a securitisation this
institution shall at a minimum hold own funds against all of the securitised
exposures as if they had not been securitised. Sub-Section 2
Originator institutions' calculation of risk-weighted exposure amounts
securitised in a synthetic securitisation Article 244
General treatment In calculating risk-weighted exposure
amounts for the securitised exposures, where the conditions in Article 239 are
met, the originator institution of a synthetic securitisation shall, subject to
Article 245, use the relevant calculation methodologies set out in this Section
and not those set out in Chapter 2. For institutions calculating risk-weighted
exposure amounts and expected loss amounts under Chapter 3, the expected loss
amount in respect of such exposures shall be zero. The requirements set out in the first
subparagraph apply to the entire pool of exposures
included in the securitisation. Subject to Article 245, the originator institution
shall calculate risk-weighted exposure amounts in respect of all tranches in
the securitisation in accordance with the provisions of this Section including those
for which the institution recognises credit risk mitigation in accordance with
Article 242, in which case the risk-weight to be applied to that position may
be modified in accordance with Chapter 4, subject to the requirements laid down
in this Chapter. Article 245
Treatment of maturity mismatches in synthetic securitisations For the purposes of calculating
risk-weighted exposure amounts in accordance with Article 244, any maturity
mismatch between the credit protection by which the tranching is achieved and
the securitised exposures shall be taken into consideration as follows: (a) the maturity of the securitised
exposures shall be taken to be the longest maturity of any of those exposures
subject to a maximum of five years. The maturity of the credit protection shall
be determined in accordance with Chapter 4; (b) an originator institution shall
ignore any maturity mismatch in calculating risk-weighted exposure amounts for
tranches appearing pursuant to this Section with a risk weighting of 1250 %.
For all other tranches, the maturity mismatch treatment set out in Chapter 4
shall be applied in accordance with the following formula: where: RW*
= risk-weighted exposure amounts for the purposes of Article 87(a); RWAss
= risk-weighted exposure amounts for exposures if they had not been
securitised, calculated on a pro-rata basis; RWSP= risk-weighted
exposure amounts calculated under Article 244 if there was no maturity
mismatch; T
= maturity of the underlying exposures expressed in years; t
= maturity of credit protection. expressed in years; t*
= 0.25. Sub-section 3
Calculation of risk-weighted exposure amounts under the Standardised Approach Article 246
Risk-weights Subject
to Article 247, the institution shall calculate the risk-weighted exposure
amount of a rated securitisation or re-securitisation position by applying the
relevant risk weight to the exposure value. The
relevant risk weight shall be the risk weight as laid down in Table 1, with
which the credit assessment of the position is associated in accordance with
Section 4. Table 1 Credit Quality Step || 1 || 2 || 3 || 4 (only for credit assessments other than short-term credit assessments) || all other credit quality steps Securitisation positions || 20% || 50% || 100% || 350% || 1250% Re-securitisation positions || 40% || 100% || 225% || 650% || 1250% Subject to Articles 247 to 250, the
risk-weighted exposure amount of an unrated securitisation position shall be
calculated by applying a risk weight of 1250 %. Article 247
Originator and sponsor institutions For an originator institution or sponsor institution,
the risk-weighted exposure amounts calculated in respect of its securitisation
positions in any one securitisation may be limited to the risk-weighted
exposure amounts which would currently be calculated for the securitised
exposures had they not been securitised subject to the presumed application of
a 150 % risk weight to the following: (a) all items currently in default; (b) all items associated with
particularly high risk in accordance with Article 123 amongst the securitised
exposures. Article 248
Treatment of unrated positions 1.
For the purpose of calculating the risk-weighted exposure amount of an unrated securitisation
position an institution may apply the weighted-average risk weight that would
be applied to the securitised exposures under Chapter 2 by an institution
holding the exposures, multiplied by the concentration ratio referred to in
paragraph 2. For this purpose, the institution shall know the composition of
the pool of securitised exposures securitised at all times. 2.
The concentration ratio shall
be equal to the sum of the nominal amounts of all the tranches divided by the
sum of the nominal amounts of the tranches junior to or pari passu with the
tranche in which the position is held including that tranche itself. The
resulting risk weight shall not be higher than 1250 % or lower than any risk
weight applicable to a rated more senior tranche. Where the institution is
unable to determine the risk weights that would be applied to the securitised
exposures under Chapter 2, it shall apply a risk weight of 1250 % to the
position. Article 249
Treatment of securitisation positions in a second loss tranche or better in an
ABCP programme Subject to the availability of a more
favourable treatment for unrated liquidity facilities under Article 250 an
institution may apply to securitisation positions meeting the following
conditions a risk weight that is the greater of 100 % or the highest of the
risk weights that would be applied to any of the securitised exposures under
Chapter 2 by an institution holding the exposures: (a) the securitisation position shall
be in a tranche which is economically in a second loss position or better in
the securitisation and the first loss tranche shall provide meaningful credit
enhancement to the second loss tranche; (b) the quality of the securitisation
position shall be equivalent to investment grade or better; (c) the securitisation position shall
be held by an institution which does not hold a position in the first loss
tranche. Article 250
Treatment of unrated liquidity facilities 1.
Institutions may apply a conversion factor of 50
% to the nominal amount of an unrated liquidity facility in order to determine
its exposure value when the following conditions are met: (a) the liquidity facility documentation
shall clearly identify and limit the circumstances under which the facility may
be drawn; (b) it shall not be possible for the
facility to be drawn so as to provide credit support by covering losses already
incurred at the time of draw and in particular not so as to provide liquidity
in respect of exposures in default at the time of draw or so as to acquire assets
at more than fair value; (c) the facility shall not be used to
provide permanent or regular funding for the securitisation; (d) repayment of draws on the facility
shall not be subordinated to the claims of investors other than to claims
arising in respect of interest rate or currency derivative contracts, fees or
other such payments, nor be subject to waiver or deferral; (e) it shall not be possible for the
facility to be drawn after all applicable credit enhancements from which the
liquidity facility would benefit are exhausted; (f) the facility shall include a
provision that results in an automatic reduction in the amount that can be
drawn by the amount of exposures that are in default, where ‘default’ has the
meaning given to it under Chapter 3, or where the pool of securitised exposures
consists of rated instruments, that terminates the facility if the average
quality of the pool falls below investment grade. The risk weight to be applied shall be the
highest risk weight that would be applied to any of the securitised exposures
under Chapter 2 by an institution holding the exposures. 2.
To determine the exposure value of cash advance
facilities, a conversion factor of 0 % may be applied to the nominal amount of
a liquidity facility that is unconditionally cancellable provided that the
conditions set out in paragraph 1 are satisfied and that repayment of draws on
the facility are senior to any other claims on the cash flows arising from the
securitised exposures. Article 251
Additional own funds requirements for securitisations of revolving exposures
with early amortisation provisions 1.
Where there is a securitisation of revolving
exposures subject to an early amortisation provision, the originator institution
shall calculate an additional risk-weighted exposure amount in respect of the
risk that the levels of credit risk to which it is exposed may increase
following the operation of the early amortisation provision, according to this Article. 2.
The institution shall calculate a risk-weighted
exposure amount in respect of the sum of the exposure values of the originator's
interest and the investors' interest. For securitisation structures where the
securitised exposures comprise revolving and non-revolving exposures, an
originator institution shall apply the treatment set out in paragraphs 3 to 6
to that portion of the underlying pool containing revolving exposures. The exposure value of the originator's interest shall be the exposure value of that notional part
of a pool of drawn amounts sold into a securitisation, the proportion of which
in relation to the amount of the total pool sold into the structure determines
the proportion of the cash flows generated by principal and interest
collections and other associated amounts which are not available to make
payments to those having securitisation positions in the securitisation. The
originator's interest shall not be subordinate to the investors' interest. The
exposure value of the investors' interest shall be the exposure value of the
remaining notional part of the pool of drawn amounts. The risk-weighted exposure amount in respect of
the exposure value of the originator's interest shall be calculated as that for
a pro rata exposure to the securitised exposures as if they had not been
securitised. 3.
Originators of the following types of
securitisation are exempt from the calculation of an additional risk-weighted
exposure amount in paragraph 1: (a) securitisations of revolving exposures
whereby investors remain fully exposed to all future draws by borrowers so that
the risk on the underlying facilities does not return to the originator
institution even after an early amortisation event has occurred; (b) securitisations where any early
amortisation provision is solely triggered by events not related to the
performance of the securitised assets or the originator institution, such as
material changes in tax laws or regulations. 4.
For an originator institution subject to the calculation
of an additional risk-weighted exposure amount according to paragraph 1 the
total of the risk-weighted exposure amounts in respect of its positions in the
investors' interest and the risk-weighted exposure amounts calculated under
paragraph 1 shall be no greater than the greater of: (a) the risk-weighted exposure amounts
calculated in respect of its positions in the investors' interest; (b) the risk-weighted exposure amounts
that would be calculated in respect of the securitised exposures by an
institution holding the exposures as if they had not been securitised in an
amount equal to the investors' interest. Deduction of net gains, if any, arising from
the capitalisation of future income required under Article 29(1), shall be
treated outside the maximum amount indicated in the preceding sub-paragraph. 5.
The risk-weighted exposure amount to be
calculated in accordance with paragraph 1 shall be determined by multiplying
the exposure value of the investors' interest by the product of the appropriate
conversion factor as indicated in paragraphs 6 to 9 and the weighted average
risk weight that would apply to the securitised exposures if the exposures had
not been securitised. An early amortisation provision shall be
considered to be controlled where all of the following conditions are met: (a) the originator institution has an
appropriate own funds/liquidity plan in place to ensure that it has sufficient
own funds and liquidity available in the event of an early amortisation; (b) throughout the duration of the
transaction there is pro-rata sharing between the originator's interest and the
investor's interest of payments of interest and principal, expenses, losses and
recoveries based on the balance of receivables outstanding at one or more
reference points during each month; (c) the amortisation period is considered
sufficient for 90 % of the total debt (originator's and investors' interest)
outstanding at the beginning of the early amortisation period to have been
repaid or recognised as in default; (d) the speed of repayment is no more
rapid than would be achieved by straight-line amortisation over the period set
out in point (c). 6.
In the case of securitisations subject to an
early amortisation provision of retail exposures which are uncommitted and
unconditionally cancellable without prior notice, where the early amortisation
is triggered by the excess spread level falling to a specified level, institutions
shall compare the three-month average excess spread level with the excess
spread levels at which excess spread is required to be trapped. Where the securitisation does not require
excess spread to be trapped, the trapping point is deemed to be 4.5 percentage
points greater than the excess spread level at which an early amortisation is
triggered. The conversion factor to be applied shall be
determined by the level of the actual three month average excess spread in
accordance with Table 2. Table 2 || Securitisations subject to a controlled early amortisation provision || Securitisations subject to a non-controlled early amortisation provision 3 months average excess spread || Conversion factor || Conversion factor Above level A || 0 % || 0 % Level A || 1 % || 5 % Level B || 2 % || 15 % Level C || 10 % || 50 % Level D || 20 % || 100 % Level E || 40 % || 100 % Where: (a) ‘Level A’ refers to levels of excess
spread less than 133.33 % of the trapping level of excess spread but not less
than 100 % of that trapping level; (b) ‘Level B’ refers to levels of excess
spread less than 100 % of the trapping level of excess spread but not less than
75 % of that trapping level; (c) ‘Level C’ refers to levels of excess
spread less than 75 % of the trapping level of excess spread but not less than
50 % of that trapping level; (d) ‘Level D’ refers to levels of excess
spread less than 50 % of the trapping level of excess spread but not less than
25 % of that trapping level; (e) ‘Level E’ refers to levels of excess
spread less than 25 % of the trapping level of excess spread. 7.
In the case of securitisations subject to an
early amortization provision of retail exposures which are uncommitted and
unconditionally cancellable without prior notice and where the early
amortization is triggered by a quantitative value in respect of something other
than the three months average excess spread, subject to permission by the
competent authorities, institutions may apply a treatment which approximates
closely to that prescribed in paragraph 6 for determining the conversion factor
indicated. The competent authority shall grant permission, if the following
conditions are met: (a) this treatment is more appropriate
because the firm can establish a quantitative measure equivalent, in relation
to the quantitative value triggering early amortisation, to the trapping level
of excess spread; (b) this treatment leads to a measure of
the risk that the credit risk to which the institution is exposed may increase
following the operation of the early amortisation provision that is as prudent as
that calculated in accordance with paragraph 6. 8.
All other securitisations subject to a
controlled early amortisation provision of revolving exposures shall be subject
to a conversion factor of 90 %. 9.
All other securitisations subject to a
non-controlled early amortisation provision of revolving exposures shall be
subject to a conversion factor of 100 %. Article 252
Credit risk mitigation for securitisation positions subject to the Standardised
Approach Where credit protection is obtained on a
securitisation position, the calculation of risk-weighted exposure amounts may
be modified in accordance with Chapter 4. Article 253
Reduction in risk-weighted exposure amounts Where a securitisation position is assigned
a 1250 % risk weight, institutions may in accordance with Article 33(1)(k), as
an alternative to including the position in their calculation of risk-weighted
exposure amounts, deduct from own funds the exposure value of the position. For
these purposes, the calculation of the exposure value may reflect eligible
funded credit protection in a manner consistent with Article 252. Where an originator institution makes use
of this alternative, it may subtract 12.5 times the amount deducted in
accordance with Article 33(1)(k) from the amount specified in Article 247 as
the risk-weighted exposure amount which would currently be calculated for the
securitised exposures had they not been securitised. Sub-Section 4
Calculation of risk-weighted exposure amounts under the IRB Approach Article 254
Hierarchy of methods 1.
Institutions shall use the methods in accordance
with the following hierarchy: (a) for a rated position or a position in
respect of which an inferred rating may be used, the Ratings Based Method set
out in Article 256 shall be used to calculate the risk-weighted exposure amount; (b) for an unrated position the
institution may use the Supervisory Formula Method set out in Article 257 where
it can produce estimates of PD, and where applicable EAD and LGD as inputs into
the Supervisory Formula Method in accordance with the requirements for the
estimation of those parameters under the Internal Ratings Based approach in
accordance with Section 3. An institution other than the originator institution
may only use the Supervisory Formula Method subject to the permission of the
competent authorities, which shall be granted where the institution fulfils the
condition provided in the previous sentence; (c) as an alternative to point (b) and
only for unrated positions in ABCP programmes, the institution may use the
Internal Assessment Approach as set out in paragraph 3 if the competent
authorities have permitted it to do so; (d) in all other cases, a risk weight of
1250 % shall be assigned to securitisation positions which are unrated. 2.
For the purposes of using inferred ratings, an institution shall attribute to an unrated position an inferred
credit assessment equivalent to the credit assessment of a rated reference position
which is the most senior position which is in all respects subordinate to the
unrated securitisation position in question and meets all of the following
conditions: (a) the reference positions must be
subordinate in all respects to the unrated securitisation position; (b) the maturity of the reference
positions shall be equal to or longer than that of the unrated position in
question; (c) on an ongoing basis, any inferred
rating shall be updated to reflect any changes in the credit assessment of the
reference positions. 3.
The competent authorities shall grant credit
institutions permission to use the ‘Internal Assessment Approach’ as set out in
paragraph 4 where all of the following conditions are met: (a) positions in the commercial paper
issued from the ABCP programme shall be rated positions; (b) the internal assessment of the credit
quality of the position shall reflect the publicly available assessment
methodology of one or more eligible ECAIs, for the rating of securities backed
by the exposures of the type securitised; (c) the ECAIs, the methodology of which
shall be reflected as required by point (b), shall include those ECAIs which
have provided an external rating for the commercial paper issued from the ABCP
programme. Quantitative elements, such as stress factors, used in assessing the
position to a particular credit quality shall be at least as conservative as
those used in the relevant assessment methodology of the ECAIs in question; (d) in developing its internal assessment
methodology the institution shall take into consideration relevant published
ratings methodologies of the eligible ECAIs that rate the commercial paper of
the ABCP programme. This consideration shall be documented by the institution
and updated regularly, as outlined in point (g); (e) the institution's internal assessment
methodology shall include rating grades. There shall be a correspondence
between such rating grades and the credit assessments of eligible ECAIs. This
correspondence shall be explicitly documented; (f) the internal assessment methodology
shall be used in the institution's internal risk management processes, including
its decision making, management information and internal capital allocation
processes; (g) internal or external auditors, an
ECAI, or the institution's internal credit review or risk management function
shall perform regular reviews of the internal assessment process and the
quality of the internal assessments of the credit quality of the institution's
exposures to an ABCP programme. If the institution's internal audit, credit
review, or risk management functions perform the review, then these functions
shall be independent of the ABCP programme business line, as well as the
customer relationship; (h) the institution shall track the
performance of its internal ratings over time to evaluate the performance of
its internal assessment methodology and shall make adjustments, as necessary,
to that methodology when the performance of the exposures routinely diverges
from that indicated by the internal ratings; (i) the ABCP programme shall incorporate
underwriting standards in the form of credit and investment guidelines. In
deciding on an asset purchase, the ABCP programme administrator shall consider
the type of asset being purchased, the type and monetary value of the exposures
arising from the provision of liquidity facilities and credit enhancements, the
loss distribution, and the legal and economic isolation of the transferred
assets from the entity selling the assets. A credit analysis of the asset
seller's risk profile shall be performed and shall include analysis of past and
expected future financial performance, current market position, expected future
competitiveness, leverage, cash flow, interest coverage and debt rating. In
addition, a review of the seller's underwriting standards, servicing
capabilities, and collection processes shall be performed; (j) the ABCP programme's underwriting
standards shall establish minimum asset eligibility criteria that, in
particular: (i) exclude the purchase of assets that
are significantly past due or defaulted; (ii) limit excess concentration to
individual obligor or geographic area; (iii) limits the tenor of the assets to be
purchased; (k) the ABCP programme shall have
collections policies and processes that take into account the operational
capability and credit quality of the servicer. The ABCP programme shall mitigate
risk relating to the performance of the seller and the servicer through various
methods, such as triggers based on current credit quality that would preclude
commingling of funds; (l) the aggregated estimate of loss on an
asset pool that the ABCP programme is considering purchasing shall take into
account all sources of potential risk, such as credit and dilution risk. If the
seller-provided credit enhancement is sized based only on credit-related
losses, then a separate reserve shall be established for dilution risk, if
dilution risk is material for the particular exposure pool. In addition, in
sizing the required enhancement level, the program shall review several years
of historical information, including losses, delinquencies, dilutions, and the
turnover rate of the receivables; (m) the ABCP programme shall incorporate
structural features, such as wind-down triggers, into the purchase of exposures
in order to mitigate potential credit deterioration of the underlying
portfolio. 4.
Under the Internal Assessment Approach, the unrated position shall be assigned by the institution to one of
the rating grades laid down in point (e) paragraph 3. The position shall be
attributed a derived rating the same as the credit assessments corresponding to
that rating grade as laid down in point (e) of paragraph 3. Where this derived
rating is, at the inception of the securitisation, at the level of investment
grade or better, it shall be considered the same as an eligible credit
assessment by an eligible ECAI for the purposes of calculating risk-weighted
exposure amounts. 5.
Institutions which have obtained permission to
use the Internal Assessment Approach shall not revert to the use of other
methods unless all of the following conditions are met: (a) the institution has demonstrated to
the satisfaction of the competent authority that the institution has good cause
to do so; (b) the institution has received the prior
permission of the competent authority. Article 255
Maximum risk-weighted exposure amounts For an originator institution, a sponsor institution,
or for other institutions which can calculate KIRB, the
risk-weighted exposure amounts calculated in respect of its positions in a
securitisation may be limited to that which would produce a own funds
requirement under Article 87(3) equal to the sum of 8 % of the risk-weighted
exposure amounts which would be produced if the securitised assets had not been
securitised and were on the balance sheet of the institution plus the expected
loss amounts of those exposures. Article 256
Ratings Based Method 1.
Under the Ratings Based Method, the institution
shall calculate the risk-weighted exposure amount of a rated securitisation or
re-securitisation position by applying the relevant risk weight to the exposure
value and multiplying the result by 1.06. The relevant risk weight shall be the risk weight as
laid down in Table 4, with which the credit assessment of the position is
associated in accordance with Section 4. Table 4 Credit Quality Step || Securitisation Positions || Re-securitisation Positions Credit assessments other than short term || Short term credit assessments || A || B || C || D || E 1 || 1 || 7% || 12% || 20% || 20% || 30% 2 || || 8% || 15% || 25% || 25% || 40% 3 || || 10% || 18% || 35% || 35% || 50% 4 || 2 || 12% || 20% || || 40% || 65% 5 || || 20% || 35% || || 60% || 100% 6 || || 35% || 50% || 100% || 150% 7 || 3 || 60% || 75% || 150% || 225% 8 || || 100% || 200% || 350% 9 || || 250% || 300% || 500% 10 || || 425% || 500% || 650% 11 || || 650% || 750% || 850% all other and unrated || 1250% The weightings in column C of Table 4 shall be
applied where the securitisation position is not a re-securitisation position
and where the effective number of exposures securitised is less than six. For the remainder of the securitisation positions
that are not re-securitisation positions, the weightings in column B shall be
applied unless the position is in the most senior tranche of a securitisation,
in which case the weightings in column A shall be applied. For re-securitisation positions the weightings in
column E shall be applied unless the re-securitisation position is in the most
senior tranche of the re-securitisation and none of the underlying exposures
were themselves re-securitisation exposures, in which case column D shall be
applied. When determining whether a tranche is the most
senior, it is not required to take into consideration amounts due under
interest rate or currency derivative contracts, fees due, or other similar
payments. In calculating the effective number of exposures
securitised multiple exposures to one obligor shall be treated as one exposure.
The effective number of exposures is calculated as: where EADi represents the sum of the exposure
values of all exposures to the ith obligor. If the portfolio share associated
with the largest exposure, C1, is available, the institution may compute N as 1/C1. 2.
Credit risk mitigation on securitisation positions
may be recognised in accordance with Articles 23(1) and (4), subject to the
conditions in Article 242. Article 257
Supervisory Formula Method 1.
Under the Supervisory Formula Method, the risk
weight for a securitisation position shall be calculated
as follows subject to a floor of 20 % for
re-securitisation positions and 7 % for all other securitisation positions: where: where: ; ; ; ; ; ; ; ; ; τ
= 1000; ω
= 20; Beta
[x; a, b] = the cumulative beta distribution with parameters a and b
evaluated at x; T
= the thickness of the tranche in which the position is held, measured as
the ratio of (a) the nominal amount of the tranche to (b) the sum of the nominal
amounts of the exposures that have been securitised. For derivative instruments
listed in Annex II, the sum of the current replacement and the potential future
credit exposure calculated in accordance with Chapter 6 shall be used in place
of the nominal amount; KIRBR
= the ratio of (a) KIRB to (b) the sum of the exposure values of the
exposures that have been securitised, and is expressed in decimal form; L
= the credit enhancement level, measured as the ratio of the nominal
amount of all tranches subordinate to the tranche in which the position is held
to the sum of the nominal amounts of the exposures that have been securitised.
Capitalised future income shall not be included in the measured L. Amounts due
by counterparties to derivative instruments listed in Annex II that represent tranches
more junior than the tranche in question may be measured at their current
replacement cost, without the potential future credit exposures, in calculating
the enhancement level; N
= the effective number of exposures calculated in accordance with Article 256. In the case of
re-securitisations, the institution shall look at the number of securitisation
exposures in the pool and not the number of underlying exposures in the
original pools from which the underlying securitisation exposures stem; ELGD = the exposure-weighted average loss-given-default, calculated
as follows: where: LGDi
= the average LGD associated with all exposures to the ith obligor,
where LGD is determined in accordance with Chapter 3. In the case of
resecuritisation, an LGD of 100 % shall be applied to the securitised
positions. When default and dilution risk for purchased receivables are treated
in an aggregate manner within a securitisation, the LGDi input shall
be constructed as a weighted average of the LGD for credit risk and the 75 %
LGD for dilution risk. The weights shall be the stand-alone own funds charges
for credit risk and dilution risk respectively. 2.
Where the nominal amount of the largest
securitised exposure, C1, is no more than 3 % of the sum of the nominal
amount of the securitised exposures, then, for the purposes of the Supervisory
Formula Method, the institution may set LGD= 50 % and N equal to either of the
following: where: Cm
= the ratio of the sum of the nominal
amounts of the largest ‘m’ exposures to the sum of the nominal amounts of the
exposures securitised. The level of ‘m’ may be set by the institution. For securitisations in which materially all
securitised exposures are retail exposures, institutions may, subject to
permission by the competent authority, use the Supervisory Formula Method using
the simplifications h=0 and v=0, provided that the effective number of
exposures is not low and that the exposures are not highly concentrated. 3.
The competent authorities shall keep the EBA
informed about the use institutions make of the previous sub-paragraph. EBA
shall monitor the range of practices in this area and shall, in accordance with
Article 16 of Regulation (EU) No. 1093/2010, issue guidelines. 4.
Credit risk mitigation on securitisation
positions may be recognised in accordance with paragraphs 2 to 4 of Article 259,
subject to the conditions in Article 242. Article 258
Liquidity Facilities 1.
For the purposes of determining the exposure
value of an unrated securitisation position in the form of cash advance
facilities, a conversion factor of 0 % may be applied to the nominal amount of
a liquidity facility that meets the conditions set out in Article 250(2). 2.
When it is not practical for the institution to
calculate the risk-weighted exposure amounts for the securitised exposures as
if they had not been securitised, an institution may, on an exceptional basis, temporarily
apply the method set out in paragraph 3 for the calculation of risk-weighted
exposure amounts for an unrated securitisation position in the form of a
liquidity facility that meets the conditions in Article 250(1) Institutions
shall notify the use they make of the first sentence to the competent
authorities, together with its reasons and the intended time period of use. 3.
The highest risk weight that would be applied
under Chapter 2 to any of the securitised exposures, had they not been
securitised, may be applied to the securitisation position represented by a
liquidity facility that meets the conditions in Article 250(1). To determine
the exposure value of the position a conversion factor of 100 % shall be
applied. Article 259
Credit risk mitigation for securitisation positions subject to the IRB approach 1.
Where risk-weighted exposure amounts are
calculated using the Ratings Based Method, the exposure value or the
risk-weight for a securitisation position in respect of which credit protection
has been obtained may be modified in accordance with the provisions of Chapter
4 as they apply for the calculation of risk-weighted exposure amounts under
Chapter 2. 2.
In case of full credit protection, where risk-weighted exposure amounts are calculated using the
Supervisory Formula Method, the following requirements shall apply: (a) the institution shall determine the
‘effective risk weight’ of the position. It shall do this by dividing the
risk-weighted exposure amount of the position by the exposure value of the
position and multiplying the result by 100; (b) in the case of funded credit
protection, the risk-weighted exposure amount of the securitisation position
shall be calculated by multiplying the funded protection-adjusted exposure
amount of the position (E*), as calculated under Chapter 4 for the
calculation of risk-weighted exposure amounts under Chapter 2 taking the amount
of the securitisation position to be E, by the effective risk weight; (c) in the case of unfunded credit
protection, the risk-weighted exposure amount of the securitisation position
shall be calculated by multiplying the amount of the protection adjusted for
any currency mismatch and maturity mismatch (GA) in accordance with
the provisions of Chapter 4 by the risk weight of the protection provider; and
adding this to the amount arrived at by multiplying the amount of the
securitisation position minus GA by the effective risk weight. 3.
In case of partial protection, where
risk-weighted exposure amounts are calculated using the Supervisory Formula
Method, the following requirements shall apply: (a) if the credit risk mitigation covers
the first loss or losses on a proportional basis on the securitisation
position, the institution may apply paragraph 2; (b) in other cases, the institution shall
treat the securitisation position as two or more positions with the uncovered
portion being considered the position with the lower credit quality. For the
purposes of calculating the risk-weighted exposure amount for this position,
the provisions in Article 257 shall apply subject to the modifications that T
shall be adjusted to e* in the case of funded credit protection; and
to T-g in the case of unfunded credit protection, where e* denotes
the ratio of E* to the total notional amount of the underlying pool,
where E* is the adjusted exposure amount of the securitisation
position calculated in accordance with the provisions of Chapter 4 as they
apply for the calculation of risk-weighted exposure amounts under Chapter 2
taking the amount of the securitisation position to be E; and g is the ratio of
the nominal amount of credit protection, adjusted for any currency or maturity
mismatch in accordance with the provisions of Chapter 4, to the sum of the
exposure amounts of the securitised exposures. In the case of unfunded credit
protection the risk weight of the protection provider shall be applied to that
portion of the position not falling within the adjusted value of T. 4.
Where, in case of unfunded credit protection,
competent authorities have granted the institution permission to calculate
risk-weighted exposure amounts for comparable direct exposures to the
protection provider in accordance with Chapter 3, the risk weight g of
exposures to the protection provider according to Article 230 shall be
determined as specified in Chapter 3. Article 260
Additional own funds requirements for securitisations of revolving exposures
with early amortisation provisions 1.
In addition to the risk-weighted exposure
amounts calculated in respect of its securitisation positions, an originator institution
shall calculate a risk-weighted exposure amount according to the methodology
set out in Article 251 when it sells revolving exposures into a securitisation
that contains an early amortisation provision. 2.
By derogation from Article 251, the exposure
value of the originators interest shall be the sum of the following items: (a) the exposure value of that notional part
of a pool of drawn amounts sold into a securitisation, the proportion of which
in relation to the amount of the total pool sold into the structure determines
the proportion of the cash flows generated by principal and interest
collections and other associated amounts which are not available to make
payments to those having securitisation positions in the securitisation; (b) the exposure value of that part of the
pool of undrawn amounts of the credit lines, the drawn amounts of which have
been sold into the securitisation, the proportion of which to the total amount
of such undrawn amounts is the same as the proportion of the exposure value
described in point (a) to the exposure value of the pool of drawn amounts sold
into the securitisation. The originator's
interest shall not be subordinate to the investors' interest. The exposure value of the Investors' interest shall be the exposure value of the notional
part of the pool of drawn amounts not falling within point (a) plus the
exposure value of that part of the pool of undrawn amounts of credit lines, the
drawn amounts of which have been sold into the securitisation, not falling
within point (b). 3.
The risk-weighted exposure amount in respect of
the exposure value of the originator's interest according to point (a) of paragraph
2 shall be calculated as that for a pro-rata exposure to the securitised drawn
amounts exposures as if they had not been securitised and a pro rata exposure
to the undrawn amounts of the credit lines, the drawn amounts of which have
been sold into the securitisation. Article 261
Reduction in risk-weighted exposure amounts 1.
The risk-weighted exposure amount of a
securitisation position to which a 1250 % risk weight is assigned may be
reduced by 12.5 times the amount of any specific credit adjustments made by the
institution in respect of the securitised exposures. To the extent that specific
credit adjustments are taken account of for this purpose they shall not be
taken account of for the purposes of the calculation laid down in Article 155. 2.
The risk-weighted exposure amount of a
securitisation position may be reduced by 12.5 times the amount of any specific
credit adjustments made by the institution in respect of the position. 3.
As provided in Article 33(1)(k) in respect of a
securitisation position in respect of which a 1250 % risk weight applies,
institutions may, as an alternative to including the position in their
calculation of risk-weighted exposure amounts, deduct from own funds the
exposure value of the position subject to the following: (a) the exposure value of the position may
be derived from the risk-weighted exposure amounts taking into account any reductions
made in accordance with paragraphs 1 and 2; (b) the calculation of the exposure value
may reflect eligible funded protection in a manner consistent with the
methodology prescribed in Articles 242 and 259; (c) where the Supervisory Formula Method
is used to calculate risk-weighted exposure amounts and L < KIRBR
and [L+T] > KIRBR the position may be treated as two positions
with L equal to KIRBR for the more senior of the positions. 4.
Where an institution makes use of the option in
paragraph 3 it may subtract 12.5 times the amount deducted in accordance with
that paragraph from the amount specified in Article 255 as the amount to which
the risk-weighted exposure amount in respect of its positions in a
securitisation may be limited. Section 4
External Credit Assessments Article 262
Recognition of ECAIs 1.
Institutions may use ECAI credit assessments to
determine the risk weight of a securitisation position only where the credit
assessment has been issued by an ECAI or has been endorsed by an eligible ECAI in
accordance with Regulation (EC) No 1060/2009. 2.
Eligible ECAIs are all credit rating agencies
that have been registered or certified in accordance with Regulation (EC) No
1060/2009 and central banks issuing credit ratings which are exempt from
Regulation (EC) No 1060/2009. 3.
EBA shall publish a list
of eligible ECAIs. Article 263
Requirements to be met by the credit assessments of ECAIs For the purposes of calculating
risk-weighted exposure amounts according to Section 3, institutions shall only
use a credit assessment of an eligible ECAI if the following conditions are met: (a) there shall be no mismatch
between the types of payments reflected in the credit assessment and the types
of payment to which the institution is entitled under the contract giving rise
to the securitisation position in question; (b) the credit assessments,
procedures, methodologies assumptions and the key elements underpinning the
assessments shall have been published by the ECAI. Also, loss and cash-flow
analysis as well as sensitivity of ratings to changes in the underlying ratings
assumptions, including the performance of pool assets, shall be published by
the ECAI. Information that is made available only to a limited number of
entities shall not be considered to have been published. The credit assessments
shall be included in the ECAI's transition matrix; (c) the credit
assessment shall not be based or partly based on unfunded support provided by
the institution itself. In such
case, the institution shall
consider the relevant position for the purposes of
calculating risk-weighted exposure amounts for this position according to Section 3as if it were not rated. The ECAI shall be committed to publish explanations
how the performance of pool assets affects this credit assessment. Article 264
Use of credit assessments 1.
An institution may
nominate one or more eligible ECAIs the credit assessments of which shall be
used in the calculation of its risk-weighted exposure amounts under this
Chapter (a ‘nominated ECAI’). 2.
An institution shall use
credit assessments consistently and not selectively in respect of its
securitisation positions, in accordance with the following principles: (a) an institution
may not use an ECAI's credit assessments for its positions in some tranches and
another ECAI's credit assessments for its positions in other tranches within
the same securitisation that may or may not be rated by the first ECAI; (b) where a position has two credit
assessments by nominated ECAIs, the institution shall use the less favourable
credit assessment; (c) where a position has more than two
credit assessments by nominated ECAIs, the two most favourable credit
assessments shall be used. If the two most favourable assessments are
different, the less favourable of the two shall be used. 3.
Where credit protection eligible under Chapter 4
is provided directly to the SSPE, and that protection is reflected in the
credit assessment of a position by a nominated ECAI, the risk weight associated
with that credit assessment may be used. Where the protection is not eligible
under Chapter 4, the credit assessment shall not be recognised. Where the
credit protection is not provided to the SSPE but directly to a securitisation
position, the credit assessment shall not be recognised. Article 265
Mapping EBA shall develop
draft implementing technical standards to determine, for all eligible ECAIs,
which of the credit quality steps set out in this Chapter are associated with the
relevant credit assessments of an eligible ECAI. Those determinations shall be
objective and consistent, and carried out in accordance with the following
principles: (a) EBA shall
differentiate between the relative degrees of risk expressed by each assessment; (b) EBA shall consider quantitative
factors, such as default and/or loss rates and the historical performance of
credit assessments of each ECAI across different asset classes; (c) EBA shall consider qualitative
factors such as the range of transactions assessed by the ECAI, its methodology
and the meaning of its credit assessments, in particular whether based on
expected loss or first Euro loss; (d) EBA shall seek to ensure that
securitisation positions to which the same risk weight is applied on the basis
of the credit assessments of eligible ECAIs are subject to equivalent degrees
of credit risk. EBA shall consider modifying its determination as to the credit
quality step with which a particular credit assessment shall be associated, as
appropriate. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Chapter 6
Counterparty credit risk Section 1
definitions Article 266
Determination of the exposure value 1.
An institution shall determine the exposure
value of derivative instruments listed in Annex II in accordance with this
Chapter. 2.
An institution may determine the exposure value
of repurchase transactions, securities or commodities lending or borrowing
transactions, long settlement transactions and margin lending transactions in
accordance with this Chapter instead of making use of Chapter 4. Article 267
Definitions For the purposes of this Chapter and Title
VI, the following definitions shall apply: General terms (1)
‘counterparty credit risk’ (hereinafter referred
to as ‘CCR’) means the risk that the counterparty to a transaction could
default before the final settlement of the transaction's cash flows; Transaction
types (2)
‘long settlement transactions’ means
transactions where a counterparty undertakes to deliver a security, a
commodity, or a foreign exchange amount against cash, other financial
instruments, or commodities, or vice versa, at a settlement or delivery date specified
by contract that is later than the market standard for this particular type of transaction
or five business days after the date on which the institution enters into the
transaction, whichever is earlier; (3)
‘margin lending transactions’ means transactions
in which an institution extends credit in connection with the purchase, sale,
carrying or trading of securities. Margin lending transactions do not include
other loans that are secured by collateral in the form of securities; Netting
set, hedging sets, and related terms (4)
‘netting set’ means a group of transactions
between an institution and a single counterparty that is subject to a legally
enforceable bilateral netting arrangement that is recognised under Section 7
and Chapter 4; Each transaction that is not subject to a legally enforceable
bilateral netting arrangement which is recognised under Section 7 shall be
treated as its own netting set for the purposes of this Chapter; Under the Internal Model Method set out in Section 6, all netting
sets with a single counterparty may be treated as a single netting set if
negative simulated market values of the individual netting sets are set
to 0 in the estimation of expected exposure (hereinafter referred to as ‘EE’); (5)
‘risk position’ means a risk number that is
assigned to a transaction under the Standardised Method set out in Section5
following a predetermined algorithm; (6)
‘hedging set’ means a group of risk positions
arising from the transactions within a single netting set, where only the
balance of those risk positions is used for determining the exposure value
under the Standardised Method set out in Section 5; (7)
‘margin agreement’ means an agreement or
provisions of an agreement under which one counterparty must supply collateral
to a second counterparty when an exposure of that second counterparty to the
first counterparty exceeds a specified level; (8)
‘margin threshold’ means the largest amount of
an exposure that remains outstanding before one party has the right to call for
collateral; (9)
‘margin period of risk’ means the time period
from the most recent exchange of collateral covering a netting set of
transactions with a defaulting counterparty until the transactions are closed
out and the resulting market risk is re-hedged; (10)
‘effective maturity under the Internal Model
Method for a netting set with maturity greater than one year’ means the ratio
of the sum of expected exposure over the life of the transactions in the
netting set discounted at the risk-free rate of return, divided by the sum of
expected exposure over one year in a netting set discounted at the risk-free
rate; This effective maturity may be adjusted to reflect rollover risk by
replacing expected exposure with effective expected exposure for forecasting
horizons under one year; (11)
‘cross-product netting’ means the inclusion of
transactions of different product categories within the same netting set
pursuant to the Cross-Product Netting rules set out in this Chapter; (12)
‘Current Market Value’ (hereinafter referred to
as ‘CMV’) for the purposes of Section 5 refers to the net market value of the
portfolio of transactions within a netting set, where both positive and
negative market values are used in computing the CMV; Distributions (13)
‘distribution of market values’ means the
forecast of the probability distribution of net market values of transactions
within a netting set for a future date (the forecasting horizon), given the
realised market value of those transactions at the date of the forecast; (14)
‘distribution of exposures’ means the forecast
of the probability distribution of market values that is generated by setting
forecast instances of negative net market values equal to zero; (15)
‘risk-neutral distribution’ means a distribution
of market values or exposures over a future time period where the distribution
is calculated using market implied values such as implied volatilities; (16)
‘actual distribution’ means a distribution of
market values or exposures at a future time period where the distribution is
calculated using historic or realised values such as volatilities calculated
using past price or rate changes; Exposure
measures and adjustments (17)
‘current exposure’ means the larger of zero and
the market value of a transaction or portfolio of transactions within a netting
set with a counterparty that would be lost upon the default of the
counterparty, assuming no recovery on the value of those transactions in insolvency
or liquidation; (18)
‘peak exposure’ means a high percentile of the
distribution of exposures at particular future date before the maturity date of
the longest transaction in the netting set; (19)
‘expected exposure’ (hereinafter referred to as ‘EE’)
means the average of the distribution of exposures at a particular future date
before the longest maturity transaction in the netting set matures; (20)
‘effective expected exposure at a specific date’
(hereinafter referred to as ‘Effective EE’) means the greater of the expected
exposure at that specific date or the effective expected exposure at the prior
date; (21)
‘expected positive exposure’ (hereinafter
referred to as ‘EPE’) means the weighted average over time of expected
exposures, where the weights are the proportion of the entire time period that
an individual expected exposure represents; When calculating the own funds requirement, institutions shall take
the average over the first year or, if all the contracts within the netting set
mature within less than one year, over the time period of the longest maturity
contract in the netting set. (22)
‘effective expected positive exposure’ (hereinafter
referred to as ‘Effective EPE’) means the weighted average of effective
expected exposure over the first year of a netting set or, if all the contracts
within the netting set mature within less than one year, over the time period
of the longest maturity contract in the netting set, where the weights are the
proportion of the entire time period that an individual expected exposure
represents; CCR
related risks (23)
‘rollover risk’ means the amount by which EPE is
understated when future transactions with a counterparty are expected to be
conducted on an ongoing basis; The additional exposure generated by those future transactions is
not included in calculation of EPE; (24)
‘counterparty’ for the purposes of Section 7 means
any legal or natural person that enters into a netting agreement, and has the
contractual capacity to do so; (25)
‘contractual cross product netting agreement’
means a bilateral contractual agreement between an institution and a
counterparty which creates a single legal obligation (based on netting of
covered transactions) covering all bilateral master agreements and transactions
belonging to different product categories that are included within the
agreement; For the purposes of this definition, ‘different
product categories’ means: (a) repurchase transactions, securities
and commodities lending and borrowing transactions; (b) margin lending transactions; (c) the contracts listed in Annex II; (26)
‘payment leg’ means the payment agreed in an OTC
derivative transaction with a linear risk profile which stipulates the exchange
of a financial instrument for a payment. In the case of transactions that stipulate the
exchange of payment against payment, those two payment legs shall consist of
the contractually agreed gross payments, including the notional amount of the
transaction. Section 2
Methods for calculating the exposure value Article 268
Methods for calculating the exposure value 1.
Institutions shall determine the exposure value
for the contracts listed in Annex II on the basis of one of the methods set out
in Sections 3 to 6 in accordance with this Article. An institution which is not eligible for the
treatment set out in Article 89 shall not use the Original Exposure Method. To
determine the exposure value for the contracts listed in point 3 of Annex II an
institution shall not use the Original Exposure Method. A group of institutions may use the methods set
out in Sections 3 to 6 in combination on a permanent basis. A single
institution shall not use the Mark-to-market Method and the Original Exposure Method
in combination unless one of the methods is used for the cases set out in Article
276(6). 2.
Where permitted by the competent authorities in
accordance with paragraphs 1 and 2 of Article 277, an institution may determine
the exposure value for the following items using the Internal Model Method set
out in Section 6: (a) the contracts listed in Annex II; (b) repurchase transactions; (c) securities or commodities lending or
borrowing transactions; (d) margin lending transactions; (e) long settlement transactions. 3.
When an institution purchases protection through
a credit derivative against a non-trading book exposure or against a
counterparty risk exposure, it may calculate its own funds requirement for the
hedged exposure in accordance with either of the following: (a) Article 228 to 231; (b) in accordance with Article 148(3), or
Article 179, where permission has been granted in accordance with Article 138. The exposure value for CCR for those credit
derivatives shall be zero, unless an institution applies the approach (ii) in point
(h) of Article 293(2). 4.
Notwithstanding paragraph 3, an institution may
choose consistently to include for the purposes of calculating own funds
requirements for counterparty credit risk all credit derivatives not included
in the trading book and purchased as protection against a non-trading book
exposure or against a counterparty risk exposure where the credit protection is
recognised under this Regulation. 5.
Where credit default swaps sold by an institution are treated by an institution as credit protection provided by that
institution and are subject to own funds requirement for credit risk of the
underlying for the full notional amount, their exposure value for the purposes
of CCR in the non-trading book shall be zero. 6.
Under all methods set out in Sections 3 to 6,
the exposure value for a given counterparty shall be equal to the sum of the
exposure values calculated for each netting set with that counterparty. Where an institution calculates the
risk-weighted exposure amounts arising from OTC derivatives in accordance with
Chapter 2, the exposure value for a given netting set of OTC derivative
instruments listed in Annex II calculated in accordance with this Chapter shall
be the greater of zero and the difference between the sum of exposure values
across all netting sets with the counterparty and the sum of CVA for that
counterparty being recognised by the institution as an incurred write-down. 7.
Institutions shall determine the exposure value
for exposures arising from long settlement transactions
by any of the methods set out in Sections 3 to 6, regardless of which method the
institution has chosen for treating OTC derivatives and repurchase
transactions, securities or commodities lending or borrowing transactions, and
margin lending transactions. In calculating the own funds requirements for long
settlement transactions, an institution that uses the approach set out in Chapter
3 may assign the risk weights under the approach set out in Chapter 2 on a
permanent basis and irrespective of the materiality of such positions. 8.
For the methods set out in Sections 3 and 4, the
institution shall adopt a consistent methodology for determining the notional
amount, and shall ensure that the notional amount to be taken into account
provides an appropriate measure of the risk inherent in the contract. Where the
contract provides for a multiplication of cash flows, the notional amount shall
be adjusted by an institution to take into account the effects of the
multiplication on the risk structure of that contract. Section 3
Mark – to – market method Article 269
Mark-to-market Method 1.
In order to determine the current replacement
cost of all contracts with positive values, institutions shall attach the
current market values to the contracts. 2.
In order to determine the potential future
credit exposure, institutions shall multiply the notional amounts or underlying
values, as applicable, by the percentages in Table 1 and in accordance with the
following principles: (a) contracts which do not fall within one
of the five categories indicated in Table 1 shall be treated as contracts
concerning commodities other than precious metals; (b) for contracts with multiple exchanges
of principal, the percentages shall be multiplied by the number of remaining
payments still to be made in accordance with the contract; (c) for contracts that are structured to
settle outstanding exposure following specified payment dates and where the
terms are reset so that the market value of the contract is zero on those
specified dates, the residual maturity shall be equal to the time until the
next reset date. In the case of interest-rate contracts that meet those
criteria and have a remaining maturity of over one year, the percentage shall
be no lower than 0.5 %. Table 1 Residual maturity || Interest-rate contracts || Contracts concerning foreign-exchange rates and gold || Contracts concerning equities || Contracts concerning precious metals except gold || Contracts concerning commodities other than precious metals One year or less || 0 % || 1 % || 6 % || 7 % || 10 % Over one year, not exceeding five years || 0.5 % || 5 % || 8 % || 7 % || 12 % Over five years || 1.5 % || 7.5 % || 10 % || 8 % || 15 % 3.
For contracts relating to commodities other than
gold, which are referred to in point 3 of Annex II, an institution may, as an
alternative to applying the percentages in Table 1, apply the percentages in
Table 2 provided that that institution follows the extended maturity ladder
approach set out in Article 350 for those contracts. Table 2 Residual maturity || Precious metals (except gold) || Base metals || Agricultural products (softs) || Other, including energy products One year or less || 2 % || 2,5 % || 3 % || 4 % Over one year, not exceeding five years || 5 % || 4 % || 5 % || 6 % Over five years || 7,5 % || 8 % || 9 % || 10 % 4.
The sum of current replacement cost and
potential future credit exposure is the exposure value. Section 4
original exposure method Article 270
Original Exposure Method 1.
The exposure value is
the notional amount of each instrument multiplied by the percentages set out in
Table 3. Table 3 Original maturity || Interest-rate contracts || Contracts concerning foreign-exchange rates and gold One year or less || 0,5 % || 2 % Over one year, not exceeding two years || 1 % || 5 % Additional allowance for each additional year || 1 % || 3 % 2.
For calculating the exposure value of interest-rate
contracts, an institution may choose to use either the original or residual
maturity. Section 5
Standardised method Article 271
Standardised Method 1.
Institutions may use the
Standardised Method (hereinafter referred to as ‘SM’) only for calculating the
exposure value for OTC derivatives and long settlement transactions. 2.
When applying the SM, institutions shall calculate
the exposure value separately for each netting set, net of collateral, as
follows: where: CMV = current market value of the portfolio of
transactions within the netting set with a counterparty gross of collateral,
where: where: CMVi = the current market value of
transaction i; CMC = the current market value of the
collateral assigned to the netting set, where: where CMCl
= the current market value of collateral l; i = index
designating transaction; l = index
designating collateral; j = index
designating hedging set category; The hedging sets for this purpose correspond to
risk factors for which risk positions of opposite sign can be offset to yield a
net risk position on which the exposure measure is then based. RPTij
= risk position from transaction i with respect to hedging set j; RPClj
= risk position from collateral l with respect to hedging set j; CCRMj
= CCR Multiplier set out in Table 5 with respect to hedging set j; β = 1.4. 3.
For the purposes of the calculation under
paragraph 2: (a) eligible collateral received from a
counterparty shall have a positive sign and collateral posted to a counterparty
shall have a negative sign; (b) only collateral
that is eligible under Article 193(2) and Article 232 shall be used for the SM; (c) an institution
may disregard the interest rate risk from payment legs with a remaining
maturity of less than one year; (d) an institution may treat transactions
that consist of two payment legs that are denominated in the same currency as a
single aggregate transaction. The treatment for payment legs applies to the
aggregate transaction. Article 272
Transactions with a linear risk profile 1.
Institutions shall map transactions with a
linear risk profile to risk positions in accordance with the following
provisions: (a) transactions with a linear risk
profile with equities (including equity indices), gold,
other precious metals or other commodities as the underlying shall be mapped to
a risk position in the respective equity (or equity index) or commodity and an
interest rate risk position for the payment leg; (b) transactions with a linear risk
profile with a debt instrument as the underlying instrument shall be mapped to
an interest rate risk position for the debt instrument and another interest
rate risk position for the payment leg; (c) transactions with a linear risk
profile that stipulate the exchange of payment against payment, including
foreign exchange forwards, shall be mapped to an interest rate risk position
for each of the payment legs. Where, under a transaction mentioned in point
(a), (b) or (c), a payment leg or the underlying debt instrument is denominated
in foreign currency, that payment leg or underlying instrument shall also be
mapped to a risk position in that currency. 2.
For the purposes of paragraph 1, the size of a
risk position from a transaction with linear risk profile shall be the
effective notional value (market price multiplied by quantity) of the
underlying financial instruments or commodities converted to the institution's
domestic currency by multiplication with the relevant exchange rate, except for
debt instruments. 3.
For debt instruments and for payment legs, the
size of the risk position shall be the effective notional value of the
outstanding gross payments (including the notional amount) converted to the
currency of the home Member State of the institution, multiplied by the
modified duration of the debt instrument or payment leg, as the case may be. 4.
The size of a risk position from a credit
default swap shall be the notional value of the reference debt instrument
multiplied by the remaining maturity of the credit default swap. Article 273
Transactions with a non-linear risk profile 1.
Institutions shall determine the size of the
risk positions for transactions with a non-linear risk profile in accordance
with the following paragraphs. 2.
The size of a risk position from an OTC
derivative with a non-linear risk profile, including options and swaptions, of
which the underlying is not a debt instrument shall be equal to the delta
equivalent effective notional value of the financial instrument that underlies
the transaction in accordance with Article 274(1). 3.
The size of a risk position from an OTC derivative
with a non-linear risk profile, including options and swaptions, of which the
underlying is a debt instrument or a payment leg, shall be equal to the delta
equivalent effective notional value of the financial instrument or payment leg
multiplied by the modified duration of the debt instrument or payment leg, as
the case may be. 4.
For the determination of risk positions,
institutions shall treat collateral as follows: (a) collateral received from a
counterparty shall be treated as a claim on the counterparty under a derivative
contract (long position) that is due on the day the determination is made; (b) collateral it
has posted with the counterparty shall be treated as an obligation to the
counterparty (short position) that is due on the day the determination is made. Article 274
Calculation of risk positions 1.
An institution shall
determine the size and sign of a risk position as follows: (a) for all instruments other than debt
instruments: (i) as the effective notional value in the case of a transaction with a linear risk
profile; (ii) as the delta
equivalent notional value, ,in the case
of a transaction with a non-linear risk profile, where: Pref = price of the underlying
instrument, expressed in the reference currency; V = value of the financial instrument (in the
case of an option, the value is the option price); p = price of the underlying instrument,
expressed in the same currency as V; (b) for debt instruments and the payment
legs of all transactions: (i) as the effective
notional value multiplied by the modified duration in the case of a transaction
with a linear risk profile; (ii) as the delta
equivalent in notional value multiplied by the modified duration, , in the case of a
transaction with a non-linear risk profile, where: V = value of the financial instrument (in the
case of an option this is the option price); r = interest rate level. If V is denominated in a currency other than
the reference currency, the derivative shall be converted into the reference
currency by multiplication with the relevant exchange rate. 2.
For the purposes of applying the formulas in
paragraph 1, institutions shall group the risk positions into hedging sets. The
absolute value amount of the sum of the resulting risk positions shall be
calculated for each hedging set. The net risk position shall be the result of
that calculation and shall be calculated for the purposes of paragraph 1 as
follows: . Article 275
Interest rate risk positions 1.
In order to calculate interest rate positions,
institutions shall apply the following provisions. 2.
For interest rate risk positions from the
following: (a) money deposits received from the
counterparty as collateral; (b) a payment legs; (c) underlying debt instruments, to which in each case a capital charge of 1,60
% or less applies in accordance with Table 1 of Article 325, institutions shall
assign those positions to one of the six hedging sets for each currency set out
in Table 4. Table 4 || Government referenced interest rates || Non-government referenced interest rates Maturity || < 1 year >1 ≤ 5 years > 5 years || < 1 year >1 ≤ 5 years > 5 years 3.
For interest rate risk positions from underlying
debt instruments or payment legs for which the interest rate is linked to a
reference interest rate that represents a general market interest level, the
remaining maturity shall be the length of the time interval up to the next
re-adjustment of the interest rate. In all other cases, it shall be the
remaining life of the underlying debt instrument or, in the case of a payment
leg, the remaining life of the transaction. Article 276
Hedging sets 1.
Institutions shall establish hedging sets in
accordance with paragraphs (2) to (5). 2.
There shall be one hedging set for each issuer
of a reference debt instrument that underlies a credit default swap. N-th to default basket credit default swaps
shall be treated as follows: (a) the size of a risk position in a
reference debt instrument in a basket underlying an n-th to default credit
default swap shall be the effective notional value of the reference debt
instrument, multiplied by the modified duration of the n-th to default
derivative with respect to a change in the credit spread of the reference debt
instrument; (b) there shall be one hedging set for
each reference debt instrument in a basket underlying a given ‘nth to default’
credit default swap. Risk positions from different n-th to default credit
default swaps shall not be included in the same hedging set; (c) the CCR multiplier applicable to each
hedging set created for one of the reference debt instruments of an n-th to
default derivative shall be as follows: (i) 0.3% for reference debt instruments that
have a credit assessment from a recognised ECAI equivalent to credit quality
step 1 to 3; (ii) 0.6 % for other debt instruments. 3.
For interest rate risk positions from: (a) money deposits that are posted with a
counterparty as collateral when that counterparty does not have debt
obligations of low specific risk outstanding; (b) underlying debt instruments, to which according to Table 1 of Article 325 a
capital charge of more than 1.60 % applies, there shall be one hedging set for
each issuer. When a payment leg emulates such a debt
instrument, there shall also be one hedging set for each issuer of the
reference debt instrument. An institution may
assign risk positions that arise from debt instruments of a particular issuer,
or from reference debt instruments of the same issuer that are emulated by
payment legs, or that underlie a credit default swap, to the same hedging set. 4.
Underlying financial instruments other than debt
instruments shall be assigned to the same hedging sets only if they are
identical or similar instruments. In all other cases they shall be assigned to
separate hedging sets. For the purposes of this paragraph institutions
shall determine whether underlying instruments are similar in accordance with
the following principles: (a) for equities, the underlying is
similar if it is issued by the same issuer. An equity index shall be treated as
a separate issuer; (b) for precious metals, the underlying is
similar if it is the same metal. A precious metal index shall be treated as a
separate precious metal; (c) for electric power, the underlying is
similar if the delivery rights and obligations refer to the same peak or
off-peak load time interval within any 24-hour interval; (d) for commodities, the underlying is
similar if it is the same commodity. A commodity index shall be treated as a
separate commodity. 5.
The CCR multipliers (hereinafter referred to as ‘CCRM’)
for the different hedging set categories are set out in the following table: Table 5 || Hedging set categories || CCRM 1. || Interest Rates || 0.2 % 2. || Interest Rates for risk positions from a reference debt instrument that underlies a credit default swap and to which a capital charge of 1.60 %, or less, applies under Table 1 of Chapter 2 of Title IV. || 0.3 % 3. || Interest Rates for risk positions from a debt instrument or reference debt instrument to which a capital charge of more than 1.60 % applies under Table 1 of Chapter 2 of Title IV. || 0.6 % 4. || Exchange Rates || 2.5 % 5. || Electric Power || 4 % 6. || Gold || 5 % 7. || Equity || 7 % 8. || Precious Metals (other than gold) || 8.5 % 9. || Other Commodities (excluding precious metals and electricity power) || 10 % 10. || Underlying instruments of OTC derivatives that are not in any of the above categories || 10 % Underlying instruments of OTC derivatives, as
referred to in point 10 of Table 5, shall be assigned to separate individual
hedging sets for each category of underlying instrument. 6.
For transactions with a non-linear risk profile
or for payment legs and transactions with debt instruments as underlying for
which the institution cannot determine the delta or the modified duration, as the
case may be, with an instrument model that the competent authority has approved
for the purposes of determining the own funds requirements for market risk, the
competent authority shall either determine the size of the risk positions and
the applicable CCRMjs conservatively, or require the institution to use
of the method set out in Section 3.Netting shall not be recognised (that is,
the exposure value shall be determined as if there were a netting set that
comprises just an individual transaction). 7.
An institution shall have internal procedures to
verify that, prior to including a transaction in a hedging set, the transaction
is covered by a legally enforceable netting contract that meets the
requirements set out in Section 7. 8.
An institution that makes use of collateral to
mitigate its CCR shall have internal procedures to verify that, prior to recognising
the effect of collateral in its calculations, the collateral meets the legal
certainty standards set out in Chapter 4. Section 6
Internal model method Article 277
Internal Model Method 1.
Provided that the competent authorities are
satisfied that the requirement in paragraph 2 have been met by an institution, they
shall permit that institution to use the Internal Model Method (IMM) to
calculate the exposure value for any of the following transactions: (a) transactions in Article 268(2)(a); (b) transactions in Article 268(2)(b), (c)
and (d); (c) transactions in Article 268(2)(a) to (d), Where an institution is permitted to use the
IMM to calculate exposure value for any of the transactions mentioned in points
(a) to (c) of the preceding sub-paragraph, it may also use the IMM for the
transactions in Article 268(2)(e). Notwithstanding Article 268(1), third
sub-paragraph, an institution may choose not to apply this method to exposures
that are immaterial in size and risk. In such case, an institution shall apply
one of the methods set out in Sections 3 to 5 to these exposures. 2.
Competent authorities shall permit institutions
to use IMM for the calculations referred to in paragraph 1 only if the
institution has demonstrated that it complies with the requirements set out in
this Section, and the competent authorities verified that the systems for the
management of CCR maintained by the institution are sound and properly
implemented. 3.
The competent authorities may permit
institutions for a limited period to implement the IMM sequentially across
different transaction types. During this period of sequential implementation
institutions may use the methods set out in Section 3 or Section 5 for
transaction type for which they do not use the IMM. 4.
For all OTC derivative transactions and for long
settlement transactions for which an institution has not received permission
under paragraph 1 to use the IMM, the institution shall use the methods set out
in Section 3 or Section 5. Those methods may be used in combination on a permanent
basis within a group. Within an institution those methods may be used in
combination only where one of the methods is used for the cases set out in
Article 276(6) 5.
An institution which is permitted in accordance
with paragraph 1 to use the IMM shall not revert to the use of the methods set
out in Section 3 or Section 5 unless it is permitted by the competent authority
to do so. Competent authorities shall give such permission if the institution
demonstrates good cause. 6.
If an institution ceases to comply with the
requirements laid down in this Section, it shall notify
the competent authority and do one of the following:
(a) present to the competent authority a plan for a timely return to
compliance;
(b) demonstrate to the satisfaction of the competent authority that the
effect of non-compliance is immaterial. Article 278
Exposure value 1.
Where an institution is permitted, in accordance
with Article 277(1), to use the IMM to calculate the exposure value of some or
all transactions mentioned in that paragraph, it shall measure the exposure
value of those transactions at the level of the netting set. The model used by the institution for that
purpose shall: (a) specify the forecasting distribution
for changes in the market value of the netting set attributable to joint
changes in relevant market variables, such as interest rates, foreign and
exchange rates; (b) calculate the exposure value for the
netting set at each future date on the basis of the joint changes in the market
variables. 2.
In order for the model to capture the effects of
margining, the model of the collateral value shall meet the quantitative,
qualitative and data requirements for the IMM model in accordance with this
Section and the institution may include in its forecasting distributions for changes
in the market value of the netting set only eligible financial collateral as
defined in Article 193(2) and Article 232. 3.
The own funds requirement for counterparty
credit risk with respect to the CCR exposures to which an institution applies
the IMM, shall be the higher of the following: (a) the own funds requirement for those
exposures calculated on the basis of Effective EPE using current market data; (b) the own funds requirement for those
exposures calculated on the basis of Effective EPE using a single consistent
stress calibration for all CCR exposures to which they apply the IMM. 4.
Except for counterparties identified as having
Specific Wrong-Way Risk that fall within the scope of paragraphs 4 and 5 of
Article 285, institutions shall calculate the exposure value as the product of
alpha (α) times Effective
EPE, as follows: where: α = 1.4, unless competent authorities require a higher α or permit institutions to use their own
estimates in accordance with paragraph 9; Effective EPE shall be calculated by estimating
expected exposure (EEt) as the average exposure at future date t,
where the average is taken across possible future values of relevant market
risk factors. The model shall estimate EE at a series of
future dates t1, t2, t3, etc. 5.
Effective EE shall be calculated recursively as: where: the current date is denoted as t0; Effective EEt0 equals current
exposure. 6.
Effective EPE is the average Effective EE during
the first year of future exposure. If all contracts in the netting set mature
within less than one year, EPE shall be the average of EE until all contracts
in the netting set mature. Effective EPE shall be calculated as a weighted
average of Effective EE: where the weights allow for the case when future exposure is calculated at dates that
are not equally spaced over time. 7.
Institutions shall calculate EE or peak exposure measures on the basis of a distribution of
exposures that accounts for the possible non-normality of the distribution of
exposures. 8.
An institution may use a
measure of the distribution calculated by the model that is more conservative
than α multiplied by
Effective EPE as calculated in accordance with the equation in paragraph 4 for
every counterparty. 9.
Notwithstanding paragraph 4, competent
authorities may permit institutions to use their own estimates of alpha, where:
(a) alpha shall equal the ratio of
internal capital from a full simulation of CCR exposure across counterparties
(numerator) and internal capital based on EPE (denominator); (b) in the
denominator, EPE shall be used as if it were a fixed outstanding amount. When estimated in accordance with this
paragraph, alpha shall be no lower than 1.2. 10.
For the purposes of an estimate of alpha under
paragraph 9, an institution shall ensure that the
numerator and denominator are calculated in a manner consistent with the
modelling methodology, parameter specifications and portfolio composition. The
approach used to estimate α shall be based on the institution's internal capital approach, be
well documented and be subject to independent validation. In addition, an institution
shall review its estimates of alpha on at least a quarterly basis, and more
frequently when the composition of the portfolio varies over time. An
institution shall also assess the model risk. 11.
An institution shall
demonstrate to the satisfaction of the competent authorities that its internal
estimates of alpha capture in the numerator material sources of dependency of
distribution of market values of transactions or of portfolios of transactions
across counterparties. Internal estimates of alpha shall take account of the
granularity of portfolios. 12.
In supervising the use of estimates under
paragraph 9, competent authorities shall have regard to the significant
variation in estimates of alpha that arises from the potential for
mis-specification in the models used for the numerator, especially where
convexity is present. 13.
Where appropriate, volatilities and correlations
of market risk factors used in the joint modelling of market and credit risk shall
be conditioned on the credit risk factor to reflect potential increases in
volatility or correlation in an economic downturn. Article 279
Exposure value for netting sets subject to a margin agreement 1.
If the netting set is subject to a margin
agreement and daily mark-to-market valuation, an institution may use one of the
following EPE measures: (a) Effective EPE, without taking into
account any collateral held or posted by way of margin plus any collateral that
has been posted to the counterparty independent of the daily valuation and
margining process or current exposure; (b) An add-on that reflects the potential
increase in exposure over the margin period of risk, plus the larger of: (i) the current exposure including all
collateral currently held or posted, other than collateral called or in
dispute; (ii) the largest net exposure, including
collateral under the margin agreement, that would not trigger a collateral
call. This amount shall reflect all applicable thresholds, minimum transfer
amounts, independent amounts and initial margins under the margin agreement; (c) If the model captures the effects of
margining when estimating EE, the institution may, subject to the permission of
the competent authority, use the model's EE measure directly in the equation in
Article 13(5). Competent authorities shall grant such permission only if they
verify that the model properly captures the effects of margining when
estimating EE. For the purposes of point (b), institutions
shall calculate the add-on as the expected positive change of the
mark-to-market value of the transactions during the margin period of risk.
Changes in the value of collateral shall be reflected using the supervisory
volatility adjustments in accordance with Section 3 of Chapter 4 or the own
estimates of volatility adjustments of the Financial Collateral Comprehensive
Method, but no collateral payments shall be assumed during the margin period of
risk. The margin period of risk is subject to the minimum periods set out in
paragraphs 2 to 4. 2.
For transactions subject to daily re-margining
and mark-to-market valuation, the margin period of risk used for the purpose of
modelling the exposure value with margin agreements shall not be less than: (a) 5 business days for netting sets
consisting only of repurchase transactions, securities or commodities lending
or borrowing transactions and margin lending transactions; (b) 10 business days for all other netting
sets. Points (a) and (b) shall be subject to the
following exceptions: (i) for all netting sets where the number
of trades exceeds 5,000 at any point during a quarter, the margin period of
risk for the following quarter shall not be less than 20 business days. This
exception shall not apply to institutions' trade exposures; (ii) for netting sets containing one or
more trades involving either illiquid collateral, or an OTC derivative that
cannot be easily replaced, the margin period of risk shall not be less than 20
business days. An institution shall determine whether
collateral is illiquid or whether OTC derivatives cannot be easily replaced in
the context of stressed market conditions, characterised by the absence of
continuously active markets where a counterparty would, within two days or
fewer, obtain multiple price quotations that would not move the market or
represent a price reflecting a market discount (in the case of collateral) or
premium (in the case of an OTC derivative). An institution shall consider whether trades or
securities it holds as collateral are concentrated in a particular counterparty
and if that counterparty exited the market precipitously whether the
institution would be able to replace those trades or securities. 3.
If an institution has been involved in more than
two margin call disputes on a particular netting set or counterparty over the
immediately preceding two quarters that have lasted longer than the applicable
margin period of risk under paragraph 2, the institution shall use a margin
period of risk that is at least double the period specified in paragraph 2 for
that netting set for the subsequent two quarters. 4.
For re-margining with a periodicity of N days,
the margin period of risk shall be at least equal to the period specified in
paragraph 2, F, plus N days minus one day. That is: Margin Period of Risk = F + N - 1 5.
If the internal model includes the effect of
margining on changes in the market value of the netting set, an institution
shall model collateral, other than cash of the same currency as the exposure
itself, jointly with the exposure in its exposure value calculations for OTC
derivatives and securities-financing transactions. 6.
If an institution is not able to model
collateral jointly with the exposure, it shall not recognise in its exposure
value calculations for OTC derivatives and securities-financing transactions
the effect of collateral other than cash of the same currency as the exposure
itself, unless it uses either volatility adjustments that meet the standards of
the financial collateral comprehensive method with own volatility adjustments
estimates or the standard supervisory volatility adjustments in accordance with
Chapter 4. 7.
An institution using the IMM shall ignore in its
models the effect of a reduction of the exposure value due to any clause in a
collateral agreement that requires receipt of collateral when counterparty
credit quality deteriorates. Article 280
Management of CCR – Policies, processes and systems 1.
An institution shall establish and maintain a
CCR management framework, consisting of: (a) policies, processes and systems to
ensure the identification, measurement, management, approval and internal
reporting of CCR; (b) procedures for ensuring that those
policies, processes and systems are complied with. Those polices, processes and systems shall be
conceptually sound, implemented with integrity and documented. The
documentation shall include an explanation of the empirical techniques used to
measure CCR. 2.
The CCR risk management framework required by
paragraph 1 shall take account of market, liquidity, and legal and operational
risks that are associated with CCR. In particular, the framework shall ensure
that the institution complies with the following principles: (a) it does not undertake business with a
counterparty without assessing its creditworthiness; (b) it takes due account of settlement and
pre-settlement credit risk; (c) it manages such risks as
comprehensively as practicable at the counterparty level by aggregating CCR
exposures with other credit exposures and at the firm-wide level. 3.
An institution using the
IMM shall ensure that its CCR risk management framework accounts to the satisfaction
of the competent authority for the liquidity risks of all of the following: (a) potential incoming margin calls in the
context of exchanges of variation margin or other margin types, such as initial
or independent margin, under adverse market shocks; (b) potential incoming calls for the
return of excess collateral posted by counterparties; (c) calls resulting from a potential
downgrade of its own external credit quality assessment. An institution shall ensure that the nature and
horizon of collateral re-use is consistent with its liquidity needs and does
not jeopardise its ability to post or return collateral in a timely manner. 4.
An institution's management body and senior
management shall be actively involved in, and ensure that adequate resources are
allocated to, the management of CCR. Senior management shall be aware of the
limitations and assumptions of the model used and the impact those limitations
and assumptions can have on the reliability of the output through a formal
process. Senior management shall be also aware of the uncertainties of the
market environment and operational issues and of how these are reflected in the
model. 5.
The daily reports prepared on an institution's
exposures to CCR in accordance with Article 281(2)(b) shall be reviewed by a
level of management with sufficient seniority and authority to enforce both
reductions of positions taken by individual credit managers or traders and
reductions in the institution's overall CCR exposure. 6.
An institution's CCR management framework established
in accordance with paragraph 1 shall be used in conjunction with internal
credit and trading limits. Credit and trading limits shall be related to the
institution's risk measurement model in a manner that is consistent over time
and that is well understood by credit managers, traders and senior management. An
institution shall have a formal process to report breaches of risk limits to
the appropriate level of management. 7.
An institution's measurement of CCR shall
include measuring daily and intra-day use of credit lines. The institution
shall measure current exposure gross and net of collateral. At portfolio and
counterparty level, the institution shall calculate and monitor peak exposure
or potential future exposure at the confidence interval chosen by the
institution. The institution shall take account of large or concentrated
positions, including by groups of related counterparties, by industry and by
market. 8.
An institution shall establish and maintain a
routine and rigorous program of stress testing. The results of that stress
testing shall be reviewed regularly and at least quarterly by senior management
and shall be reflected in the CCR policies and limits set by the management
body or senior management. Where stress tests reveal particular vulnerability
to a given set of circumstances, the institution shall take prompt steps to
manage those risks. Article 281
Organisation structures for CCR risk management 1.
An institution using the
IMM shall establish and maintain: (a) a risk control unit that complies with
paragraph 2; (b) a collateral management unit that
complies with paragraph 3. 2.
The risk control unit shall be responsible for
the design and implementation of its CCR management, including the initial and
on-going validation of the model, and shall carry out the following functions
and meet the following requirements: (a) it shall be responsible for the design
and implementation of the CCR management system of the institution; (b) it shall produce daily reports on and
analyse the output of the institution’s risk measurement model. That analysis
shall include an evaluation of the relationship between measures of CCR
exposure values and trading limits; (c) it shall
control input data integrity and produce and analyse reports on the output of
the institution's risk measurement model, including an evaluation of the
relationship between measures of risk exposure and credit and trading limits; (d) it shall be
independent from units responsible for originating, renewing or trading
exposures and free from undue influence; (e) it shall be adequately staffed; (f) it shall report directly to the
senior management of the institution; (g) its work shall
be closely integrated into the day-to-day credit risk management process of the
institution; (h) its output shall be an integral part
of the process of planning, monitoring and controlling the institution's credit
and overall risk profile. 3.
The collateral management unit shall carry out
the following tasks and functions: (a) calculating and making margin calls,
managing margin call disputes and reporting levels of independent amounts,
initial margins and variation margins accurately on a daily basis; (b) controlling the integrity of the data
used to make margin calls, and ensuring that it is consistent and reconciled
regularly with all relevant sources of data within the institution; (c) tracking the extent of re-use of
collateral and any modification of the rights of the institution to or in
connection with the collateral that it posts; (d) reporting to the appropriate level of
management the types of collateral assets that are reused, and the terms of
such reuse including instrument, credit quality and maturity; (e) tracking concentration to individual
types of collateral assets accepted by the institution; (f) reporting collateral management
information on a regular basis, but at least quarterly, to senior management,
including information on the type of collateral received and posted, the size,
aging and cause for margin call disputes. That internal reporting shall also
reflect trends in these figures. 4.
Senior management shall allocate sufficient
resources to the collateral management unit required under paragraph 1(b) to
ensure that its systems achieve an appropriate level of operational
performance, as measured by the timeliness and accuracy of margin calls by the
institution and the timeliness of the response of the institution to margin
calls by its counterparties. Senior management shall ensure that the unit is
adequately staffed to process calls and disputes in a timely manner even under
severe market crisis, and to enable the institution to limit its number of
large disputes caused by trade volumes. Article 282
Review of CCR risk management system An institution shall regularly conduct an
independent review of its CCR management system through its internal auditing
process. That review shall include both the activities of the control and
collateral management units required by Article 281 and shall specifically
address, as a minimum: (a)
the adequacy of the documentation of the CCR
management system and process required by Article 280; (b)
the organisation of the CCR control unit
required by Article 281(1)(a); (c)
the organisation of the collateral management
unit required by Article 281(1)(b); (d)
the integration of CCR measures into daily risk
management; (e)
the approval process for risk pricing models and
valuation systems used by front and back-office personnel; (f)
the validation of any significant change in the
CCR measurement process; (g)
the scope of CCR captured by the risk measurement
model; (h)
the integrity of the management information
system; (i)
the accuracy and completeness of CCR data; (j)
the accurate reflection of legal terms in
collateral and netting agreements into exposure value measurements; (k)
the verification of the consistency, timeliness
and reliability of data sources used to run models, including the independence
of such data sources; (l)
the accuracy and appropriateness of volatility
and correlation assumptions; (m)
the accuracy of valuation and risk
transformation calculations; (n)
the verification of the model's accuracy through
frequent back-testing as set out in points (b) to (e) of Article 287(1); (o)
the compliance of the CCR control unit and
collateral management unit with the relevant regulatory requirements. Article 283
Use test 1.
Institutions shall ensure that the distribution
of exposures generated by the model used to calculate effective EPE is closely
integrated into the day-to-day CCR management process of the institution, and
that the output of the model is taken into account in the process of credit
approval, CCR management and internal capital allocation. 2.
The institution shall demonstrate to the satisfaction
of the competent authorities that it has been using a model to calculate the
distribution of exposures upon which the EPE calculation is based that meets,
broadly, the requirements set out in this Section for at least one year prior
to permission to use the IMM by the competent authorities in accordance with
Article 277. 3.
The model used to generate a distribution of
exposures to CCR shall be part of the CCR management framework required by
Article 280. This framework shall include the measurement of usage of credit
lines, aggregating CCR exposures with other credit exposures and internal
capital allocation. 4.
In addition to EPE, an institution shall measure
and manage current exposures. Where appropriate, the institution shall measure
current exposure gross and net of collateral. The use test is satisfied if an
institution uses other CCR measures, such as peak exposure, based on the
distribution of exposures generated by the same model to compute EPE. 5.
An institution shall have the systems capability
to estimate EE daily if necessary, unless it demonstrates to the satisfaction
of its competent authorities that its exposures to CCR warrant less frequent
calculation. The institution shall estimate EE along a time profile of
forecasting horizons that adequately reflects the time structure of future cash
flows and maturity of the contracts and in a manner that is consistent with the
materiality and composition of the exposures. 6.
Exposure shall be measured, monitored and
controlled over the life of all contracts in the netting set and not only to
the one year horizon. The institution shall have procedures in place to
identify and control the risks for counterparties where the exposure rises
beyond the one-year horizon. The forecast increase in exposure shall be an
input into the institution's internal capital model. Article 284
Stress testing 1.
An institution shall have a comprehensive stress
testing programme for CCR, including for use in assessment of own funds
requirements for CCR, which complies with the requirements laid down in
paragraphs 2 to 10. 2.
It shall identify possible events or future
changes in economic conditions that could have unfavourable effects on an
institution's credit exposures and assess the institution's ability to
withstand such changes. 3.
The stress measures under the programme shall be
compared against risk limits and considered by the institution as part of the process
set out in Article 79 of Directive [inserted by OP]. 4.
The programme shall comprehensively capture
trades and aggregate exposures across all forms of counterparty credit risk at
the level of specific counterparties in a sufficient time frame to conduct
regular stress testing. 5.
It shall provide for at least monthly exposure
stress testing of principal market risk factors such as interest rates, FX,
equities, credit spreads, and commodity prices for all counterparties of the
institution, in order to identify, and enable the institution when necessary to
reduce outsized concentrations in specific directional risks. Exposure stress
testing -including single factor, multifactor and material non-directional
risks- and joint stressing of exposure and creditworthiness shall be performed
at the counterparty-specific, counterparty group and aggregate institution-wide
CCR levels. 6.
It shall apply at least quarterly multifactor
stress testing scenarios and assess material non-directional risks including
yield curve exposure and basis risks. Multiple-factor stress tests shall, at a
minimum, address the following scenarios in which the following occurs: (a) severe economic or market events have
occurred; (b) broad market liquidity has decreased
significantly; (c) a large financial intermediary is
liquidating positions. 7.
The severity of the shocks of the underlying
risk factors shall be consistent with the purpose of the stress test. When
evaluating solvency under stress, the shocks of the underlying risk factors
shall be sufficiently severe to capture historical extreme market environments
and extreme but plausible stressed market conditions. The stress tests shall
evaluate the impact of such shocks on own funds, own funds requirements and
earnings. For the purpose of day-to-day portfolio monitoring, hedging, and
management of concentrations the testing programme shall also consider
scenarios of lesser severity and higher probability. 8.
The programme shall include provision, where
appropriate, for reverse stress tests to identify extreme, but plausible,
scenarios that could result in significant adverse outcomes. Reverse stress
testing shall account for the impact of material non-linearity in the
portfolio. 9.
The results of the stress testing under the
programme shall be reported regularly, at least on a quarterly basis, to senior
management. The reports and analysis of the results shall cover the largest
counterparty-level impacts across the portfolio, material concentrations within
segments of the portfolio (within the same industry or region), and relevant
portfolio and counterparty specific trends. 10.
Senior management shall take a lead role in the
integration of stress testing into the risk management framework and risk
culture of the institution and ensure that the results are meaningful and used
to manage CCR. The results of stress testing for significant exposures shall be
assessed against guidelines that indicate the institution’s risk appetite, and
referred to senior management for discussion and action when excessive or concentrated
risks are identified. Article 285
Wrong-Way Risk 1.
For the purposes of this Article: (a) ‘General Wrong-Way risk’ arises when the
likelihood of default by counterparties is positively correlated with general
market risk factors; (b) 'Specific Wrong-Way risk’ arises when
there is a legal connection between the counterparty and the issuer of the
underlying of the OTC derivative or securities financing transaction. 2.
An institution shall give due consideration to
exposures that give rise to a significant degree of Specific and General
Wrong-Way Risk. 3.
In order to identify General Wrong-Way Risk, an
institution shall design stress testing and scenario analyses to stress risk
factors that are adversely related to counterparty credit worthiness. Such
testing shall address the possibility of severe shocks occurring when
relationships between risk factors have changed. An institution shall monitor
General Wrong Way Risk by product, by region, by industry, or by other
categories that are relevant to the business. 4.
An institution shall
maintain procedures to identify, monitor and control cases of Specific
Wrong-Way risk for each legal entity, beginning at the inception of a
transaction and continuing through the life of the transaction. Transactions
with counterparties where Specific Wrong-Way risk has been identified shall be
treated in accordance with paragraph 5. 5.
Institutions shall calculate the own funds
requirements for CCR in relation to counterparties where Specific Wrong-Way risk
has been identified in accordance with the following principles: (a) the instruments where Specific
Wrong-Way risk exists shall not be included in the same netting set as other
transactions with the counterparty, and shall each be treated as a separate
netting set; (b) within any such separate netting set,
for single-name credit default swaps the exposure value equals the full
expected loss in the value of the remaining fair value of the underlying
instruments based on the assumption that the underlying issuer is in
liquidation; (c) LGD for an institution using the
approach set out in Chapter 3 shall be 100% for such swap transactions; (d) for an institution using the approach
set out in Chapter 2, the applicable risk weight shall be that of an unsecured
transaction; (e) for all other transactions referencing
a single name in any such separate netting set, the exposure value equals the
value of the transaction under the assumption of a jump-to-default of the
underlying obligation; (f) to the extent that this uses existing
market risk calculations for own funds requirements for incremental default and
migration risk as set out in Title IV, Chapter 5, Section 4 that already
contain an LGD assumption, the LGD in the formula used shall be 100%. 6.
Institutions shall provide senior management and
the appropriate committee of the management body with regular reports on both
Specific and General Wrong-Way risks and the steps being taken to manage those risks. Article 286
Integrity of the modelling process 1.
An institution shall ensure the integrity of
modelling process as set out in Article 278 by adopting at least the following
measures: (a) the model
shall reflect transaction terms and specifications in a timely, complete, and
conservative fashion; (b) those terms
shall include at least contract notional amounts, maturity, reference assets,
margining arrangements and netting arrangements; (c) those terms
and specifications shall be maintained in a database that is subject to formal
and periodic audit; (d) a process for recognising netting
arrangements that requires legal staff to verify that netting under those
arrangements is legally enforceable; (e) the verification required by point (d)
shall be entered into the database mentioned in point (c) by an independent
unit; (f) the transmission of transaction terms
and specification data to the EPE model shall be subject to internal audit; (g) there shall be processes for formal reconciliation between the model and source data systems to
verify on an ongoing basis that transaction terms and specifications are being
reflected in EPE correctly or at least conservatively. 2.
Current market data shall be used to determine
current exposures. An institution may calibrate its EPE model using either
historic market data or market implied data to establish parameters of the
underlying stochastic processes, such as drift, volatility and correlation. If
an institution uses historical data, it shall use at least three years of such
data. The data shall be updated at least quarterly, and more frequently if
necessary to reflect market conditions. To calculate the Effective EPE using a stress
calibration, an institution shall calibrate Effective EPE using either three
years of data that includes a period of stress to the credit default spreads of
its counterparties or market implied data from such a period of stress. The requirements in paragraphs 3, 4 and 5 shall
be applied by the institution for that purpose. 3.
An institution shall demonstrate to the satisfaction
of the competent authority, at least quarterly, that the stress period used for
the calculation under this paragraph coincides with a period of increased
credit default swap or other credit (such as loan or corporate bond) spreads
for a representative selection of its counterparties with traded credit
spreads. In situations where the institution does not have adequate credit
spread data for a counterparty, it shall map that counterparty to specific
credit spread data based on region, internal rating and business types. 4.
The EPE model for all counterparties shall use data,
either historic or implied, that include the data from the stressed credit
period and shall use such data in a manner consistent with the method used for
the calibration of the EPE model to current data. 5.
To evaluate the effectiveness of its stress calibration
for EEPE, an institution shall create several benchmark portfolios that are
vulnerable to the main risk factors to which the institution is exposed. The
exposure to these benchmark portfolios shall be calculated using (a) a stress
methodology, based on current market values and model parameters calibrated to
stressed market conditions, and (b) the exposure generated during the stress
period, but applying the method set out in this Section (end of stress period
market value, volatilities, and correlations from the 3-year stress period). The competent authorities shall require an
institution to adjust the stress calibration if the exposures of those
benchmark portfolios deviate substantially from each other. 6.
An institution shall subject the model to a
validation process that is clearly articulated in the institutions' policies
and procedures. That validation process shall: (a) specify the kind of testing needed to
ensure model integrity and identify conditions under which the assumptions
underlying the model are inappropriate and may therefore result in an
understatement of EPE; (b) include a review of the
comprehensiveness of the model. 7.
An institution shall monitor the relevant risks
and have processes in place to adjust its estimation of EEPE when those risks
become significant. In complying with this paragraph, the institution shall: (a) identify and manage its exposures to
Specific Wrong-Way risk arising as specified in Article 285(1)(b) and exposures
to General Wrong-Way risk arising as specified in Article 285(1)(a); (b) for exposures with a rising risk
profile after one year, compare on a regular basis the estimate of a relevant
measure of exposure over one year with the same exposure measure over the life
of the exposure; (c) for exposures with a residual maturity
below one year, compare on a regular basis the replacement cost (current
exposure) and the realised exposure profile, and store data that would allow
such a comparison. 8.
An institution shall have internal procedures to
verify that, prior to including a transaction in a netting set, the transaction
is covered by a legally enforceable netting contract that meets the
requirements set out in Section 7. 9.
An institution that uses collateral to mitigate
its CCR shall have internal procedures to verify that, prior to recognising the
effect of collateral in its calculations, the collateral meets the legal
certainty standards set out in Chapter 4 . 10.
EBA shall monitor the range of practices in this
area and shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue
guidelines on the application of this Article. Article 287
Requirements for the risk management system 1.
An institution shall
comply with the following requirements: (a) it shall meet the qualitative
requirements set out in Part Three, Title IV, Chapter 5; (b) it shall conduct a regular programme
of back-testing, comparing the risk measures generated by the model with
realised risk measures, and hypothetical changes based on static positions with
realised measures; (c) it shall carry out an initial
validation and an on-going periodic review of its CCR exposure model and the
risk measures generated by it. The validation and review shall be independent
of the model development; (d) the management body and senior
management shall be involved in the risk control process and shall ensure that
adequate resources are devoted to credit and counterparty credit risk control.
In this regard, the daily reports prepared by the independent risk control unit
established in accordance Article 281(1)(a) shall be reviewed by a level of
management with sufficient seniority and authority to enforce both reductions
of positions taken by individual traders and reductions in the overall risk
exposure of the institution; (e) the internal risk measurement exposure
model shall be integrated into the day-to-day risk management process of the
institution; (f) the risk measurement system shall be
used in conjunction with internal trading and exposure limits. In this regard,
exposure limits shall be related to the institution’s risk measurement model in
a manner that is consistent over time and that is well understood by traders,
the credit function and senior management; (g) an institution shall ensure that its
risk management system is well documented. In particular, it shall maintain a
documented set of internal policies, controls and procedures concerning the
operation of the risk measurement system, and arrangements to ensure that those
policies are complied with; (h) an independent review of the risk measurement
system shall be carried out regularly in the institution’s own internal
auditing process. This review shall include both the activities of the business
trading units and of the independent risk control unit. A review of the overall
risk management process shall take place at regular intervals (and no less than
once a year) and shall specifically address, as a minimum, all items referred
to in Article 282; (i) the on-going validation of
counterparty credit risk models, including back-testing, shall be reviewed
periodically by a level of management with sufficient authority to decide the
action that will be taken to address weaknesses in the models. 2.
Competent authorities shall take into account
the extent to which an institution meets the requirements of paragraph 1 when
setting the level of alpha, as set out in Article 278(4). Only those
institutions that comply fully with those requirements shall be eligible for
application of the minimum multiplication factor. 3.
An institution shall document the process for
initial and on-going validation of its CCR exposure model and the calculation
of the risk measures generated by the models to a level of detail that would
enable a third party to recreate, respectively, the analysis and the risk
measures. That documentation shall set out the frequency with which back
testing analysis and any other on-going validation will be conducted, how the
validation is conducted with respect to data flows and portfolios and the
analyses that are used. 4.
An institution shall define criteria with which
to assess its CCR exposure models and the models that
input into the calculation of exposure and maintain a written policy that
describes the process by which unacceptable performance will be identified and
remedied. 5.
An institution shall define how representative
counterparty portfolios are constructed for the purposes
of validating an CCR exposure model and its risk measures. 6.
The validation of CCR exposure models and their
risk measures that produce forecast distributions shall
consider more than a single statistic of the forecast distribution. Article 288
Validation requirements for EPE models 1.
As part of the initial and on-going validation
of its CCR exposure model and its risk measures, an institution shall ensure
that the following requirements are met: (a) the institution shall carry out
back-testing using historical data on movements in market risk factors prior to
the permission by the competent authorities in accordance with Article 277(1). That
back-testing shall consider a number of distinct prediction time horizons out
to at least one year, over a range of various initialisation dates and covering
a wide range of market conditions; (b) the institution using the approach set
out in paragraph 12(b) of Article 278 shall regularly validate its model to
test whether realised current exposures are consistent with prediction over all
margin periods within one year. If some of the trades in the netting set have a
maturity of less than one year, and the netting set has higher risk factor
sensitivities without these trades, the validation shall take this into account; (c) it shall back-test the performance of
its CCR exposure model and the model's relevant risk measures as well as the
market risk factor predictions. For collateralised trades, the prediction time
horizons considered shall include those reflecting typical margin periods of
risk applied in collateralised or margined trading; (d) if the model validation indicates that
effective EPE is underestimated, the institution shall take the action necessary
to address the inaccuracy of the model; (e) it shall test
the pricing models used to calculate CCR exposure for a given scenario of
future shocks to market risk factors as part of the initial and on-going model
validation process. Pricing models for options shall account for the
nonlinearity of option value with respect to market risk factors; (f) the CCR exposure model shall capture
the transaction-specific information necessary to be able to aggregate
exposures at the level of the netting set. An institution shall verify that
transactions are assigned to the appropriate netting set within the model; (g) the CCR exposure model shall include
transaction-specific information to capture the effects of margining. It shall
take into account both the current amount of margin and margin that would be
passed between counterparties in the future. Such a model shall account for the
nature of margin agreements that are unilateral or bilateral, the frequency of
margin calls, the margin period of risk, the minimum threshold of un-margined
exposure the institution is willing to accept, and the minimum transfer amount.
Such a model shall either estimate the mark-to-market change in the value of
collateral posted or apply the rules set out in Chapter 4; (h) the model validation process shall
include static, historical back-testing on
representative counterparty An institution shall conduct such back-testing on a
number of representative counterparty portfolios that are actual or
hypothetical at regular intervals. Those representative portfolios shall be
chosen on the basis of their sensitivity to the material risk factors and combinations
of risk factors to which the institution is exposed; (i) an institution shall conduct
back-testing that is designed to test the key assumptions of the CCR exposure
model and the relevant risk measures, including the modelled relationship
between tenors of the same risk factor, and the modelled relationships between
risk factors; (j) the performance of CCR exposure
models and its risk measures shall be subject to appropriate back-testing
practice. The back testing programme shall be capable of identifying poor
performance in an EPE model's risk measures; (k) an institution shall validate its CCR
exposure models and all risk measures out to time horizons commensurate with
the maturity of trades covered by the IMM waiver in accordance to the Article 277; (l) an institution shall regularly test
the pricing models used to calculate counterparty exposure against appropriate
independent benchmarks as part of the on-going model validation process; (m) the on-going validation of an
institution’s CCR exposure model and the relevant risk measures shall include
an assessment of the adequacy of the recent performance; (n) the frequency with which the
parameters of an CCR exposure model are updated shall be assessed by an
institution as part of the initial and on-going validation process; (o) the initial and on-going validation of
CCR exposure models shall assess whether or not the counterparty level and
netting set exposure calculations of exposure are appropriate. 2.
A measure that is more conservative than the
metric used to calculate regulatory exposure value for every counterparty may
be used in place of alpha multiplied by Effective EPE with the prior permission
of the competent authorities. The degree of relative conservatism will be
assessed upon initial approval by the competent authorities and at the regular
supervisory reviews of the EPE models. An institution
shall validate the conservatism regularly. The on-going assessment of model
performance shall cover all counterparties for which the models are used. 3.
If back-testing indicates that a model is not
sufficiently accurate, the competent authorities shall revoke its permission for
the model, or impose appropriate measures to ensure that the model is improved
promptly. Section 7
Contractual netting Article 289
Recognition of contractual netting as risk-reducing 1.
Institutions may treat as risk reducing in
accordance with Article 292 only the following types of contractual netting
agreements where the netting agreement has been recognised by competent
authorities in accordance with Article 290 and where the institution meets the
requirements set out in Article 291: (a) bilateral contracts for novation
between an institution and its counterparty under which mutual claims and
obligations are automatically amalgamated in such a way that the novation fixes
one single net amount each time it applies so as to create a single new
contract that replaces all former contracts and all obligations between parties
pursuant to those contracts and is binding on the parties; (b) other bilateral agreements between an
institution and its counterparty; (c) contractual cross-product netting
agreements for institutions that use the method set out in Section 6 for
transactions falling under the scope of that method. Netting across transactions entered into by different
legal entities of a group shall not be recognised for the purposes of
calculating the own funds requirements. Article 290
Recognition of contractual netting agreements 1.
Competent authorities shall recognise a
contractual netting agreement only where the conditions in paragraph 2 and,
where relevant, 3 are fulfilled. 2.
The following conditions shall be fulfilled by
all contractual netting agreements used by an institution for the purposes of
determining exposure value in this Part: (a) the
institution has concluded a contractual netting agreement with its counterparty
which creates a single legal obligation, covering all included transactions,
such that, in the event of default by the counterparty it would be entitled to
receive or obliged to pay only the net sum of the positive and negative
mark-to-market values of included individual transactions; (b) the institution has made available to
the competent authorities written and reasoned legal opinions to the effect
that, in the event of a legal challenge of the netting agreement, the
institution's claims and obligations would not exceed those referred to in
point (a). The legal opinion shall refer to the applicable law: (i) the jurisdiction in which the
counterparty is incorporated; (ii) if a branch of an undertaking is
involved, which is located in another country than the one where the
undertaking is incorporated, the jurisdiction in which the branch is located; (iii) the jurisdiction whose law governs
the individual transactions included in the netting agreement; (iv) the jurisdiction whose law governs
any contract or agreement necessary to effect the contractual netting; (c) credit risk to each counterparty is
aggregated to arrive at a single legal exposure across transactions with each
counterparty. This aggregation shall be factored into credit limit purposes and
internal capital purposes; (d) the contract shall not contain any
clause which, in the event of default of a counterparty, permits a
non-defaulting counterparty to make limited payments only, or no payments at
all, to the estate of the defaulting party, even if the defaulting party is a
net creditor. Competent authorities shall be satisfied that
the contractual netting is legally valid and enforceable under the law of each
of the jurisdictions referred to in point (b). If any of the competent
authorities are not satisfied in that respect, the contractual netting
agreement shall not be recognised as risk-reducing for either of the
counterparties. Competent authorities shall inform each other accordingly. 3.
The legal opinions referred to in point (b) may
be drawn up by reference to types of contractual netting. The following
additional conditions shall be fulfilled by contractual cross-product netting
agreements: (a) the net sum referred to in Article 290(2)(a)
is the net sum of the positive and negative close out values of any included
individual bilateral master agreement and of the positive and negative
mark-to-market value of the individual transactions (the ‘Cross-Product Net
Amount’); (b) the legal opinions referred to in
Article 290(2)(b) shall address the validity and enforceability of the entire
contractual cross-product netting agreement under its terms and the impact of
the netting arrangement on the material provisions of any included individual
bilateral master agreement. Article 291
Obligations of institutions 1.
An institution shall establish and maintain
procedures to ensure that the legal validity and enforceability of its
contractual netting is reviewed in the light of changes in the law of relevant
jurisdictions referred to in Article 290(2)(b). 2.
The institution shall maintain all required
documentation relating to its contractual netting in its files. 3.
The institution shall factor the effects of
netting into its measurement of each counterparty's aggregate credit risk
exposure and the institution shall manage its CCR on the basis of those effects
of that measurement. 4.
In case of contractual cross-product netting
agreements referred to in Article 289, the institution shall maintain
procedures under Article 290(2)(c) to verify that any transaction which is to
be included in a netting set is covered by a legal opinion referred to in
Article 290(2)(b). Taking into account the contractual
cross-product netting agreement, the institution shall continue to comply with
the requirements for the recognition of bilateral netting and the requirements of
Chapter 4 for the recognition of credit risk mitigation, as applicable, with
respect to each included individual bilateral master agreement and transaction.
Article 292
Effects of recognition of netting as risk-reducing 1.
The following treatment applies to contractual
netting agreements: (a) netting for the purposes of Sections 5
and 6 shall be recognised as set out in those Sections; (b) in the case of contracts for novation,
the single net amounts fixed by such contracts rather than the gross amounts involved,
may be weighted. In the application of Section 3, institutions
may take the contract for novation into account when determining: (i) the current replacement cost
refrerred to in Article 269(1); (ii) the notional principal amounts or
underlying values referred to in Article 269(2). In the application of Section 4, in determining
the notional amount referred to in Article 270(1) institutions may take into
account the contract for novation for the purposes of calculating the notional
principal amount In such cases, institutions shall apply the percentages of
Table 3. (c) In the case of other netting
agreements, institutions shall apply Section 3 as follows: (i) the current replacement cost referred
to in Article 269(1) for the contracts included in a netting agreement shall be
obtained by taking account of the actual hypothetical net replacement cost
which results from the agreement; in the case where netting leads to a net
obligation for the institution calculating the net replacement cost, the current
replacement cost is calculated as ‘0’; (ii) the figure for potential future
credit exposure referred to in Article 269(1) for all contracts included in a
netting agreement shall be reduced in accordance with the following formula: where: PCEred = the reduced figure for potential future
credit exposure for all contracts with a given counterparty included in a
legally valid bilateral netting agreement; PCEgross = the sum of the figures for potential future
credit exposure for all contracts with a given counterparty which are included
in a legally valid bilateral netting agreement and are calculated by
multiplying their notional principal amounts by the percentages set out in
Table 1; NGR = the net-to-gross ratio calculated as the quotient of the
net replacement cost for all contracts included in a legally valid bilateral
netting agreement with a given counterparty (numerator) and the gross
replacement cost for all contracts included in a legally valid bilateral
netting agreement with that counterparty (denominator). 2.
When carrying out the calculation of the
potential future credit exposure in accordance with the above formula, institutions
may treat perfectly matching contracts included in the netting agreement as if
they were a single contract with a notional principal equivalent to the net
receipts. In the application of Article 270(1) institutions
may treat perfectly matching contracts included in the netting agreement as if
they were a single contract with a notional principal equivalent to the net
receipts, and the notional principal amounts shall be multiplied by the
percentages given in Table 3. For the purposes of this paragraph, perfectly matching contracts are forward foreign-exchange
contracts or similar contracts in which a notional principal is equivalent to
cash flows if the cash flows fall due on the same value date and fully in the
same currency. 3.
For all other contracts included in a netting
agreement, the percentages applicable may be reduced as indicated in Table 6: Table 6 Original maturity || Interest-rate contracts || Foreign-exchange contracts One year or less || 0,35 % || 1,50 % More than one year but not more than two years || 0,75 % || 3,75 % Additional allowance for each additional year || 0,75 % || 2,25 % 4.
In the case of interest-rate contracts, credit institutions
may, subject to the consent of their competent authorities, choose either
original or residual maturity. Section 8
Items in the trading book Article 293
Items in the trading book 1.
For the purposes of the application of this
Article, Annex II shall include a reference to derivative instruments for the
transfer of credit risk as mentioned in point (8) of Section C of Annex I to
Directive 2004/39/EC. 2.
When calculating risk-weighted exposure amounts
for counterparty risk of items in the trading book, institutions shall comply
with the following principles: (a) in the case of total return swap
credit derivatives and credit default swap credit derivatives, to obtain a
figure for potential future credit exposure under the method set out in Section
3, the nominal amount of the instrument shall be multiplied by the following
percentages: (i) 5%, where the
reference obligation is one that, if it gave rise to a direct exposure of the
institution, would be a qualifying item for the purposes of Part Three, Title
IV, Chapter 2; (ii) 10%, where
the reference obligation is one that, if it gave rise to a direct exposure of
the institution, would not be a qualifying item for the purposes of Part Three,
Title IV, Chapter 2. In the case of an institution whose exposure arising
from a credit default swap represents a long position in the underlying, the
percentage for potential future credit exposure may be 0%, unless the credit
default swap is subject to close-out upon the insolvency of the entity whose
exposure arising from the swap represents a short position in the underlying,
even though the underlying has not defaulted. Where the credit derivative provides protection
in relation to ‘nth to default’ amongst a number of underlying obligations, an
institution shall determine which of the percentage figures prescribed above applies
by reference to the obligation with the nth lowest credit quality which, if
incurred by the institution, would be a qualifying item for the purposes of
Part Three, Title IV, Chapter 2; (b) institutions shall not use the
Financial Collateral Simple Method set out in Article 217 for the recognition
of the effects of financial collateral; (c) in the case of repurchase transactions
and securities or commodities lending or borrowing transactions booked in the
trading book, institutions may recognise as eligible collateral all financial
instruments and commodities that are eligible to be included in the trading
book; (d) for exposures arising from OTC
derivative instruments booked in the trading book, institutions may recognise commodities
that are eligible to be included in the trading book as eligible collateral; (e) for the purposes of calculating
volatility adjustments where such financial instruments or commodities which
are not eligible under Chapter 4 are lent, sold or provided, or borrowed,
purchased or received by way of collateral or otherwise under such a
transaction, and an institution is using the Supervisory volatility adjustments
approach under Section 3 of Chapter 4, institutions shall treat such
instruments and commodities in the same way as non-main index equities listed
on a recognised exchange; (f) where an institution is using the Own
Estimates of Volatility adjustments approach under Section 3 of Chapter 4 in
respect of financial instruments or commodities which are not eligible under Chapter
4, it shall calculate volatility adjustments for each individual item. Where an
institution is using the Internal Models Approach defined in Chapter 4, it may
also apply that approach in the trading book; (g) in relation to the recognition of
master netting agreements covering repurchase transactions, securities or
commodities lending or borrowing transactions, or other capital market-driven
transactions, institutions shall only recognise netting across positions in the
trading book and the non-trading book when the netted transactions fulfil the
following conditions: (i) all transactions are marked to market
daily; (ii) any items borrowed, purchased or
received under the transactions may be recognised as eligible financial
collateral under Chapter 4 without the application of points (c) to (f) of this
paragraph; (h) where a credit derivative included in
the trading book forms part of an internal hedge and the credit protection is
recognised under this Regulation in accordance with Article 199, institutions
shall apply one of the following approaches: (i) treat it as if there were no
counterparty risk arising from the position in that credit derivative; (ii) consistently include for the purpose
of calculating the own funds requirements for counterparty credit risk all
credit derivatives in the trading book forming part of internal hedges or
purchased as protection against a CCR exposure where the credit protection is
recognised as eligible under Chapter 4. Section 9
Own funds requirements for exposures to a central counterparty Article 294
Definitions The following definitions shall apply for
the purposes of this Section: (1)
'bankruptcy remote', in relation to assets,
means that effective arrangements exist which ensure that the assets will not
be available to the creditors of a CCP or of a clearing member in the event of
the insolvency of that CCP or clearing member; (2)
'CCP-related transaction' means a contract or a
transaction listed in Article 295(1) between a client and a clearing member
that is directly related to a contract or a transaction listed in Article 295(1)
between that clearing member and a CCP; (3)
‘clearing member’ means an undertaking which
participates in a CCP and which is responsible for discharging the financial
obligations arising from that participation; (4)
‘client’ means an undertaking with a contractual
relationship with a clearing member which enables that undertaking to clear its
transactions with that CCP; (5)
'pre-funded contribution' means a contribution
to the default fund of a CCP that is paid by an institution. Article 295
Material scope 1.
This section applies to the following contracts
and transactions for as long as they are outstanding with a CCP: (a) the contracts listed in Annex II and
credit derivatives; (b) repurchase transactions; (c) securities or commodities lending or
borrowing transactions; (d) long settlement transactions; (e) margin lending transactions; 2.
Institutions shall apply
the treatment specified in Articles 297 and 298 to the contracts and transactions
outstanding with a CCP listed in paragraph 1, provided that all the following
conditions are met: (a) the CCP in question has either been
authorised in its home Member State to provide clearing services in accordance
with national law or, in case of a third country CCP or a CCP providing
services in a Member State other than its home Member State, has been permitted
to provide clearing services in that Member State in accordance with that
Member State's national law; (b) the competent authority of the CCP
referred to in point (a) has published a document confirming that that CCP
complies with all the recommendations for central counterparties published by
the Committee on Payment and Settlement Systems and the Technical Committee of
the International Organization of Securities Commissions; (c) the contracts or transactions have not
been rejected by the CCP. 3.
Where one or more criteria listed in paragraph 2
have not been met, institutions shall apply the
treatment specified in Article 300. Article 296
Treatment of clearing members' and clients' transactions 1.
Institutions shall monitor all their exposures
to CCPs and shall regularly report information on those exposures to their
senior management and appropriate committee or committees of the management
body. 2.
Where an institution acts as a clearing member,
either for its own purposes or as a financial
intermediary between a client and a CCP, it shall calculate the own funds
requirements for its exposures to a CCP in accordance with Articles 297 to 300. 3.
Where an institution acts as a clearing member
and, in that capacity, acts as a financial intermediary between a client and a
CCP, it shall calculate the own funds requirements for its CCP-related
transactions with the client in accordance with the remaining Sections of this
Chapter, as applicable. 4.
Where an institution is a client of a clearing
member, it shall calculate the own funds requirements for its CCP-related
transactions with the clearing member in accordance with the remaining Sections
of this Chapter, as applicable. 5.
As an alternative to the approach specified in paragraph
4, where an institution is a client, it may calculate the own funds
requirements for its CCP-related transactions with the clearing member in
accordance with Articles 297 to 300 provided that both of the following
conditions are met: (a) the positions and assets of that
institution related to those transactions are distinguished and segregated, at
the level of both the clearing member and the CCP, from the positions and
assets of both the clearing member and the other clients of that clearing
member and as a result of that segregation those positions and assets are
bankruptcy remote in the event of the default or insolvency of the clearing
member or one or more of its other clients; (b) relevant laws, regulations, rules and
contractual arrangements applicable to or binding that institution or the CCP
ensure that in the event of default or insolvency of the clearing member, the transfer
of the institution’s positions relating to those contracts and transactions and
of the corresponding collateral to another clearing member within the relevant
margin period of risk. 6.
Where an institution acting as a clearing member
enters into a contractual arrangement with a client of another clearing member
in order to ensure that client the portability of assets and positions referred
to in point (b) of paragraph 5, that institution may attribute an exposure
value of zero to the contingent obligation that is created due to that contractual
arrangement. Article 297
Own funds requirements for trade exposures 1.
An institution shall apply a risk weight of 2%
to the exposure values of all its trade exposures with CCPs. 2.
Notwithstanding paragraph 1, where assets posted
as collateral to a CCP or a clearing member are bankruptcy remote in the event
that the CCP, the clearing member or one or more of the other clients of the
clearing member becomes insolvent, an institution may attribute an exposure
value of zero to the counterparty credit risk exposures for those assets. 3.
An institution shall
calculate exposure values of its trade exposures with a CCP in accordance with
the remaining Sections of this Chapter, as applicable. 4.
An institution shall calculate the risk weighted
exposure amounts for its trade exposures with CCPs for the purposes of Articles
108(8) and 151 as the sum of the exposure values of its trade exposures with
CCPs, calculated in accordance with paragraphs 2 and 3, multiplied by the risk
weight determined in accordance with paragraph 1. 5.
Notwithstanding paragraphs 1 and 2, where an
institution posts assets as collateral to a CCP, it shall apply to those assets
a risk weight that otherwise applies under Chapters 2 to 4 to the exposure
values calculated in accordance with paragraph 3. Article 298
Own funds requirements for default fund contributions 1.
Institutions acting as clearing members shall
hold own funds to cover the exposures arising from their contributions to the
default fund of a CCP. They shall calculate the own funds requirement for those
exposures in accordance with the methodology set out in this Article. Where a CCP does not have separate default funds
for transactions in products with settlement risks only as set out in Title V and
for contracts and transactions listed in Article 295(1), but uses instead the
same default fund to mutualise losses associated with all those transactions
and contracts, institutions shall apply the methodology set out in this Article
to all their contributions to that default fund. 2.
An institution shall calculate the own funds
requirement (Ki) to cover the exposure arising from its
pre-funded contribution (DFi) as follows: where: β= the concentration factor
communicated to the institution by the CCP; N= the number of clearing members
communicated to the institution by the CCP; DFCM= the sum of pre-funded
contributions of all clearing members of the CCP () communicated to the institution by the CCP; KCM= the sum of the own
funds requirements of all clearing members of the CCP calculated in accordance
with the applicable formula specified in paragraph 3 (). Where a CCP has in place a binding contractual
arrangement with its clearing members that allows it to use all or part of the
initial margin received from its clearing members as if they were pre-funded
contributions, the clearing member shall consider that initial margin as
pre-funded contributions for the purposes of the calculation in this paragraph. 3.
Institutions shall calculate KCM
as follows: (a) where KCCP ≤ DFCCP
institutions shall use the following formula: ; (b) where DFCCP < KCCP
≤DF* institutions shall use the
following formula: ; (c) where DF* < KCCP institutions shall use the following formula: where: DFCCP
= the pre-funded financial resources of the CCP communicated to the
institution by the CCP; KCCP= the
hypothetical capital of the CCP communicated to the institution by the CCP; DF = the
total pre-funded contributions communicated to the institution by the CCP; DF*= ; = ; = the average pre-funded contribution, ,
communicated to the institution by the CCP; c1= a capital factor equal to; c2= a capital factor equal to 100%; μ= 1.2. 4.
Institutions acting as clearing members shall
calculate the own funds requirement () for the exposure arising from its contractually committed
contributions () as follows: (a) where DF*≥KCCP, institutions shall use the
following formula: where: c1= a capital factor equal to ; = the sum of all of the contractually committed
contributions (), communicated to the institution by the
CCP; (b) where DF* < KCCP, institutions shall use the following formula: . 5.
Risk weighted exposure amounts for exposures
arising from an institution's pre-funded contribution for the purposes of
Article 108(8) and Article 151 shall be calculated as the own funds requirement
(Ki) determined in accordance with paragraphs 2 to 4
multiplied by 12.5. 6.
'Contractually committed contribution' means a
contribution to the default fund of a CCP that an institution is contractually
required to pay on a specified event, but which is not a pre-funded
contribution. 7.
Where a CCP does not have a default fund and it
does not have in place a binding contractual arrangement with its clearing
members that allows it to use all or part of the initial margin received from
its clearing members as if they were pre-funded contributions, the following
shall apply: (a) institutions shall substitute the
formula for calculating the own funds requirement (Ki) in paragraph
2 with the following one: where: IMi= the
initial margin posted to the CCP by clearing member i; IM= the sum
of initial margin communicated to the institution by the CCP; (b) where DFCCP is equal to
zero, institutions shall use a value for c1 of 1.6% for the purpose
of the calculation in paragraph 3. 8.
Where KCCP
is equal to zero, institutions shall use the value for c1
of 1.6% for the purpose of the calculation in paragraphs 3 and 4. Article 299
Calculation of the hypothetical capital of a CCP 1.
For contracts and transactions listed in Article
295(1), a CCP shall calculate the hypothetical capital
needed by its clearing members for the purposes of this Section as follows: where: EBRMi= exposure
value before risk mitigation that is equal to the exposure value of the CCP to
clearing member i arising from the contracts and transactions listed in Article
295(1) calculated without taking into account the collateral posted by that clearing
member; VMi= the
variation margin associated with clearing member i; IMi= the
initial margin posted to the CCP by clearing member i; DFi= the pre-funded contribution of clearing member i; RW = a risk
weight of 20%; capital ratio= 8%. 2.
For the purposes of the calculation required by
paragraph 1, the following shall apply: (a) a CCP shall calculate the value of the
exposures it has to its clearing members in accordance with the Mark-to-Market
Method specified in Article 269. When calculating those values, the CCP shall
subtract from its exposures the collateral posted by its clearing members,
appropriately reduced by the supervisory volatility adjustments in accordance
with the Financial Collateral Comprehensive Method specified in Article 219; (b) where the clearing member is entitled
to receive - but has not yet received - the variation margin from the CCP, the
CCP shall enter the corresponding amount of VMi into the equation
with a positive sign. Conversely, where the CCP is entitled to receive - but
has not yet received - the variation margin from the clearing member, the CCP
shall enter the corresponding amount of VMi into the equation with a
negative sign; (c) where a CCP has an exposure to one or more
CCPs it shall treat any such exposure as if it were an exposure to clearing
members and include any margin or pre-funded contributions received from those
CCPs in the calculation of KCCP; (d) where a CCP's financial resources are
used in parallel, and on a pro-rata basis, to the pre-funded contributions of
its clearing members, the CCP shall add the corresponding amount of those
resources to DFCM; (e) where a CCP has in place a binding
contractual arrangement with its clearing members that allows it to use all or
part of the initial margin received from its clearing members as if they were
pre-funded contributions, the CCP shall consider that initial margin as
pre-funded contributions for the purposes of the calculation in paragraph 1 and
for the purpose of the notification in point (b) of paragraph 4; (f) A CCP shall replace the formula in point
(c)(ii) of Article 292(1) with the following one: ; (g) where a CCP cannot calculate the value
of NGR as defined in point (c)(ii) of Article 292(1), it shall do the
following: (i) notify those of its clearing members
which are institutions about its inability to calculate NGR; (ii) for a period of 3 months, it may use
a value of NGR of 0.3 to perform the calculation of PCEred
specified in point (f); (h) where, at the end of the period
specified in point (ii) of point (g), the CCP would still be unable to
calculate the value of NGR, it shall do the following: (i) stop calculating KCCP; (ii) notify those of its clearing members
which are institutions that it has stopped calculating KCCP; (i) for the purpose of calculating the
potential future exposure for options and swaptions under the Mark-to-Market
Method specified in Article 269, a CCP shall multiply the notional amount of
the contract by the absolute value of the option’s delta () as
defined in point (a) of Article 274(1); (j) where the rules of a CCP foresee that
it shall use part of its financial resources to cover its losses due to the
default of one or more of its clearing members after it has depleted its
default fund, but before it calls on the contractually committed contributions
of its clearing members, the CCP shall add the amount of those additional
financial resources () to the total
amount of pre-funded contributions (DF): . 3.
A CCP shall undertake the calculation required
by paragraph 1 at least quarterly or more frequently where required by the
competent authorities of those of its clearing members which are institutions. 4.
A CCP shall notify the following information to those
of its clearing members which are institutions and to their competent
authorities: (a) the hypothetical capital (KCCP); (b) either the sum of pre-funded
contributions (DFCM) or, where the CCP does not have a
default fund and it does not have in place a binding contractual arrangement
with its clearing members that allows it to use all or part of the initial
margin received from its clearing members as if they were pre-funded
contributions, the sum of initial margin received from its clearing members (); (c) the amount of its pre-funded financial
resources that it is required to use - by law or due to a contractual agreement
with its clearing members - to cover its losses following the default of one or
more of its clearing members before using the default fund contributions of the
remaining clearing members (DFCCP); (d) the average pre-funded contribution (); (e) the total number of its clearing
members (N); (f) the concentration factor (β), as
defined in paragraph 5; (g) the sum of all of the contractually
committed contributions (). The CCP shall notify those of its clearing
members which are institutions at least quarterly or more frequently where
required by the competent authorities of those clearing members. 5.
A CCP shall calculate the concentration factor (β)
according to the following formula: where: PCEred,i= the reduced
figure for potential future credit exposure for all contracts and transaction
of a CCP with clearing member i. 6.
Institutions shall inform their competent
authorities about the receipt of the notifications referred to in point (i) of
points (g) and (h) of paragraph 2 and in paragraph 4. 7.
EBA shall develop implementing technical
standards to specify the following: (a) the frequency and dates of the
calculations specified in paragraph 1; (b) the frequency, dates and uniform
format of the notification specified in paragraph 4; (c) the situations in which the competent
authority of an institution acting as a clearing member may require higher
frequencies of calculation and reporting than the ones set out following points
a and b. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Article 300
Own funds requirements for exposures to non-complying CCPs and for exposures
from non-complying transactions 1.
Where the condition set in Article 295(3) has
been met, institutions shall do the following: (a) they shall apply the Standardised
Approach for credit risk as set out in Chapter 2 to calculate the exposure
values and risk weighted amounts of trade exposures for their contracts and transactions
with a CCP; (b) they shall apply the following formula
to calculate the own funds requirement for the exposures arising from their
pre-funded and their contractually committed contributions: . Where only the condition in point (c) of Article
295(2) is not met, institutions shall apply point (a) in relation to the trade
exposures relating to the contract or transaction rejected by the CCP, and the
treatment specified in Article 298 to exposures arising from both their
pre-funded and their contractually committed contributions. 2.
Institutions shall calculate the own funds
requirement for their exposures to a CCP in accordance with paragraph 3 in the following
circumstances: (a) they have received from the CCP a
notification required by point (h)(ii) of Article 299(2) that the CCP has
stopped calculating KCCP; (b) it becomes known to institutions –
following a public announcement or notification from the competent authority of
that CCP or from the CCP itself - that the CCP in question will no longer
comply with the condition set out in point (a) of Article 295(2); (c) the condition set out in point (b) of Article
295(2) ceases to be met. 3.
Within 3 months of a circumstance set in points
(a) to (c) of paragraph 2 arising, or earlier where the competent authority of
the institution requires it, an institution shall cease
to apply Articles 297 and 298 for the calculation of own funds requirements for
trade exposures and default fund contributions, and shall instead do the following: (a) it shall calculate the own funds
requirement for trade exposures to that CCP in accordance with point (a) of paragraph
1; (b) it shall calculate the own funds
requirement for exposures arising from both its pre-funded and its
contractually committed contributions to that CCP in accordance with point (b)
of paragraph 1. Title III
Own funds requirements for operational risk Chapter 1
General principles governing the use of the different approaches Article 301
Permission and notification 1.
To qualify for use of the Standardised Approach,
institutions shall meet the criteria set out in Article 309, in addition to
meeting the general risk management standards set out in Articles 73 and 83of
Directive [inserted by OP]. Institutions shall notify the competent authorities
prior to using the Standardised Approach. Competent authorities shall permit institutions
to use an alternative relevant indicator for the business lines "retail
banking" and "commercial banking" where the conditions set out
in Articles 308(2) and 309 are met. 2.
Competent authorities
shall permit institutions to use Advanced Measurement Approaches based on their
own operational risk measurement systems, where all the qualitative and
quantitative standards set out in Articles 310 and 311 respectively are met and
where institutions meet the general risk management standards set out in
Articles 73 and 83of Directive [inserted by OP] and Section II, Chapter 3,
Title VII of that Directive. Institutions shall also apply for permission
from their competent authorities where they want to implement material
extensions and changes to those Advanced Measurement Approaches. Competent
authorities shall grant the permission only where institutions would continue
to meet the standards specified in the first subparagraph following those
material extensions and changes. 3.
EBA shall develop draft regulatory technical
standards to specify the following: (a)
the assessment methodology under which the
competent authorities permit institutions to use Advanced Measurement
Approaches; (b)
the conditions for assessing the materiality of
extensions and changes to the Advanced Measurement Approaches. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 302
Reverting to the use of less sophisticated approaches 1.
Institutions that use
the Standardised Approach shall not revert to the use of the Basic Indicator
Approach unless the conditions in paragraph 3 are met. 2.
Institutions that use
the Advanced Measurement Approaches shall not revert to the use of the Standardised
Approach or the Basic Indicator Approach unless the conditions in paragraph 3
are met. 3.
An institution may only revert to the use of a
less sophisticated approach for operational risk where both the following
conditions are met: (a) the institution has demonstrated to
the satisfaction of the competent authority that the use of a less
sophisticated approach is not proposed in order to reduce the operational risk
related own funds requirements of the institution, is necessary on the basis of
nature and complexity of the institution and would not have a material adverse
impact on the solvency of the institution or its ability to manage operational risk
effectively; (b) the institution has received the prior
permission of the competent authority. Article 303
Combined used of different approaches 1.
Institutions may use a
combination of approaches provided that they obtain permission from the
competent authorities. Competent authorities shall grant such permission where the
requirements set out in paragraphs 2 to 4, as applicable, are met. 2.
An institution may use
an Advanced Measurement Approach in combination with either the Basic Indicator
Approach or the Standardised Approach, where both the following conditions are
met: (a)
the combination of Approaches used by the
institution captures all its operational risks and competent authorities are satisfied
with the methodology used by the institution to cover different activities,
geographical locations, legal structures or other relevant divisions determined
on an internal basis; (b)
the criteria set out in Article 309 and the
standards set out in Articles 310 and 311 are fulfilled for the part of
activities covered by the Standardised Approach and the Advanced Measurement
Approaches respectively. 3.
For institutions that want to use an Advanced
Measurement Approach in combination with either the Basic Indicator Approach or
the Standardised Approach competent authorities may, on a case-by case basis,
impose the following additional conditions for granting permission: (a)
on the date of implementation of an Advanced
Measurement Approach, a significant part of the institution's operational risks
are captured by that Approach; (b)
the institution takes a commitment to apply the
Advanced Measurement Approach across a material part of its operations within a
time schedule that was submitted to and approved by its competent authorities. 4.
An institution may
request permission from a competent authority to use a combination of the Basic
Indicator Approach and the Standardised Approach only in exceptional
circumstances such as the recent acquisition of new business which may require
a transition period for the application of the Standardised Approach. A competent authority shall grant such
permission only where the institution has committed to apply the Standardised
Approach within a time schedule that was submitted to and approved by the
competent authority. 5.
EBA shall develop draft regulatory technical
standards to specify the following: (a)
the conditions that competent authorities shall
use when assessing the methodology referred to in point (a) of paragraph 2; (b) the conditions that the competent
authorities shall use when deciding whether to impose the additional conditions
referred to in paragraph 3. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2016. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Chapter 2
Basic indicator approach Article 304
Capital requirement Under the Basic Indicator Approach, the own
funds requirement for operational risk is equal to 15 % of the average over
three years of the relevant indicator as defined in Article 305. Institutions shall calculate the average
over three years of the relevant indicator on the basis of the last three
twelve-monthly observations at the end of the financial year. When audited
figures are not available, institutions may use business estimates. Where for any given observation, the relevant
indicator is negative or equal to zero, institutions shall not take into
account this figure in the calculation of the average over three years.
Institutions shall calculate the average over three years as the sum of
positive figures divided by the number of positive figures. Article 305
Relevant indicator 1.
For institutions applying accounting standards established
by Directive 86/635/EEC, based on the accounting
categories for the profit and loss account of institutions under Article 27 of
that Directive, the relevant indicator is the sum of the elements listed in
Table 1of this paragraph. Institutions shall include each element in the sum
with its positive or negative sign. Table 1 1 Interest receivable and similar income 2 Interest payable and similar charges 3 Income from shares and other variable/fixed-yield securities 4 Commissions/fees receivable 5 Commissions/fees payable 6 Net profit or net loss on financial operations 7 Other operating income Institutions shall adjust these elements to
reflect the following qualifications: (a)
institutions shall calculate the relevant
indicator before the deduction of any provisions and operating expenses.
Institutions shall include in operating expenses fees paid for outsourcing
services rendered by third parties which are not a parent or subsidiary of the institution
or a subsidiary of a parent which is also the parent of the institution.
Institutions may use expenditure on the outsourcing of services rendered by
third parties to reduce the relevant indicator where the expenditure is incurred
from an undertaking subject to rules under, or equivalent to, this Regulation; (b)
institutions shall not use the following
elements in the calculation of the relevant indicator: (i) realised profits/losses from the sale
of non-trading book items; (ii) income from extraordinary or
irregular items; (iii) income derived from insurance. (c)
when revaluation of trading items is part of the
profit and loss statement, institutions may include revaluation. When
institutions apply Article 36(2) of Directive 86/635/EEC, they shall include
revaluation booked in the profit and loss account. 2.
When institutions apply accounting standards
different from the ones established by Directive 86/635/EEC, they shall
calculate the relevant indicator on the basis of data that best reflect the
definition set out in this Article. 3.
EBA shall develop draft regulatory technical
standards to determine the methodology to calculate the relevant indicator referred
to in paragraph 2. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2016. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Chapter 3
Standardised approach Article 306
Own funds requirement 1.
Under the Standardised Approach, institutions
shall divide their activities into the business lines set out in Table 2 of
paragraph 4 and in accordance with the principles set out in Article 307. 2.
Institutions shall calculate the own funds
requirement for operational risk as the average over three years of the sum of
the annual own funds requirements across all business lines referred to in
Table 2 of paragraph 4. The annual own funds requirement of each business line
is equal to the product of the corresponding beta factor referred to in that Table
and the part of the relevant indicator mapped to the current business line. 3.
In any given year, institutions may offset
negative own funds requirements resulting from a negative part of the relevant
indicator in any business line with positive own funds requirements in other
business lines without limit. However, where the aggregate own funds
requirement across all business lines within a given year is negative,
institutions shall use the value zero as the input to the numerator for that
year. 4.
Institutions shall calculate the average over
three years of the sum referred to in paragraph 2 on the basis of the last
three twelve-monthly observations at the end of the financial year. When
audited figures are not available, institutions may use business estimates. Table 2 Business line || List of activities || Percentage (beta factor) Corporate finance || Underwriting of financial instruments or placing of financial instruments on a firm commitment basis Services related to underwriting Investment advice Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to the mergers and the purchase of undertakings Investment research and financial analysis and other forms of general recommendation relating to transactions in financial instruments || 18 % Trading and sales || Dealing on own account Money broking Reception and transmission of orders in relation to one or more financial instruments Execution of orders on behalf of clients Placing of financial instruments without a firm commitment basis Operation of Multilateral Trading Facilities || 18 % Retail brokerage (Activities with a individual natural persons or with small and medium sized enterprises meeting the criteria set out in Article 79 for the retail exposure class) || Reception and transmission of orders in relation to one or more financial instruments Execution of orders on behalf of clients Placing of financial instruments without a firm commitment basis || 12 % Commercial banking || Acceptance of deposits and other repayable funds Lending Financial leasing Guarantees and commitments || 15 % Retail banking (Activities with a individual natural persons or with small and medium sized enterprises meeting the criteria set out in Article 79 for the retail exposure class) || Acceptance of deposits and other repayable funds Lending Financial leasing Guarantees and commitments || 12 % Payment and settlement || Money transmission services, Issuing and administering means of payment || 18 % Agency services || Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management || 15 % Asset management || Portfolio management Managing of UCITS Other forms of asset management || 12 % Article 307
Principles for business line mapping 1.
Institutions shall
develop and document specific policies and criteria for mapping the relevant
indicator for current business lines and activities into the standardised
framework set out in article 306. They shall review and adjust those policies
and criteria as appropriate for new or changing business activities and risks. 2.
Institutions shall apply the following
principles for business line mapping: (a)
institutions shall map all activities into the
business lines in a mutually exclusive and jointly exhaustive manner; (b)
institutions shall allocate any activity which
cannot be readily mapped into the business line framework, but which represents
an ancillary activity to an activity included in the framework, to the business
line it supports. Where more than one business line is supported through the
ancillary activity, institutions shall use an objective-mapping criterion; (c)
where an activity cannot be mapped into a
particular business line then institutions shall use the business line yielding
the highest percentage. The same business line equally applies to any ancillary
activity associated with that activity; (d)
institutions may use internal pricing methods to
allocate the relevant indicator between business lines. Costs generated in one
business line which are imputable to a different business line may be
reallocated to the business line to which they pertain; (e)
the mapping of activities into business lines
for operational risk capital purposes shall be consistent with the categories institutions
use for credit and market risks; (f)
senior management shall be responsible for the
mapping policy under the control of the management body of the institution; (g)
institutions shall subject the mapping process
to business lines to independent review. 3.
EBA shall develop draft implementing technical
standards to determine the conditions of application of the principles for
business line mapping provided in this Article. EBA shall submit those draft implementing
technical standards to the Commission by 31 December 2017. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Article 308
Alternative Standardised Approach 1.
Under the Alternative Standardised Approach, for the business lines "retail banking" and
"commercial banking", institutions shall apply the following: (a)
the relevant indicator is a normalised income
indicator equal to the nominal amount of loans and advances multiplied by
0.035; (b)
the loans and advances consist of the total
drawn amounts in the corresponding credit portfolios. For the "commercial
banking" business line, institutions shall also include securities held in
the non trading book in the nominal amount of loans and advances. 2.
To be permitted to use the Alternative
Standardised Approach, the institution shall meet all the following conditions: (a)
its retail or commercial banking activities
shall account for at least 90 % of its income; (b)
a significant proportion of its retail or
commercial banking activities shall comprise loans associated with a high
probability of default; (c)
the alternative standardised approach provides
an appropriate basis for calculating its own funds requirement for operational
risk. 3.
EBA shall develop regulatory technical standards
to further specify the conditions for the use of the Alternative Standardised
Approach referred to in paragraph 2. EBA shall submit those draft regulatory technical
standards to the Commission by 31 December 2016. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 309
Criteria for the standardised approach The criteria referred to in subparagraph 1
of Article 301(1) are the following: (a)
institutions shall have
in place a well-documented assessment and management system for operational
risk with clear responsibilities assigned for this system. They shall identify
their exposures to operational risk and track relevant operational risk data,
including material loss data. This system shall be subject to regular
independent review; (b)
an institutions operational risk assessment
system shall be closely integrated into the risk management processes of the institution.
Its output shall be an integral part of the process of monitoring and
controlling the institution's operational risk profile; (c)
institutions shall
implement a system of reporting to senior management that provides operational
risk reports to relevant functions within the institutions. Institutions shall
have in place procedures for taking appropriate action according to the
information within the reports to management. Chapter 4
Advanced measurement approaches Section 1
Qualifying criteria Article 310
Qualitative standards The qualitative standards referred to in
Article 301(2) are the following: (a)
an institution's internal operational risk
measurement system shall be closely integrated into its day-to-day risk
management processes; (b)
institutions shall have an independent risk
management function for operational risk; (c)
institutions shall have in place regular
reporting of operational risk exposures and loss experience and shall have in
place procedures for taking appropriate corrective action; (d)
an institution's risk management system shall be
well documented. Institution shall have in place routines for ensuring
compliance and policies for the treatment of non-compliance; (e)
institution shall subject their operational risk
management processes and measurement systems to regular reviews performed by
internal or external auditors; (f)
an institution's internal validation processes
shall operate in a sound and effective manner; (g)
data flows and processes associated with an
institution's the risk measurement system shall be transparent and accessible. Article 311
Quantitative Standards 1.
The quantitative standards referred to in
Article 301(2) include the standards relating to process, to internal data, to
external data, to scenario analysis, to business environment and to internal
control factors referred to in paragraphs 2 to 6 respectively. 2.
The standards relating
to process are the following: (a)
institutions shall
calculate their own funds requirement as comprising both expected loss and
unexpected loss, unless expected loss is adequately captured in their internal
business practices. The operational risk measure shall capture potentially
severe tail events, achieving a soundness standard comparable to a 99.9 %
confidence interval over a one year period; (b)
an institutions operational risk measurement
system shall include the use of internal data, external data, scenario analysis
and factors reflecting the business environment and internal control systems as
set out in paragraphs 3 to 6. An institution shall have in place a well
documented approach for weighting the use of these four elements in its overall
operational risk measurement system; (c)
an institution's risk measurement system shall
capture the major drivers of risk affecting the shape of the tail of the
estimated distribution of losses; (d)
institutions may recognise correlations in
operational risk losses across individual operational risk estimates only where
their systems for measuring correlations are sound, implemented with integrity,
and take into account the uncertainty surrounding any such correlation
estimates, particularly in periods of stress. Institutions shall validate their
correlation assumptions using appropriate quantitative and qualitative
techniques; (e)
an institution's risk measurement system shall
be internally consistent and shall avoid the multiple counting of qualitative
assessments or risk mitigation techniques recognised in other areas of this
Regulation. 3.
The standards relating to internal data are the
following: (a)
institutions shall base their internally
generated operational risk measures on a minimum historical observation period
of five years. When an institution first moves to an Advanced Measurement
Approach, it may use a three-year historical observation period; (b) institutions shall be able to map
their historical internal loss data into the business lines defined in Article 306
and into the event types defined in Article 313, and to provide these data to
competent authorities upon request. In exceptional circumstances, an
institution may allocate loss events which affect the entire institution to an
additional business line "corporate items". Institutions shall have
in place documented, objective criteria for allocating losses to the specified
business lines and event types. Institutions shall record the operational risk
losses that are related to credit risk and that institutions have historically
included in the internal credit risk databases in the operational risk
databases and shall identify them separately. Such losses shall not be subject
to the operational risk charge, as long as institutions continue to treat them as
credit risk for the purposes of calculating own funds requirements. Institutions
shall include operational risk losses that are related to market risks in the
scope of the own funds requirement for operational risk: (c) an institution's internal loss data
shall be comprehensive in that it captures all material activities and
exposures from all appropriate sub-systems and geographic locations.
Institutions shall be able to justify that any excluded activities or
exposures, both individually and in combination, would not have a material
impact on the overall risk estimates. Institutions shall define appropriate
minimum loss thresholds for internal loss data collection; (d) aside from information on gross loss
amounts, institutions shall collect information about the date of the loss event,
any recoveries of gross loss amounts, as well as descriptive information about
the drivers or causes of the loss event; (e) institutions shall have in place
specific criteria for assigning loss data arising from a loss event in a
centralised function or an activity that spans more than one business line, as
well as from related loss events over time; (f) institutions shall have in place documented
procedures for assessing the on-going relevance of historical loss data,
including those situations in which judgement overrides, scaling, or other
adjustments may be used, to what extent they may be used and who is authorised
to make such decisions. 4.
The qualifying standards relating to external
data are the following: (a)
an institution's operational risk measurement
system shall use relevant external data, especially when there is reason to
believe that the institution is exposed to infrequent, yet potentially severe,
losses. An institution shall have a systematic process for determining the
situations for which external data shall be used and the methodologies used to
incorporate the data in its measurement system; (b)
institutions shall regularly review the
conditions and practices for external data and shall document them and subject
them to periodic independent review. 5.
An institution shall use scenario analysis of
expert opinion in conjunction with external data to evaluate its exposure to
high severity events. Over time, the institution shall validate and reassess such
assessments through comparison to actual loss experience to ensure their
reasonableness. 6.
The qualifying standards relating to business
environment and internal control factors are the following: (a)
an institution's firm-wide risk assessment
methodology shall capture key business environment and internal control factors
that can change the institutions operational risk profile; (b)
institutions shall justify the choice of each
factor as a meaningful driver of risk, based on experience and involving the
expert judgment of the affected business areas; (c)
institutions shall be able to justify to
competent authorities the sensitivity of risk estimates to changes in the
factors and the relative weighting of the various factors. In addition to
capturing changes in risk due to improvements in risk controls, an institution's
risk measurement framework shall also capture potential increases in risk due
to greater complexity of activities or increased business volume; (d)
an institution shall document its risk
measurement framework and shall subject it to independent review within the
institution and by competent authorities. Over time, institutions shall
validate and reassess the process and the outcomes through comparison to actual
internal loss experience and relevant external data. 7. EBA
shall develop regulatory technical standards to specify the following: (a)
the conditions for assessing whether a system is
sound and implemented with integrity for the purposes of point (d) of paragraph
2; (b)
the exceptional circumstances in which an
institution may allocate loss events to an additional business line referred
to in point (b) of paragraph 3. EBA shall submit those draft regulatory
technical standards to the Commission by 31 December 2016. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 312
Impact of insurance and other risk transfer mechanisms 1.
The competent authorities shall permit
institutions to recognise the impact of insurance
subject to the conditions set out in paragraphs 2 to 5 and other risk transfer
mechanisms where the institution can demonstrate that a noticeable risk
mitigating effect is achieved. 2.
The insurance provider shall be authorised to
provide insurance or re-insurance and shall have a minimum claims paying
ability rating by an eligible ECAI which has been determined by EBA to be
associated with credit quality step 3 or above under the rules for the risk
weighting of exposures to institutions under Chapter 2. 3.
The insurance and the institutions' insurance
framework shall meet all the following conditions: (a)
the insurance policy has an initial term of no
less than one year. For policies with a residual term of less than one year, an
institution shall make appropriate haircuts reflecting the declining residual
term of the policy, up to a full 100 % haircut for policies with a residual
term of 90 days or less; (b)
the insurance policy has a minimum notice period
for cancellation of the contract of 90 days; (c)
the insurance policy has no exclusions or
limitations triggered by supervisory actions or, in the case of a failed
institution, that preclude the institution receiver or liquidator from
recovering the damages suffered or expenses incurred by the institution, except
in respect of events occurring after the initiation of receivership or
liquidation proceedings in respect of the institution. However, the insurance
policy may exclude any fine, penalty, or punitive damages resulting from
actions by the competent authorities; (d)
the risk mitigation calculations shall reflect
the insurance coverage in a manner that is transparent in its relationship to,
and consistent with, the actual likelihood and impact of loss used in the
overall determination of operational risk capital; (e)
the insurance is provided by a third party
entity. In the case of insurance through captives and affiliates, the exposure
has to be laid off to an independent third party entity that meets the
eligibility criteria set out in paragraph 2; (f)
the framework for recognising insurance is well
reasoned and documented. 4.
The methodology for recognising insurance shall
capture all the following elements through discounts or haircuts in the amount
of insurance recognition: (a)
where the residual term of the insurance policy
is less than one year: (i) the residual term of the insurance
policy; (ii) the policy's cancellation terms; (b)
the uncertainty of payment as well as mismatches
in coverage of insurance policies. 5.
The reduction in own funds requirements from the
recognition of insurances and other risk transfer mechanisms shall not exceed
20 % of the own funds requirement for operational risk before the recognition
of risk mitigation techniques. Article 313
Loss event type classification The loss events
types referred to in point (b) of Article 311(3) are the following: Table 3 Event-Type Category || Definition Internal fraud || Losses due to acts of a type intended to defraud, misappropriate property or circumvent regulations, the law or company policy, excluding diversity/discrimination events, which involves at least one internal party External fraud || Losses due to acts of a type intended to defraud, misappropriate property or circumvent the law, by a third party Employment Practices and Workplace Safety || Losses arising from acts inconsistent with employment, health or safety laws or agreements, from payment of personal injury claims, or from diversity/discrimination events Clients, Products & Business Practices || Losses arising from an unintentional or negligent failure to meet a professional obligation to specific clients (including fiduciary and suitability requirements), or from the nature or design of a product Damage to Physical Assets || Losses arising from loss or damage to physical assets from natural disaster or other events Business disruption and system failures || Losses arising from disruption of business or system failures Execution, Delivery & Process Management || Losses from failed transaction processing or process management, from relations with trade counterparties and vendors Title IV
Own funds requirements for market risk Chapter 1
General Provisions Article 314
Allowances for consolidated requirements 1.
Subject to paragraph 2 and only for the purpose
of calculating net positions and own funds requirements in accordance with this
Title on a consolidated basis, institutions may use positions in one
institution or undertaking to offset positions in another institution or
undertaking. 2.
Institutions may apply paragraph 1 only subject
to the permission of the competent authorities, which shall be granted if all
of the following conditions are met: (a)
there is a satisfactory allocation of own funds
within the group; (b)
the regulatory, legal or contractual framework
in which the institutions operate is such as to guarantee mutual financial
support within the group. 3.
Where there are undertakings located in third
countries all of the following conditions shall be met in addition to those in paragraph
2: (a)
such undertakings have been authorised in a
third country and either satisfy the definition of a credit institution or are
recognised third-country investment firms; (b)
such undertakings comply, on an individual
basis, with own funds requirements equivalent to those laid down in this Regulation; (c)
no regulations exist in the third countries in
question which might significantly affect the transfer of funds within the
group. Chapter 2
Own funds requirements for position risk Section 1
General provisions and specific instruments Article 315
Own funds requirements for position risk The institution's own funds requirement for
position risk shall be the sum of the own funds requirements for the general
and specific risk of its positions in debt and equity instruments.
Securitisation positions in the trading book shall be treated as debt instruments. Article 316
Netting 1.
The absolute value of the excess of an
institution's long (short) positions over its short (long) positions in the
same equity, debt and convertible issues and identical financial futures,
options, warrants and covered warrants shall be its net position in each of
those different instruments. In calculating the net position, positions in
derivative instruments shall be treated as laid down in Articles 317 to 319.
Institutions' holdings of their own debt instruments shall be disregarded in
calculating specific risk capital requirements under Article 325. 2.
No netting shall be allowed between a
convertible and an offsetting position in the instrument underlying it, unless
the competent authorities adopt an approach under which the likelihood of a
particular convertible's being converted is taken into account or require an
own funds requirement to cover any loss which conversion might entail. Such
approaches or own funds requirements shall be notified to the EBA. EBA shall
monitor the range of practices in this area and shall, in accordance with
Article 16 of Regulation (EU) No. 1093/2010, issue guidelines. 3.
All net positions, irrespective of their signs,
must be converted on a daily basis into the institution's reporting currency at
the prevailing spot exchange rate before their aggregation. Article 317
Interest rate futures and forwards 1.
Interest-rate futures, forward-rate agreements
(FRAs) and forward commitments to buy or sell debt instruments shall be treated
as combinations of long and short positions. Thus a long interest-rate futures
position shall be treated as a combination of a borrowing maturing on the
delivery date of the futures contract and a holding of an asset with maturity
date equal to that of the instrument or notional position underlying the
futures contract in question. Similarly a sold FRA will be treated as a long
position with a maturity date equal to the settlement date plus the contract
period, and a short position with maturity equal to the settlement date. Both the
borrowing and the asset holding shall be included in the first category set out
in Table 1 in Article 325 in order to calculate the own funds requirement for
specific risk for interest-rate futures and FRAs. A forward commitment to buy a
debt instrument shall be treated as a combination of a borrowing maturing on
the delivery date and a long (spot) position in the debt instrument itself. The
borrowing shall be included in the first category set out in Table 1 in
Article 325 for purposes of specific risk, and the debt instrument
under whichever column is appropriate for it in the same table. 2.
For the purposes of this Article, ‘long
position’ means a position in which an institution has fixed the interest rate
it will receive at some time in the future, and ‘short position’ means a
position in which it has fixed the interest rate it will pay at some time in
the future. Article 318
Options and warrants 1.
Options and warrants on interest rates, debt
instruments, equities, equity indices, financial futures, swaps and foreign
currencies shall be treated as if they were positions equal in value to the
amount of the underlying instrument to which the option refers, multiplied by
its delta for the purposes of this Chapter. The latter positions may be netted
off against any offsetting positions in the identical underlying securities or
derivatives. The delta used shall, where relevant, be that of the exchange
concerned, that calculated by the competent authorities or, subject to
permission by the competent authorities, where that is not available or for
OTC-options, that calculated by the institution itself using an appropriate
model. Permission shall be granted if the model appropriately estimates the rate of change of the option's or warrant's value with respect to
small changes in the market price of the underlying. 2.
Institutions shall adequately reflect other
risks, apart from the delta risk, associated with options in the own funds
requirements. 3.
EBA shall develop draft regulatory technical
standards defining a range of methods to reflect in the own funds requirements
other risks, apart from delta risk, referred to in paragraph 2 in a manner
proportionate to the scale and complexity of institutions' activities in
options and warrants. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. Article 319
Swaps Swaps shall be treated for interest-rate
risk purposes on the same basis as on-balance-sheet instruments. Thus, an
interest-rate swap under which an institution receives floating-rate interest
and pays fixed-rate interest shall be treated as equivalent to a long position
in a floating-rate instrument of maturity equivalent to the period until the
next interest fixing and a short position in a fixed-rate instrument with the
same maturity as the swap itself. Article 320
Interest rate risk on derivative instruments 1.
Institutions which mark to market and manage the
interest-rate risk on the derivative instruments covered in Articles 317 to 319
on a discounted-cash-flow basis may, subject to permission by the competent
authorities, use sensitivity models to calculate the positions referred to in
those points and may use them for any bond which is amortised over its residual
life rather than via one final repayment of principal. Permission shall be
granted if these models generate positions which have the same sensitivity to
interest-rate changes as the underlying cash flows. This sensitivity shall be
assessed with reference to independent movements in sample rates across the
yield curve, with at least one sensitivity point in each of the maturity bands set
out in Table 2 in Article 328. The positions shall be included in the
calculation of own funds requirements for general risk of debt instruments. 2.
Institutions which do not use models under
paragraph 1 may, treat as fully offsetting any positions in derivative
instruments covered in Articles 317 to 319 which meet the following conditions
at least: (a)
the positions are of the same value and
denominated in the same currency; (b)
the reference rate (for floating-rate positions)
or coupon (for fixed-rate positions) is closely matched; (c)
the next interest-fixing date or, for fixed
coupon positions, residual maturity corresponds with the following limits: (i) less than one month hence: same day; (ii) between one month and one year
hence: within seven days; (iii) over one year hence: within 30 days. Article 321
Credit Derivatives 1.
When calculating the own funds requirement for general
and specific risk of the party who assumes the credit risk (the 'protection
seller'), unless specified differently, the notional amount of the credit
derivative contract shall be used. Notwithstanding the first sentence, the
institution may elect to replace the notional value by the notional value plus
the net market value change of the credit derivative since trade inception, a
net downward change from the protection seller's perspective carrying a
negative sign. For the purpose of calculating the specific risk charge, other
than for total return swaps, the maturity of the credit derivative contract,
rather than the maturity of the obligation, shall apply. Positions are
determined as follows: (a)
a total return swap creates a long position in
the general risk of the reference obligation and a short position in the
general risk of a government bond with a maturity equivalent to the period
until the next interest fixing and which is assigned a 0 % risk weight
under Title II, Chapter 2. It also creates a long position in the specific risk
of the reference obligation; (b)
a credit default swap does not create a position
for general risk. For the purposes of specific risk, the institution must
record a synthetic long position in an obligation of the reference entity,
unless the derivative is rated externally and meets the conditions for a
qualifying debt item, in which case a long position in the derivative is
recorded. If premium or interest payments are due under the product, these cash
flows must be represented as notional positions in government bonds; (c)
a single name credit linked note creates a long
position in the general risk of the note itself, as an interest rate product.
For the purpose of specific risk, a synthetic long position is created in an
obligation of the reference entity. An additional long position is created in
the issuer of the note. Where the credit linked note has an external rating and
meets the conditions for a qualifying debt item, a single long position with
the specific risk of the note need only be recorded; (d)
in addition to a long position in the specific
risk of the issuer of the note, a multiple name credit linked note providing proportional
protection creates a position in each reference entity, with the total notional
amount of the contract assigned across the positions according to the
proportion of the total notional amount that each exposure to a reference
entity represents. Where more than one obligation of a reference entity can be
selected, the obligation with the highest risk weighting determines the
specific risk. Where a multiple name credit linked note has an
external rating and meets the conditions for a qualifying debt item, a single
long position with the specific risk of the note need only be recorded; (e)
a first-asset-to-default credit derivative
creates a position for the notional amount in an obligation of each reference
entity. If the size of the maximum credit event payment is lower than the own
funds requirement under the method in the first sentence of this point, the
maximum payment amount may be taken as the own funds requirement for specific
risk. A second-asset-to-default credit derivative
creates a position for the notional amount in an obligation of each reference
entity less one (that with the lowest specific risk own funds requirement). If
the size of the maximum credit event payment is lower than the own funds
requirement under the method in the first sentence of this point, this amount
may be taken as the own funds requirement for specific risk. Where an n-th-to-default credit derivative is
externally rated, the protection seller shall calculate the specific risk own
funds requirement using the rating of the derivative and apply the respective
securitisation risk weights as applicable; 2.
For the party who transfers credit risk (the
protection buyer), the positions are determined as the mirror principle of the
protection seller, with the exception of a credit linked note (which entails no
short position in the issuer). When calculating the own funds requirement for
the 'protection buyer', the notional amount of the credit derivative contract
shall be used. Notwithstanding the first sentence, the institution may elect to
replace the notional value by the notional value minus the net any market value
changes of the credit derivative since trade inception, a net downward change
from the protection buyer's perspective carrying a negative sign. If at a given
moment there is a call option in combination with a step-up, such moment is
treated as the maturity of the protection. Article 322
Securities sold under a repurchase agreement or lent The transferor of securities or guaranteed
rights relating to title to securities in a repurchase agreement and the lender
of securities in a securities lending shall include these securities in the
calculation of its own funds requirement under this Chapter provided that such
securities are trading book positions. Section 2
Debt instruments Article 323
Net positions in debt instruments Net positions shall be classified according
to the currency in which they are denominated and shall calculate the own funds
requirement for general and specific risk in each individual currency separately. Sub-section 1
Specific risk Article 324
Cap on the own funds requirement for a net position The institution may cap the own funds
requirement for specific risk of a net position in a debt instrument at the
maximum possible default-risk related loss. For a short position, that limit
may be calculated as a change in value due to the instrument or, where
relevant, the underlying names immediately becoming default risk-free. Article 325
Own funds requirement for non-securitisation debt instruments 1.
The institution shall assign its net positions
in the trading book in instruments that are not securitisation positions as
calculated in accordance with Article 316 to the appropriate categories in
Table 1 on the basis of their issuer or obligor, external or internal credit
assessment, and residual maturity, and then multiply them by the weightings
shown in that table. It shall sum its weighted positions resulting from the
application of this point regardless of whether they are long or short in order
to calculate its own funds requirement against specific risk. Table 1 Categories || Specific risk own funds requirement Debt securities which would receive a 0 % risk weight under the Standardised approach for credit risk. || 0 % Debt securities which would receive a 20% or 50% risk weight under the Standardised approach for credit risk and other qualifying items as defined in paragraph 6. || 0,25 % (residual term to final maturity six months or less) 1,00 % (residual term to final maturity greater than six months and up to and including 24 months) 1,60 % (residual term to maturity exceeding 24 months) Debt securities which would receive a 100% risk weight under the Standardised approach for credit risk. || 8,00 % Debt which would receive a 150% risk weight under the Standardised approach for credit risk. || 12,00 % 2.
For institutions which apply the IRB approach to
the exposure class of which the issuer of the debt instrument forms part, to
qualify for a risk weight under the Standardised approach for credit risk as
referred to in paragraph 1, the issuer of the exposure shall have an internal
rating with a PD equivalent to or lower than that associated with the
appropriate credit quality step under the Standardised approach. 3.
Institutions may calculate
the specific risk requirements for any bonds that qualify for a 10% risk weight
in accordance with the treatment in Article 124(3) as half of the applicable
specific risk own funds requirement for the second category in Table 1. 4.
Other qualifying items are: (a)
long and short positions in assets qualifying
for a credit quality step corresponding at least to investment grade in the
mapping process under the Standardised approach for credit risk; (b)
long and short positions in assets which,
because of the solvency of the issuer, have a PD under the IRB approach for
credit risk, which is not higher than that of the assets referred to under (a); (c)
long and short positions in assets for which a
credit assessment by a nominated external credit assessment institution is not
available and which meet all of the following conditions: (i) they are considered by the
institution concerned to be sufficiently liquid; (ii) their investment quality is,
according to the institution's own discretion, at least equivalent to that of
the assets referred to under point (a); (iii) they are listed on at least one
regulated market in a Member State or on a stock exchange in a third country
provided that the exchange is recognised by the competent authorities of the
relevant Member State; (d)
long and short positions in assets issued by
institutions subject to the own funds requirements set out in this Regulation
which are considered by the institution concerned to be sufficiently liquid and
whose investment quality is, according to the institution's own discretion, at
least equivalent to that of the assets referred to under point (a); (e)
securities issued by institutions that are
deemed to be of equivalent, or higher, credit quality than those associated
with credit quality step 2 under the Standardised approach for credit risk
of exposures to institutions and that are subject to supervisory and regulatory
arrangements comparable to those under this Directive. Institutions that make use of points (c) or (d)
shall have a documented methodology in place to assess whether assets meet the
requirements in those points and shall notify this methodology to the competent
authorities. Article 326
Own funds requirement for securitisation instruments 1.
For instruments in the trading book that are
securitisation positions, the institution shall weight with the following its
net positions as calculated in accordance with Article 316(1): (a)
for securitisation positions that would be
subject to the Standardised Approach for credit risk in the same institution's
non-trading book, 8 % of the risk weight under the Standardised Approach
as set out in Chapter 5; (b)
for securitisation positions that would be
subject to the Internal Ratings Based Approach in the same institution's
non-trading book, 8 % of the risk weight under the Internal Ratings Based
Approach as set out in Chapter 5. 2.
The Supervisory Formula Method set out in
Article 257 may be used where the institution can produce estimates of PD, and
where applicable EAD and LGD as inputs into the Supervisory Formula Method in
accordance with the requirements for the estimation of those parameters under
the Internal Ratings Based approach in accordance with Chapter 2, Section 3. An institution other than an originator
institution that could apply it for the same securitisation position in its
non-trading book may only use that method subject to permission by the
competent authorities, which shall be granted where the institution fulfils the
condition in the previous sentence. Estimates of PD and LGD as inputs to the
Supervisory Formula Method may alternatively also be determined based on
estimates that are derived from an IRC approach of an institution that has been
granted permission to use an internal model for specific risk of debt
instruments. The latter alternative may be used only subject to permission by
the competent authorities, which shall be granted if those estimates meet the
quantitative requirements for the Internal Ratings Based Approach set out in
Chapter 2, Section 3. In accordance with Article 16 of Regulation
(EU) No. 1093/2010, EBA shall issue guidelines on the use of estimates of PD
and LGD as inputs when those estimates are based on an IRC approach. 3.
For securitisation
positions that are subject to an additional risk weight in accordance with
Article 396, 8 % of the total risk weight shall be applied. 4.
The institution shall sum its weighted positions
resulting from the application of this Article (regardless of whether they are
long or short) in order to calculate its own funds requirement against specific
risk. 5.
By way of derogation from paragraph 4, for a
transitional period ending 31 December 2013, the institution shall sum
separately its weighted net long positions and its weighted net short
positions. The larger of those sums shall constitute the specific risk own
funds requirement. The institution shall, however, quarterly report to the home
Member State competent authority the total sum of its weighted net long and
net short positions, broken down by types of underlying assets. Article 327
Own funds requirement for the correlation trading portfolio 1.
The correlation trading portfolio shall consist
of securitisation positions and n‑th‑to‑default credit
derivatives that meet all of the following criteria: (a)
the positions are neither re-securitisation
positions, nor options on a securitisation tranche, nor any other derivatives
of securitisation exposures that do not provide a pro-rata share in the
proceeds of a securitisation tranche; (b)
all reference instruments are either of the
following: (i) single-name instruments, including
single-name credit derivatives, for which a liquid two-way market exists; (ii) commonly-traded indices based on
those reference entities. A two-way market is deemed to exist where there
are independent bona fide offers to buy and sell so that a price reasonably
related to the last sales price or current bona fide competitive bid and offer
quotations can be determined within one day and settled at such price within a
relatively short time conforming to trade custom. 2.
Positions which reference any of the following
shall not be part of the correlation trading portfolio: (a)
an underlying that is capable of being assigned
to the exposure class 'retail claims or contingent retail claims' or to the
exposure class 'claims or contingent claims secured by mortgages on immovable
property' under the Standardised approach for credit risk in an institution's
non-trading book; (b)
a claim on a special purpose entity. 3.
An institution may include in the correlation
trading portfolio positions which are neither securitisation positions nor
n-th-to-default credit derivatives but which hedge other positions of that
portfolio, provided that a liquid two-way market as described in the last
subparagraph of paragraph 1 exists for the instrument or its underlyings instead
of determining it as the sum of those amounts. 4.
An institution shall
determine the larger of the following amounts as the specific risk own funds
requirement for the correlation trading portfolio: (a)
the total specific risk own funds requirement
that would apply just to the net long positions of the correlation trading
portfolio; (b)
the total specific risk own funds requirement
that would apply just to the net short positions of the correlation trading
portfolio. Sub-section 2
General risk Article 328
Maturity-based calculation of general risk 1.
In order to calculate own funds requirements
against general risk all positions shall be weighted according to maturity as
explained in paragraph 2 in order to compute the amount of own funds required
against them. This requirement shall be reduced when a weighted position is
held alongside an opposite weighted position within the same maturity band. A
reduction in the requirement shall also be made when the opposite weighted
positions fall into different maturity bands, with the size of this reduction
depending both on whether the two positions fall into the same zone, or not,
and on the particular zones they fall into. 2.
The institution shall assign its net positions
to the appropriate maturity bands in column 2 or 3, as appropriate, in
Table 2 in paragraph 4. It shall do so on the basis of residual maturity
in the case of fixed-rate instruments and on the basis of the period until the
interest rate is next set in the case of instruments on which the interest rate
is variable before final maturity. It shall also distinguish between debt
instruments with a coupon of 3 % or more and those with a coupon of less
than 3 % and thus allocate them to column 2 or column 3 in
Table 2. It shall then multiply each of them by the weighing for the
maturity band in question in column 4 in Table 2. 3.
The institution shall then work out the sum of
the weighted long positions and the sum of the weighted short positions in each
maturity band. The amount of the former which are matched by the latter in a
given maturity band shall be the matched weighted position in that band, while
the residual long or short position shall be the unmatched weighted position
for the same band. The total of the matched weighted positions in all bands
shall then be calculated. 4.
The institution shall compute the totals of the
unmatched weighted long positions for the bands included in each of the zones
in Table 2 in order to derive the unmatched weighted long position for each
zone. Similarly, the sum of the unmatched weighted short positions for each
band in a particular zone shall be summed to compute the unmatched weighted
short position for that zone. That part of the unmatched weighted long position
for a given zone that is matched by the unmatched weighted short position for
the same zone shall be the matched weighted position for that zone. That part
of the unmatched weighted long or unmatched weighted short position for a zone
that cannot be thus matched shall be the unmatched weighted position for that
zone. Table 2 Zone || Maturity band || || Coupon of 3 % or more || Coupon of less than 3 % One || 0 ≤ 1 month || 0 ≤ 1 month || 0,00 || — > 1 ≤ 3 months || > 1 ≤ 3 months || 0,20 || 1,00 > 3 ≤ 6 months || > 3 ≤ 6 months || 0,40 || 1,00 > 6 ≤ 12 months || > 6 ≤ 12 months || 0,70 || 1,00 Two || > 1 ≤ 2 years || > 1,0 ≤ 1,9 years || 1,25 || 0,90 > 2 ≤ 3 years || > 1,9 ≤ 2,8 years || 1,75 || 0,80 > 3 ≤ 4 years || > 2,8 ≤ 3,6 years || 2,25 || 0,75 Three || > 4 ≤ 5 years || > 3,6 ≤ 4,3 years || 2,75 || 0,75 > 5 ≤ 7 years || > 4,3 ≤ 5,7 years || 3,25 || 0,70 > 7 ≤ 10 years || > 5,7 ≤ 7,3 years || 3,75 || 0,65 > 10 ≤ 15 years || > 7,3 ≤ 9,3 years || 4,50 || 0,60 > 15 ≤ 20 years || > 9,3 ≤ 10,6 years || 5,25 || 0,60 > 20 years || > 10,6 ≤ 12,0 years || 6,00 || 0,60 || > 12,0 ≤ 20,0 years || 8,00 || 0,60 || > 20 years || 12,50 || 0,60 5.
The amount of the unmatched weighted long or short
position in zone one which is matched by the unmatched weighted short or long
position in zone two shall then be the matched weighted position between zones
one and two. The same calculation shall then be undertaken with regard to that
part of the unmatched weighted position in zone two which is left over and the
unmatched weighted position in zone three in order to calculate the matched
weighted position between zones two and three. 6.
The institution may reverse the order in paragraph
5 so as to calculate the matched weighted position between zones two and three
before calculating that position between zones one and two. 7.
The remainder of the unmatched weighted position
in zone one shall then be matched with what remains of that for zone three
after the latter's matching with zone two in order to derive the matched
weighted position between zones one and three. 8.
Residual positions, following the three separate
matching calculations in paragraph 5, 6 and 7 shall be summed. 9.
The institution's own funds requirement shall be
calculated as the sum of: (a)
10 % of the sum of the matched weighted
positions in all maturity bands; (b)
40 % of the matched weighted position in
zone one; (c)
30 % of the matched weighted position in
zone two; (d)
30 % of the matched weighted position in
zone three; (e)
40 % of the matched weighted position
between zones one and two and between zones two and three; (f)
150 % of the matched weighted position
between zones one and three; (g)
100 % of the residual unmatched weighted
positions. Article 329
Duration-based calculation of general risk 1.
Institutions may use an
approach for calculating the own funds requirement for the general risk on debt
instruments which reflects duration, instead of the approach set out in Article
328, provided that the institution does so on a consistent basis. 2.
Under the duration-based approach referred to in
paragraph 1, the institution shall take the market value of each fixed-rate
debt instrument and hence calculate its yield to maturity, which is implied
discount rate for that instrument. In the case of floating-rate instruments,
the institution shall take the market value of each instrument and hence
calculate its yield on the assumption that the principal is due when the
interest rate can next be changed. 3.
The institution shall then calculate the
modified duration of each debt instrument on the basis of the following
formula: where: D = duration
calculated according to the following formula: where: R = yield to maturity referred to in paragraph
2; Ct = cash payment in time t; M = total maturity referred to in paragraph 2. Correction shall be made to the calculation of
the modified duration for debt instruments which are subject to prepayment
risk. EBA shall, in accordance with Article 16 of Regulation (EU) No.
1093/2010, issue guidelines about how to apply such corrections. 4.
The institution shall then allocate each debt
instrument to the appropriate zone in Table 3. It shall do so on the basis of
the modified duration of each instrument. Table 3 Zone || Modified duration (in years) || Assumed interest (change in %) One || > 0 ≤ 1,0 || 1,0 Two || > 1,0 ≤ 3,6 || 0,85 Three || > 3,6 || 0,7 5.
The institution shall then calculate the
duration-weighted position for each instrument by multiplying its market price
by its modified duration and by the assumed interest-rate change for an
instrument with that particular modified duration (see column 3 in
Table 3). 6.
The institution shall calculate its
duration-weighted long and its duration-weighted short positions within each
zone. The amount of the former which are matched by the latter within each zone
shall be the matched duration-weighted position for that zone. The institution shall then calculate the
unmatched duration-weighted positions for each zone. It shall then follow the
procedures laid down for unmatched weighted positions in paragraphs 5 to 8. 7.
The institution's own funds requirement shall
then be calculated as the sum of the following: (a)
2 % of the matched duration-weighted
position for each zone; (b)
40 % of the matched duration-weighted
positions between zones one and two and between zones two and three; (c)
150 % of the matched duration-weighted
position between zones one and three; (d)
100 % of the residual unmatched
duration-weighted positions. Section 3
Equities Article 330
Net positions in equity instruments 1.
The institution shall separately sum all its net
long positions and all its net short positions in accordance with Article 316.
The sum of the absolute values of the two figures shall be its overall gross
position. 2.
The institution shall calculate, separately for
each market, the difference between the sum of the net long and the net short
positions. The sum of the absolute values of those differences shall be its
overall net position. 3.
EBA shall develop draft regulatory technical
standards defining the term market referred to in paragraph 2. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the previous sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 331
Specific risk of equity instruments The institution shall multiply its overall
gross position by 8 % in order to calculate its own funds requirement
against specific risk. Article 332
General risk of equity instruments The own funds
requirement against general risk shall be its overall net position multiplied
by 8 %. Article 333
Stock indices 1.
EBA shall develop draft implementing technical
standards listing the stock indices for which one or more of the treatments in
paragraphs 3 and 4 is available. EBA shall submit those draft technical
standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the third subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. 2.
Before the entry into force of the technical
standards referred to in paragraph 1, institutions may continue to apply the
treatment set out in paragraphs 3 and 4, where the competent authorities have
applied that treatment before 1 January 2013. 3.
Stock-index futures, the delta-weighted
equivalents of options in stock-index futures and stock indices collectively
referred to hereafter as ‘stock-index futures’, may be broken down into
positions in each of their constituent equities. These positions may be treated
as underlying positions in the equities in question, and may, be netted against
opposite positions in the underlying equities themselves. Institutions shall
notify the competent authority of the use they make of this treatment. 4.
Where a stock-index future is not broken down
into its underlying positions, it shall be treated as if it were an individual
equity. However, the specific risk on this individual equity can be ignored if
the stock-index future in question is exchange traded and represents an
appropriately diversified index. Section 4
Underwriting Article 334
Reduction of net positions 1.
In the case of the underwriting of debt and
equity instruments, an institution may use the following procedure in
calculating its own funds requirements. The institution shall first calculate
the net positions by deducting the underwriting positions which are subscribed
or sub-underwritten by third parties on the basis of formal agreements. The
institution shall then reduce the net positions by the reduction
factors in Table 4 and calculate its own funds requirements using the
reduced underwriting positions. Table 4 working day 0: || 100 % working day 1: || 90 % working days 2 to 3: || 75 % working day 4: || 50 % working day 5: || 25 % after working day 5: || 0 %. ‘Working day zero’ shall be the working day on
which the institution becomes unconditionally committed to accepting a known
quantity of securities at an agreed price. 2.
The institutions shall notify to the competent
authorities the use they make of paragraph 1. Section 5
Specific risk own funds requirements for positions hedged by credit derivatives Article 335
Allowance for hedges by credit derivatives 1.
An allowance shall be given for hedges provided
by credit derivatives, in accordance with the principles set out in paragraphs
2 to 6. 2.
Institutions shall treat the position in the
credit derivative as one 'leg' and the hedged position that has the same
nominal, or, where applicable, notional amount, as the other 'leg'. 3.
Full allowance shall be given when the values of
the two legs always move in the opposite direction and broadly to the same
extent. This will be the case in the following situations: (a)
the two legs consist of completely identical
instruments; (b)
a long cash position is hedged by a total rate
of return swap (or vice versa) and there is an exact match between the
reference obligation and the underlying exposure (i.e., the cash
position). The maturity of the swap itself may be different from that of the
underlying exposure. In these situations, a specific risk own funds
requirement shall not be applied to either side of the position. 4.
An 80 % offset will be applied when the
values of the two legs always move in the opposite direction and where there is
an exact match in terms of the reference obligation, the maturity of both the
reference obligation and the credit derivative, and the currency of
the underlying exposure. In addition, key features of the credit derivative
contract shall not cause the price movement of the credit derivative to
materially deviate from the price movements of the cash position. To the extent
that the transaction transfers risk, an 80 % specific risk offset will be
applied to the side of the transaction with the higher own funds requirement,
while the specific risk requirements on the other side shall be zero. 5.
Partial allowance shall be given, absent the
situations in paragraphs 3 and 4, in the following situations: (a)
the position falls under paragraph 2(b) but
there is an asset mismatch between the reference obligation and the underlying
exposure. However, the positions meet the following requirements: (i) the reference obligation ranks pari
passu with or is junior to the underlying obligation; (ii) the underlying obligation and
reference obligation share the same obligor and have legally enforceable
cross-default or cross-acceleration clauses; (b)
the position falls under paragraph 2(b) or 3 but
there is a currency or maturity mismatch between the credit protection and the
underlying asset. Such currency mismatch shall be included in the own funds
requirement for foreign exchange risk; (c)
the position falls under paragraph 3 but there
is an asset mismatch between the cash position and the credit derivative. However,
the underlying asset is included in the (deliverable) obligations in the credit
derivative documentation. In order to give partial allowance, rather than
adding the specific risk own funds requirements for each side of the
transaction, only the higher of the two own funds requirements shall apply. 6.
In all situations not falling under paragraphs 3
to 5, an own funds requirement for specific risk shall be calculated for both
sides of the positions separately. Article 336
Allowance for hedges by first and nth-to default credit derivatives In the case of first-to-default credit
derivatives and nth-to-default credit derivatives, the following treatment
applies for the allowance to be given according to Article 335: (a)
where an institution obtains credit protection
for a number of reference entities underlying a credit derivative under the
terms that the first default among the assets shall trigger payment and that
this credit event shall terminate the contract, the institution may offset
specific risk for the reference entity to which the lowest specific risk
percentage charge among the underlying reference entities applies according to
Table 1 in Article 325; (b)
where the nth default among the exposures
triggers payment under the credit protection, the protection buyer may only
offset specific risk if protection has also been obtained for defaults 1 to n-1
or when n-1 defaults have already occurred. In such cases, the methodology set
out above for first-to-default credit derivatives shall be followed
appropriately modified for nth-to-default products. Section 6
Own funds requirements for CIUs Article 337
Own funds requirements for CIUs 1.
Without prejudice to other provisions in this
section, positions in CIUs shall be subject to an own funds requirement for
position risk, comprising specific and general risk, of 32 %. Without
prejudice to Article 342 or Article 356(6) taken together with Article 342 where
the modified gold treatment set out in those points is used, positions in CIUs
shall be subject to an own funds requirement for position risk, comprising
specific and general risk, and foreign-exchange risk of 40 %. 2.
Unless noted otherwise in Article 339, no
netting is permitted between the underlying investments of a CIU and other
positions held by the institution. Article 338
General criteria for CIUs CIUs shall be eligible for the approach set
out in Article 339, where all the following conditions are met: (a)
the CIU's prospectus or equivalent document
shall include all of the following: (i) the categories of assets the CIU is
authorised to invest in; (ii) where investment limits apply, the
relative limits and the methodologies to calculate them; (iii) where leverage is allowed, the
maximum level of leverage; (iv) where concluding OTC financial
derivatives transactions or repurchase transactions or securities borrowing or
lending is allowed, a policy to limit counterparty risk arising from these
transactions; (b)
the business of the CIU shall be reported in
half-yearly and annual reports to enable an assessment to be made of the assets
and liabilities, income and operations over the reporting period; (c)
the shares or units of the CIU are redeemable in
cash, out of the undertaking's assets, on a daily basis at the request of the
unit holder; (d)
investments in the CIU shall be segregated from
the assets of the CIU manager; (e)
there shall be adequate risk assessment of the
CIU, by the investing institution; (f)
CIUs shall be managed by persons supervised
according to Directive (UCITS) or equivalent legislation in order to be
eligible. Article 339
Specific methods for CIUs 1.
Where the institution is aware of the underlying
investments of the CIU on a daily basis, the institution may look through to
those underlying investments in order to calculate the own funds requirements
for position risk, comprising specific and general risk under this approach,
positions in CIUs shall be treated as positions in the underlying investments
of the CIU. Netting shall be permitted between positions in the underlying
investments of the CIU and other positions held by the institution, as long as
the institution holds a sufficient quantity of shares or units to allow for
redemption/creation in exchange for the underlying investments. 2.
Institutions may calculate the own funds
requirements for position risk, comprising specific and general risk, for
positions in CIUs by assuming positions representing those necessary to
replicate the composition and performance of the externally generated index or
fixed basket of equities or debt securities referred to in (a), subject to the
following conditions: (a)
purpose of the CIU's mandate is to replicate the
composition and performance of an externally generated index or fixed basket of
equities or debt securities; (b)
a minimum correlation of 0.9 between daily price
movements of the CIU and the index or basket of equities or debt securities it
tracks can be clearly established over a minimum period of six months.
‘Correlation’ in this context means the correlation coefficient between daily
returns on the CIU and the index or basket of equities or debt securities it
tracks. 3.
Where the institution is not aware of the
underlying investments of the CIU on a daily basis, the institution may
calculate the own funds requirements for position risk, comprising specific and
general risk, subject to the following conditions: (a)
it will be assumed that the CIU first invests to
the maximum extent allowed under its mandate in the asset classes attracting
the highest own funds requirement for specific and general risk separately, and
then continues making investments in descending order until the maximum total
investment limit is reached. The position in the CIU will be treated as a
direct holding in the assumed position; (b)
institutions shall take account of the maximum
indirect exposure that they could achieve by taking leveraged positions through
the CIU when calculating their own funds requirement for specific and general risk
separately, by proportionally increasing the position in the CIU up to the
maximum exposure to the underlying investment items resulting from the mandate; (c)
if the own funds requirement specific and
general risk together according to this point exceed that set out in Article 337(1)
the own funds requirement shall be capped at that level. 4.
Institutions may rely on the following third
parties to calculate and report own funds requirements for position risk for
positions in CIUs falling under paragraphs 1 to 4, in accordance with the
methods set out in this Chapter: (a)
the depository of the CIU provided that the CIU
exclusively invests in securities and deposits all securities at this
depository; (b)
for other CIUs, the CIU management company,
provided that the CIU management company meets the criteria set out in
paragraph 3(a) of Article 127. The correctness of the calculation shall be
confirmed by an external auditor. Chapter 3
Own funds requirements for foreign-exchange risk Article 340
De minimis and weighting for foreign exchange risk If the sum of an institution's overall net
foreign-exchange position and its net gold position, calculated in accordance
with the procedure set out in Article 341, including for any foreign exchange
and gold positions for which own funds requirements are calculated using an
internal model, exceeds 2 % of its total own funds, the institution shall
calculate an own funds requirement for foreign exchange risk. The own funds
requirement for foreign exchange risk shall be the sum of its overall net
foreign-exchange position and its net gold position in the reporting currency,
multiplied by 8 %. Article 341
Calculation of the overall net foreign exchange risk position 1.
The institution's net open position in each
currency (including the reporting currency) and in gold shall be calculated as
the sum of the following elements (positive or negative): (a)
the net spot position (i.e. all asset items less
all liability items, including accrued interest, in the currency in question
or, for gold, the net spot position in gold); (b)
the net forward position, which are all amounts
to be received less all amounts to be paid under forward exchange and gold
transactions, including currency and gold futures and the principal on currency
swaps not included in the spot position; (c)
irrevocable guarantees and similar instruments
that are certain to be called and likely to be irrecoverable; (d)
the net delta, or delta-based, equivalent of the
total book of foreign-currency and gold options; (e)
the market value of other options. The delta used for purposes of point (e) shall
be, where relevant, that of the exchange concerned, subject to permission by
the competent authorities, where that is not available, or for OTC options,
that calculated by the institution itself using an appropriate model.
Permission shall be granted if the model appropriately estimates the rate of change of the option's or warrant's value with respect to
small changes in the market price of the underlying. The institution may include net future
income/expenses not yet accrued but already fully hedged if it does so
consistently. The institution may break down net positions in composite currencies into the component currencies
according to the quotas in force. 2.
Any positions which an institution has
deliberately taken in order to hedge against the adverse effect of the exchange
rate on its ratios in according to Article 87(1) may, subject to permission by the
competent authorities, be excluded from the calculation of net open currency
positions. Such positions shall be of a non-trading or structural nature and
any variation of the terms of their exclusion, subject to separate permission
by the competent authorities. The same treatment subject to the same conditions
as above may be applied to positions which an institution has which relate to
items that are already deducted in the calculation of own funds. 3.
An institution may use
the net present value when calculating the net open position in each currency
and in gold provided that the institution applies this approach consistently. 4.
Net short and long positions in each currency
other than the reporting currency and the net long or short position in gold
shall be converted at spot rates into the reporting currency. They shall then
be summed separately to form the total of the net short positions and the total
of the net long positions respectively. The higher of these two totals shall be
the institution's overall net foreign-exchange position. 5.
Institutions shall adequately reflect other
risks associated with options, apart from the delta risk, in the own funds
requirements. 6.
EBA shall develop draft regulatory technical
standards defining a range of methods to reflect in the own funds requirements
other risks, apart from delta risk, in a manner proportionate to the scale and
complexity of institutions' activities in options. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the previous sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 342
Foreign exchange risk of CIUs 1.
For the purposes of Article 341, in respect
of CIUs the actual foreign exchange positions of the CIU shall be taken
into account. 2.
Institutions may rely on the following third
parties' reporting of the foreign exchange positions in the CIU: (a)
the depository institution of the CIU provided
that the CIU exclusively invests in securities and deposits all securities at
this depository institution; (b)
for other CIUs, the CIU management company,
provided that the CIU management company meets the criteria set out in point
(a) of paragraph 3. The correctness of the calculation shall be
confirmed by an external auditor. 3.
Where an institution is not aware of the foreign
exchange positions in a CIU, it shall be assumed that the CIU is invested up to
the maximum extent allowed under the CIU's mandate in foreign exchange and
institutions shall, for trading book positions, take account of the maximum
indirect exposure that they could achieve by taking leveraged positions through
the CIU when calculating their own funds requirement for foreign exchange risk.
This shall be done by proportionally increasing the position in the CIU up to
the maximum exposure to the underlying investment items resulting from the
investment mandate. The assumed position of the CIU in foreign exchange shall
be treated as a separate currency according to the treatment of investments in
gold, subject to the modification that, where the direction of the CIU's
investment is available, the total long position may be added to the total long
open foreign exchange position and the total short position may be added to the
total short open foreign exchange position. There shall be no netting allowed
between such positions prior to the calculation. Article 343
Closely correlated currencies 1.
Institutions may provide
lower own funds requirements against positions in closely correlated
currencies. A pair of currencies is deemed to be closely correlated only if the
likelihood of a loss — calculated on the basis of daily exchange-rate data for
the preceding three or five years — occurring on equal and opposite positions
in such currencies over the following 10 working days, which is 4 % or less of
the value of the matched position in question (valued in terms of the reporting
currency) has a probability of at least 99 %, when an observation period of
three years is used, or 95 %, when an observation period of five years is used.
The own-funds requirement on the matched position in two closely correlated
currencies shall be 4 % multiplied by the value of the matched position. 2.
In calculating the requirements of this chapter,
institutions may disregard positions in currencies, which are subject to a
legally binding intergovernmental agreement to limit its variation relative to
other currencies covered by the same agreement. Institutions shall calculate
their matched positions in such currencies and subject them to an own funds
requirement no lower than half of the maximum permissible variation laid down
in the intergovernmental agreement in question in respect of the currencies
concerned. 3.
EBA shall develop draft implementing technical
standards listing the currencies which meet the requirements set out in
paragraph 1. EBA shall submit those draft technical
standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the third subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. 4.
The own funds requirement on the matched
positions in currencies of Member States participating in the second stage of
the economic and monetary union may be calculated as 1,6 %of the value of
such matched positions. 5.
Only the unmatched positions in currencies
referred to in this Article shall be incorporated into the overall net open
position according to Article 341(4). Chapter 4
Own funds requirements for commodities risk Article 344
Choice of method for commodities risk Subject to Articles 345 to 347,
institutions shall calculate the own funds requirement for commodities risk
with one of the methods set out in Articles 348, 349 or 350. Article 345
Ancillary commodities business 1.
Institutions with ancillary agricultural
commodities business may determine the own funds requirements for their
physical commodity stock at the end of each year for the following year where all
of the following conditions are met: (a)
at any time of the year it holds own funds for
this risk which are not lower than the average own funds requirement for that
risk estimated on a conservative basis for the coming year; (b)
it estimates on a conservative basis the
expected volatility for the figure calculated under point (a); (c)
its average own funds requirement for this risk
does not exceed 5% of its own funds or 1 million EUR and, taking into account
the volatility estimated in accordance with (b), the expected peak own funds
requirements do not exceed 6.5% of its own funds; (d)
The institution monitors on an ongoing basis
whether the estimates carried out under points (a) and (b) still reflect the
reality. 2.
Institutions shall notify to the competent
authorities the use they make of the option provided in paragraph 1. Article 346
Positions in commodities 1.
Each position in commodities or commodity
derivatives shall be expressed in terms of the standard unit of measurement.
The spot price in each commodity shall be expressed in the reporting currency. 2.
Positions in gold or gold derivatives shall be
considered as being subject to foreign-exchange risk and treated according to
Chapter 3 or 5, as appropriate, for the purpose of calculating commodities risk. 3.
For the purposes of this Chapter, positions
which are purely stock financing may be excluded. 4.
For the purpose of Article 349(1), the excess of
an institution's long positions over its short positions, or vice versa, in the
same commodity and identical commodity futures, options and warrants shall be
its net position in each commodity. Derivative instruments shall be treated, as
laid down in Article 347, as positions in the underlying commodity. 5.
For the purposes of calculating a position in a
commodity, the following positions shall be treated as positions in the same
commodity: (a) positions in different sub-categories
of commodities in cases where the sub-categories are deliverable against each
other; (b) positions in similar commodities if
they are close substitutes and where a minimum correlation of 0.9 between price
movements can be clearly established over a minimum period of one year. Article 347
Particular instruments 1.
Commodity futures and forward commitments to buy
or sell individual commodities shall be incorporated in the measurement system
as notional amounts in terms of the standard unit of measurement and assigned a
maturity with reference to expiry date. 2.
Commodity swaps where one side of the
transaction is a fixed price and the other the current market price shall be treated,
as a series of positions equal to the notional amount of the contract, with, where
relevant, one position corresponding with each payment on the swap and slotted
into the maturity bands in Article 348(1). The positions shall be long
positions if the institution is paying a fixed price and receiving a floating
price and short positions if the institution is receiving a fixed price and
paying a floating price. Commodity swaps where the sides of the transaction are
in different commodities are to be reported in the relevant reporting ladder
for the maturity ladder approach. 3.
Options and warrants on commodities or on
commodity derivatives shall be treated as if they were positions equal in value
to the amount of the underlying to which the option refers, multiplied by its
delta for the purposes of this Chapter. The latter positions may be netted off
against any offsetting positions in the identical underlying commodity or
commodity derivative. The delta used shall, where relevant, be that of the
exchange concerned, subject to permission by the competent authorities, where that
is not available, or for OTC options, that calculated by the institution itself
using an appropriate model. Permission shall be granted if the model
appropriately estimates the rate of change of the option's
or warrant's value with respect to small changes in the market price of the
underlying. Institutions shall adequately reflect other
risks associated with options, apart from the delta risk, in the own funds
requirements. 4.
EBA shall develop draft regulatory technical
standards defining a range of methods to reflect in the own funds requirements
other risks, apart from delta risk, in a manner proportionate to the scale and
complexity of institutions' activities in options. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 5.
Where an institution is either of the following,
it shall include the commodities concerned in the calculation of its own funds
requirement for commodities risk: (a) the transferor
of commodities or guaranteed rights relating to title to commodities in a
repurchase agreement; (b) the lender of
commodities in a commodities lending agreement. Article 348
Maturity ladder approach 1.
The institution shall use a separate maturity
ladder in line with Table 1 for each commodity. All positions in that
commodity shall be assigned to the appropriate maturity bands. Physical stocks
shall be assigned to the first maturity band between 0 and up to and including
1 month. Table 1 Maturity band (1) || Spread rate (in %) (2) 0 ≤ 1 month || 1,50 > 1 ≤ 3 months || 1,50 > 3 ≤ 6 months || 1,50 > 6 ≤ 12 months || 1,50 > 1 ≤ 2 years || 1,50 > 2 ≤ 3 years || 1,50 > 3 years || 1,50 2.
Positions in the same commodity may be offset
and assigned to the appropriate maturity bands on a net basis for the following: (a)
positions in contracts maturing on the same
date; (b)
positions in contracts maturing within 10 days
of each other if the contracts are traded on markets which have daily delivery
dates. 3.
The institution shall then calculate the sum of
the long positions and the sum of the short positions in each maturity band.
The amount of the former which are matched by the latter in a given maturity
band shall be the matched positions in that band, while the residual long or
short position shall be the unmatched position for the same band. 4.
That part of the unmatched long position for a
given maturity band that is matched by the unmatched short position, or vice
versa, for a maturity band further out shall be the matched position between
two maturity bands. That part of the unmatched long or unmatched short position
that cannot be thus matched shall be the unmatched position. 5.
The institution's own funds requirement for each
commodity shall be calculated on the basis of the relevant maturity ladder as
the sum of the following: (a)
the sum of the matched long and short positions,
multiplied by the appropriate spread rate as indicated in the second column of
Table 1 for each maturity band and by the spot price for the commodity; (b)
the matched position between two maturity bands for
each maturity band into which an unmatched position is carried forward,
multiplied by 0,6 %, which is the carry rate and by the spot price for the
commodity; (c)
the residual unmatched positions, multiplied by
15 % which is the outright rate and by the spot price for the commodity. 6.
The institution's overall own funds requirement
for commodities risk shall be calculated as the sum of the own funds
requirements calculated for each commodity according to paragraph 5. Article 349
Simplified approach 1.
The institution's own funds requirement for each
commodity shall be calculated as the sum of the following: (a)
15 % of the net position, long or short,
multiplied by the spot price for the commodity; (b)
3 % of the gross position, long plus short,
multiplied by the spot price for the commodity. 2.
The institution's overall own funds requirement
for commodities risk shall be calculated as the sum of the own funds
requirements calculated for each commodity according to paragraph 1. Article 350
Extended maturity ladder approach Institutions may
use the minimum spread, carry and outright rates set out in the following table
2 instead of those indicated in Article 348 provided that the institutions: (a)
undertake significant commodities business; (b)
have an appropriately diversified commodities
portfolio; (c)
are not yet in a position to use internal models
for the purpose of calculating the own funds requirement for commodities risk. Institutions shall notify the use they make
of this Article to their competent authorities together with evidence of their
efforts to implement an internal model for the purpose of calculating the own
funds requirement for commodities risk. Table 2 || Precious metals (except gold) || Base metals || Agricultural products (softs) || Other, including energy products Spread rate ( %) || 1,0 || 1,2 || 1,5 || 1,5 Carry rate ( %) || 0,3 || 0,5 || 0,6 || 0,6 Outright rate ( %) || 8 || 10 || 12 || 15 Chapter 5
Use of internal models to calculate own funds requirements Section 1
Permission and own funds requirements Article 351
Specific and general risks Position risk on a traded debt instrument or equity
instrument or derivative thereof may be divided into two components for
purposes of this chapter. The first shall be its specific risk component
and shall encompass the risk of a price change in the instrument concerned due
to factors related to its issuer or, in the case of a derivative, the issuer of
the underlying instrument. The general risk component shall encompass the risk
of a price change in the instrument due in the case of a traded debt instrument
or debt derivative to a change in the level of interest rates or in the case of
an equity or equity derivative to a broad equity-market movement unrelated
to any specific attributes of individual securities. Article 352
Permission to use internal models 1.
After having verified an institution's compliance
with the requirements of sections 2, 3 and 4 as relevant, competent authorities
shall grant permission to institutions to calculate their own funds
requirements for one or more of the following risk categories by using their
internal models instead of or in combination with the methods in Chapters 2 to 4: (a)
general risk of equity instruments; (b)
specific risk of equity instruments; (c)
general risk of debt instruments; (d)
specific risk of debt instruments; (e)
foreign-exchange risk; (f)
commodities risk. 2.
For risk categories for which the institution
has not been granted the permission referred to in paragraph 1 to use its
internal models, that institution shall continue to calculate own funds
requirements in accordance with those Chapters 2, 3 and 4 as relevant. Permission
by the competent authorities for the use of internal models shall be required
for each risk category. Material changes to the use of internal models,
the extension of the use of internal models, in particular to additional risk
categories, and the initial calculation of stressed value-at-risk according to
Article 354(2) require a separate permission by the competent authority.
3.
EBA shall develop draft regulatory technical
standards to specify the following: (a)
the conditions for assessing materiality of
extensions and changes to the use of internal models; (b)
the assessment methodology under which competent
authorities permit institutions to use internal models. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 353
Own funds requirements when using internal models 1.
Each institution using an internal model shall fulfil,
in addition to own funds requirements calculated according to Chapters 2, 3 and
4 for those risk categories for which permission to use an internal model has
not been granted, an own funds requirement expressed as the sum of points (a)
and (b): (a) the higher of the following values: (i) its previous day's value-at-risk
number calculated in accordance with Article 354(1) (VaRt-1); (ii) an average of the daily
value-at-risk numbers calculated in accordance with Article 354(1) on each of
the preceding sixty business days (VaRavg), multiplied by the
multiplication factor (mc) according to Article 355; (b) the higher of the following values: (i) its latest available
stressed-value-at-risk number calculated in accordance with Article 354(2)
(sVaRt-1); and (ii) an average of the stressed
value-at-risk numbers calculated in the manner and frequency specified in point
10a during the preceding sixty business days (sVaRavg), multiplied
by the multiplication factor (ms) according to Article 355; 2.
Institutions that use an internal model to
calculate their own funds requirement for specific risk of debt instruments
shall fulfil an additional own funds requirement expressed as the sum of the
following points (a) and (b): (a) the own funds requirement calculated
in accordance with Article 326 and 327 for the specific risk of securitisation
positions and nth to default credit derivatives in the trading book with the
exception of those incorporated in an own funds requirement for the specific
risk of the correlation trading portfolio in accordance with Section 4 and,
where applicable, the own funds requirement for specific risk in accordance
with Chapter 2, Section 6, for those positions in CIUs for which neither the
conditions in Article 339(1) nor Article 339(2) are fulfilled; (b) the higher of: (i) the most recent risk number for the
incremental default and migration risk calculated in accordance with Section 3; (ii) the average of this number over the
preceding 12 weeks. 3.
Institutions that have a correlation trading
portfolio, which meets the requirements in Article 327(1) to (3), shall fulfil
an additional own funds requirement calculated as the higher of the following: (a) the most recent risk number for the
correlation trading portfolio calculated in accordance with Section 5; (b) the average of this number over the
preceding 12-weeks; (c) 8 % of the own funds requirement that
would, at the time of calculation of the most recent risk number referred to in
the first indent of this point, be calculated in accordance with Article 327(4)
for all those positions incorporated into the internal model for the
correlation trading portfolio. Section 2
General requirements Article 354
VaR and stressed VaR Calculation 1.
The calculation of the value-at-risk number
referred to in Article 353 shall be subject to the following requirements: (a) daily calculation of the value-at-risk
number; (b) a 99th percentile,
one-tailed confidence interval; (c) a 10-day holding period; (d) an effective historical observation
period of at least one year except where a shorter observation period is
justified by a significant upsurge in price volatility; (e) at least monthly data set updates. The institution may use value-at-risk numbers
calculated according to shorter holding periods than 10 days scaled up to 10
days by an appropriate methodology that is reviewed periodically. 2.
In addition, the institution shall at
least weekly calculate a ‘stressed value-at-risk' of the current
portfolio, in accordance with the requirements set out in the first paragraph, with
value-at-risk model inputs calibrated to historical data from a continuous
12-month period of significant financial stress relevant to the institution's
portfolio. The choice of such historical data shall be subject to at least
annual review by the institution, which shall notify the outcome to the
competent authorities. EBA shall monitor the range of practices for calculating
stressed value at risk and shall, in accordance with Article 16 of Regulation
(EU) No. 1093/2010, issue guidelines on such practices. Article 355
Regulatory backtesting and multiplication factors 1.
The results of the calculations referred to in
Article 354 shall be scaled up by the multiplication factors (mc)
and (ms). 2.
The multiplication factors
(mc) and (ms) shall be the sum of 3 and an addend between
0 and 1 in accordance with Table 1. That addend shall depend on the number of
overshootings for the most recent 250 business days as evidenced by the
institution's back-testing of the value-at-risk number as set out in Article 354(1).
Table 1 Number of overshootings || addend Fewer than 5 || 0,00 5 || 0,40 6 || 0,50 7 || 0,65 8 || 0,75 9 || 0,85 10 or more || 1,00 3.
The institutions shall count
daily overshootings on the basis of back-testing on hypothetical and actual
changes in the portfolio's value. An overshooting is a one-day change in the
portfolio's value that exceeds the related one-day value-at-risk number generated
by the institution's model. For the purpose of determining the addend the
number of overshootings shall be assessed at least quarterly and shall be equal
to the higher of the number of overshootings under hypothetical and actual
changes in the value of the portfolio. Back-testing on hypothetical changes in the
portfolio's value shall be based on a comparison between the portfolio's
end-of-day value and, assuming unchanged positions, its value at the end of the
subsequent day. Back-testing on actual changes in the
portfolio's value shall be based on a comparison between the portfolio's
end-of-day value and its actual value at the end of the subsequent day
excluding fees, commissions, and net interest income. 4.
The competent authorities may in individual
cases limit the addend to that resulting from overshootings under hypothetical
changes, where the number of overshootings under actual changes does not result
from deficiencies in the internal model. 5.
In order to allow competent authorities to
monitor the appropriateness of the multiplication factors on an ongoing basis,
institutions shall notify promptly, and in any case no later than within
five working days, the competent authorities of overshootings that result
form their back-testing programme. Article 356
Requirements on risk measurement 1.
Any internal model used to calculate capital
requirements for position risk, foreign exchange risk, commodities risk and any
internal model for correlation trading shall meet all of the following
requirements: (a)
the model shall capture
accurately all material price risks; (b)
the model shall capture a sufficient number of
risk factors, depending on the level of activity of the institution in the
respective markets. The institution shall at least incorporate those risk
factors in its model that are incorporated into its pricing model. The
risk-measurement model shall capture nonlinearities for options and other
products as well as correlation risk and basis risk. Where proxies for risk
factors are used they shall show a good track record for the actual position
held. 2.
Any internal model used to calculate capital
requirements for position risk, foreign exchange risk
or commodities risk shall meet all of the following requirements: (a)
the model shall incorporate a set of risk
factors corresponding to the interest rates in each currency in which the
institution has interest rate sensitive on- or off-balance sheet positions. The
institution shall model the yield curves using one of the generally accepted
approaches. For material exposures to interest-rate risk in the major
currencies and markets, the yield curve shall be divided into a minimum of six
maturity segments, to capture the variations of volatility of rates along the
yield curve. The model shall also capture the risk of less than perfectly
correlated movements between different yield curves; (b)
the model shall incorporate risk factors
corresponding to gold and to the individual foreign currencies in which the
institution's positions are denominated. For CIUs the actual foreign exchange
positions of the CIU shall be taken into account. Institutions may rely on
third party reporting of the foreign exchange position of the CIU, where the
correctness of this report is adequately ensured. If an institution is not
aware of the foreign exchange positions of a CIU, this position shall be carved
out and treated in accordance with Article 342(3); (c)
the model shall use a separate risk factor at
least for each of the equity markets in which the institution holds significant
positions; (d)
the model shall use a separate risk factor at least
for each commodity in which the institution holds significant positions. The
model must also capture the risk of less than perfectly correlated movements
between similar, but not identical, commodities and the exposure to changes in
forward prices arising from maturity mismatches. It shall also take account of
market characteristics, notably delivery dates and the scope provided to
traders to close out positions; (e)
the institution's internal model shall conservatively
assess the risk arising from less liquid positions and positions with limited
price transparency under realistic market scenarios. In addition, the internal
model shall meet minimum data standards. Proxies shall be appropriately
conservative and shall be used only where available data is insufficient or is
not reflective of the true volatility of a position or portfolio. 3.
Institutions may, in any
internal model used for purposes of this Chapter, use empirical correlations
within risk categories and across risk categories only if the institution's approach
for measuring correlations is sound and implemented with integrity. Article 357
Qualitative requirements 1.
Any internal model used for purposes of this
Chapter shall be conceptually sound and implemented
with integrity and, in particular, all of the following qualitative requirements
shall be met: (a)
any internal model used to calculate capital
requirements for position risk, foreign exchange risk or commodities
risk is shall be closely integrated into the daily risk-management
process of the institution and serve as the basis for reporting risk exposures
to senior management; (b)
the institution shall have a risk control unit
that is independent from business trading units and reports directly to senior
management. The unit shall be responsible for designing and implementing any
internal model used for purposes of this Chapter. The unit shall conduct the
initial and on-going validation of any internal model used for purposes of this
Chapter. The unit shall produce and analyse daily reports on the output of any
internal model used for calculating capital requirements for position risk,
foreign exchange risk and commodities risk, and on the appropriate measures to
be taken in terms of trading limits; (c)
the institution's management body and senior
management shall be actively involved in the risk-control process and the daily
reports produced by the risk-control unit are reviewed by a level of management
with sufficient authority to enforce both reductions of positions taken by
individual traders as well as in the institution's overall risk exposure; (d)
the institution shall have sufficient numbers of
staff skilled in the use of sophisticated internal models, and including the
ones used for purposes of this Chapter, in the trading, risk-control, audit and
back-office areas; (e)
the institution shall have established
procedures for monitoring and ensuring compliance with a documented set of
internal policies and controls concerning the overall operation of its internal
models, and including the ones used for purposes of this Chapter; (f)
any internal model used for purposes of this
Chapter shall have a proven track record of reasonable accuracy in measuring
risks; (g)
the institution shall frequently conduct a
rigorous programme of stress testing, including reverse stress tests, which
encompasses any internal model used for purposes of this Chapter and the
results of these stress tests shall be reviewed by senior management and
reflected in the policies and limits it sets. This process shall particularly
address illiquidity of markets in stressed market conditions, concentration
risk, one way markets, event and jump-to-default risks, non-linearity of
products, deep out-of-the-money positions, positions subject to the gapping of
prices and other risks that may not be captured appropriately in the internal
models. The shocks applied shall reflect the nature of the portfolios and the
time it could take to hedge out or manage risks under severe market conditions; (h)
the institution shall conduct, as part of its
regular internal auditing process, an independent review of its internal
models, and including the ones used for purposes of this Chapter. 2.
The review referred to in point (h) of the first
paragraph shall include both the activities of the business trading units and
of the independent risk-control unit. At least once a year, the institution shall
conduct a review of its overall risk-management process. The review
shall consider the following: (a)
the adequacy of the documentation of the
risk-management system and process and the organisation of the risk-control
unit; (b)
the integration of risk measures into daily risk
management and the integrity of the management information system; (c)
the process the institution employs for
approving risk-pricing models and valuation systems that are used by front and
back-office personnel; (d)
the scope of risks captured by the
risk-measurement model and the validation of any significant changes in the
risk-measurement process; (e)
the accuracy and completeness of position data,
the accuracy and appropriateness of volatility and correlation assumptions, and
the accuracy of valuation and risk sensitivity calculations; (f)
the verification process the institution employs
to evaluate the consistency, timeliness and reliability of data sources used to
run internal models, including the independence of such data sources; (g)
the verification process the institution uses to
evaluate back-testing that is conducted to assess the models' accuracy. 3.
As techniques and best practices evolve,
institutions shall apply those new techniques and practices in any internal
model used for purposes of this Chapter. Article 358
Internal Validation 1.
Institutions shall have processes in place to
ensure that all their internal models used for purposes of this Chapter
have been adequately validated by suitably qualified parties independent of the
development process to ensure that they are conceptually sound and adequately
capture all material risks. The validation shall be conducted when the internal
model is initially developed and when any significant changes are made to the
internal model. The validation shall also be conducted on a periodic basis but
especially where there have been any significant structural changes in the
market or changes to the composition of the portfolio which might lead to the internal
model no longer being adequate. As techniques and best practices for internal
validation evolve, institutions shall apply these advances. Internal model
validation shall not be limited to back-testing, but shall, at a minimum, also
include the following: (a)
tests to demonstrate that any assumptions made
within the internal model are appropriate and do not underestimate or
overestimate the risk; (b)
in addition to the regulatory back-testing
programmes, institutions shall carry out their own internal model validation
tests, including back-testing, in relation to the risks and structures of their
portfolios; (c)
the use of hypothetical portfolios to ensure
that the internal model is able to account for particular structural features
that may arise, for example material basis risks and concentration risk. 2.
The institution shall perform back-testing on
both actual and hypothetical changes in the portfolio's value. Section 3
Requirements particular to specific risk modelling Article 359
Requirements for modelling specific risk An internal model used for calculating own
funds requirements for specific risk and an internal model for correlation
trading shall meet the following additional requirements: (a) it explains the historical price
variation in the portfolio; (b) it captures concentration in
terms of magnitude and changes of composition of the portfolio; (c) it is robust to an adverse
environment; (d) it is validated through
back-testing aimed at assessing whether specific risk is being accurately
captured. If the institution performs such back-testing on the basis of
relevant sub-portfolios, these must be chosen in a consistent manner; (e) it captures name-related basis
risk and shall in particular be sensitive to material idiosyncratic differences
between similar but not identical positions; (f) it captures event risk. Article 360
Exclusions from specific risk models 1.
An institution may choose to exclude from the
calculation of its specific risk own funds requirement using an internal model
those positions for which it fulfils an own funds requirement for specific risk
in accordance with point (c) of Article 353. 2.
An institution may choose not to capture default
and migration risks for debt instruments in its internal model where it is
capturing those risks through the requirements set out in Section 4. Section 4
Internal model for incremental default and migration risk Article 361
Requirement to have an internal IRC model An institution that use an internal model
for calculating own funds requirements for specific risk of debt
instruments shall also have an internal incremental default and migration risk
(IRC) model in place to capture the default and migration risks of its
trading book positions that are incremental to the risks captured by the
value-at-risk measure as specified in Article 354(1). An institution shall
demonstrate that its internal model meets soundness standards comparable
to the IRB approach for credit risk under the assumption of a constant level of
risk, and adjusted where appropriate to reflect the impact of liquidity,
concentrations, hedging and optionality. Article 362
M48
Scope of the internal IRC model The internal IRC model shall cover all
positions subject to an own funds requirement for specific interest rate risk, including
those subject to a 0% specific risk capital charge under Article 325, but
shall not cover securitisation positions and n-th-to-default credit
derivatives. The institution may, subject to permission
by the competent authorities, choose to consistently include all listed
equity positions and derivatives positions based on listed equities. The
permission shall be granted if such inclusion is consistent with how the
institution internally measures and manages risk. Article 363
Parameters of the internal IRC model 1.
Institutions shall use the internal model to
calculate a number which measures losses due to default and internal or
external ratings migration at the 99,9 % confidence interval over a time
horizon of one year. Institutions shall calculate this number at least weekly. 2.
Correlation assumptions shall be supported by
analysis of objective data in a conceptually sound framework. The internal
model shall appropriately reflect issuer concentrations. Concentrations that
can arise within and across product classes under stressed conditions shall
also be reflected. 3.
The internal IRC model shall reflect the impact
of correlations between default and migration events. The impact of
diversification between, on the one hand, default and migration events and, on
the other hand, other risk factors shall not be reflected. 4.
The internal model shall be based on the
assumption of a constant level of risk over the one-year time horizon, implying
that given individual trading book positions or sets of positions that have
experienced default or migration over their liquidity horizon are re-balanced
at the end of their liquidity horizon to attain the initial level of risk.
Alternatively, an institution may choose to consistently use a one-year
constant position assumption. 5.
The liquidity horizons shall be set according to
the time required to sell the position or to hedge all material relevant price
risks in a stressed market, having particular regard to the size of the
position. Liquidity horizons shall reflect actual practice and experience during
periods of both systematic and idiosyncratic stresses. The liquidity horizon
shall be measured under conservative assumptions and shall be sufficiently long
that the act of selling or hedging, in itself, would not materially affect the
price at which the selling or hedging would be executed. 6.
The determination of the appropriate liquidity
horizon for a position or set of positions is subject to a floor of three
months. 7.
The determination of the appropriate liquidity
horizon for a position or set of positions shall take into account an
institution's internal policies relating to valuation adjustments and the
management of stale positions. When an institution determines liquidity
horizons for sets of positions rather than for individual positions, the criteria
for defining sets of positions shall be defined in a way that meaningfully
reflects differences in liquidity. The liquidity horizons shall be greater for
positions that are concentrated, reflecting the longer period needed to
liquidate such positions. The liquidity horizon for a securitisation warehouse
shall reflect the time to build, sell and securitise the assets, or to hedge
the material risk factors, under stressed market conditions. Article 364
Recognition of hedges in the internal IRC model 1.
Hedges may be incorporated into an institution's
internal model to capture the incremental default and migration risks.
Positions may be netted when long and short positions refer to the same
financial instrument. Hedging or diversification effects associated with long
and short positions involving different instruments or different securities of
the same obligor, as well as long and short positions in different issuers, may
only be recognised by explicitly modelling gross long and short positions in
the different instruments. Institutions shall reflect the impact of material
risks that could occur during the interval between the hedge's maturity and the
liquidity horizon as well as the potential for significant basis risks in
hedging strategies by product, seniority in the capital structure, internal or
external rating, maturity, vintage and other differences in the instruments. An
institution shall reflect a hedge only to the extent that it can be maintained
even as the obligor approaches a credit or other event. 2.
For positions that are hedged via dynamic
hedging strategies, a rebalancing of the hedge within the liquidity horizon of
the hedged position may be recognised provided that the institution: (a)
chooses to model rebalancing of the hedge
consistently over the relevant set of trading book positions; (b)
demonstrates that the inclusion of rebalancing
results in a better risk measurement; (c)
demonstrates that the markets for the
instruments serving as hedges are liquid enough to allow for such rebalancing
even during periods of stress. Any residual risks resulting from dynamic
hedging strategies must be reflected in the own funds requirement. Article 365
Particular requirements for the internal IRC model 1.
The internal model to capture the incremental
default and migration risks shall reflect the nonlinear impact of options,
structured credit derivatives and other positions with material nonlinear
behaviour with respect to price changes. The institution shall also have due
regard to the amount of model risk inherent in the valuation and estimation of
price risks associated with such products. 2.
The internal model shall be based on data that
are objective and up-to-date. 3.
As part of the independent review and validation
of their internal models used for purposes of this Chapter, an institution
shall in particular do all of the following: (a)
validate that its modelling approach for
correlations and price changes is appropriate for its portfolio, including the
choice and weights of its systematic risk factors; (b)
perform a variety of stress tests, including
sensitivity analysis and scenario analysis, to assess the qualitative and
quantitative reasonableness of the internal model, particularly with regard to
the treatment of concentrations. Such tests shall not be limited to the range
of events experienced historically; (c)
apply appropriate quantitative validation
including relevant internal modelling benchmarks. 4.
The internal model shall be consistent with the
institution's internal risk management methodologies for identifying,
measuring, and managing trading risks. 5.
Institutions shall document their internal models
so that its correlation and other modelling assumptions are transparent to the
competent authorities. 6.
The internal model shall conservatively assess
the risk arising from less liquid positions and positions with limited price
transparency under realistic market scenarios. In addition, the internal model
shall meet minimum data standards. Proxies shall be appropriately conservative
and may be used only where available data is insufficient or is not reflective
of the true volatility of a position or portfolio. Article 366
Not fully compliant IRC approaches If an institution uses an internal model
to capture incremental default and migration risks that does not comply
with all requirements of Articles 363, 364 and 365 but that is consistent with
the institution's internal methodologies for identifying, measuring and
managing incremental default and migration risks, it shall be able to
demonstrate that its internal model results in an own funds requirement that is
at least as high as if it was based on a model in full compliance with the
requirements of those Articles. The competent authorities shall review
compliance with the previous sentence at least annually. EBA shall monitor the
range of practices concerning internal models not complying with all
requirements of Articles 363, 364 and 365 and shall, in accordance with Article
16 of Regulation (EU) No. 1093/2010, issue guidelines on those practices. Section 5
Internal model for correlation trading Article 367
Requirements for an internal model for correlation trading 1.
Competent authorities shall grant permission to
use an internal model for the own funds requirement for the correlation trading
portfolio instead of the own funds requirement according to Article 327 to
institutions that are allowed to use an internal model for specific risk of
debt instruments and that meet the requirements in paragraphs 2 to 6 and in
Articles 356(1), 357, 358 and 359. 2.
Institutions shall use this internal model to
calculate a number which adequately measures all price risks at the 99,9 %
confidence interval over a time horizon of one year under the assumption of a
constant level of risk, and adjusted where appropriate to reflect the impact of
liquidity, concentrations, hedging and optionality. Institutions shall
calculate this number at least weekly. 3.
The following risks shall be adequately captured
by the model referred to in paragraph 1: (a)
the cumulative risk arising from multiple
defaults, including different ordering of defaults, in tranched products; (b)
credit spread risk, including the gamma and
cross-gamma effects; (c)
volatility of implied correlations, including
the cross effect between spreads and correlations; (d)
basis risk, including both of the following: (i) the basis between the spread of an
index and those of its constituent single names; (ii) the basis between the implied
correlation of an index and that of bespoke portfolios; (e)
recovery rate volatility, as it relates to the
propensity for recovery rates to affect tranche prices; (f)
to the extent the comprehensive risk measure
incorporates benefits from dynamic hedging, the risk of hedge slippage and the
potential costs of rebalancing such hedges; (g)
any other material price risks of positions in
the correlation trading portfolio. 4.
An institution shall use
sufficient market data within the model referred to in paragraph 1 in order to
ensure that it fully captures the salient risks of those exposures in its
internal approach in accordance with the requirements set out in this Article.
It shall be able to demonstrate to the competent authority through back testing
or other appropriate means that its model can appropriately explain the
historical price variation of those products. The institution shall have appropriate policies
and procedures in place in order to separate the positions for which it holds permission
to incorporate them in the own funds requirement in accordance with this Article
from other positions for which it does not hold such permission. 5.
With regard to the portfolio of all the
positions incorporated in the model referred to in paragraph 1, the institution
shall regularly apply a set of specific, predetermined stress scenarios. Such
stress scenarios shall examine the effects of stress to default rates, recovery
rates, credit spreads, basis risk, correlations and other relevant risk factors
on the correlation trading portfolio. The institution shall apply stress
scenarios at least weekly and report at least quarterly to the competent
authorities the results, including comparisons with the institution's own funds
requirement in accordance with this point. Any instances where the stress test
results materially exceed the own funds requirement for the correlation trading
portfolio shall be reported to the competent authorities in a timely manner. 6.
The internal model shall conservatively assess
the risk arising from less liquid positions and positions with limited price
transparency under realistic market scenarios. In addition, the internal model
shall meet minimum data standards. Proxies shall be appropriately conservative
and may be used only where available data is insufficient or is not reflective
of the true volatility of a position or portfolio. Title V
Own Funds Requirements for Settlement Risk Article 368
Settlement/delivery risk In the case of transactions in which debt
instruments, equities, foreign currencies and commodities excluding repurchase transactions
and securities or commodities lending and securities or commodities borrowing
are unsettled after their due delivery dates, an institution shall calculate
the price difference to which it is exposed. The price is calculated as difference
between the agreed settlement price for the debt instrument, equity, foreign
currency or commodity in question and its current market value, where the
difference could involve a loss for the credit institution. The institution shall multiply that
price difference by the appropriate factor in column A of the following Table 1
in order to calculate the institution's own funds requirement for settlement
risk. Table 1 Number of working days after due settlement date || ( %) 5 — 15 || 8 16 — 30 || 50 31 — 45 || 75 46 or more || 100 Article 369
Free deliveries 1.
An institution shall be required to hold own
funds, as set out in Table 2, where the following occurs: (a)
it has paid for securities, foreign currencies
or commodities before receiving them or it has delivered securities, foreign
currencies or commodities before receiving payment for them; (b)
in the case of cross-border transactions, one
day or more has elapsed since it made that payment or delivery. Table 2 Capital treatment for free deliveries Column 1 || Column 2 || Column 3 || Column 4 Transaction Type || Up to first contractual payment or delivery leg || From first contractual payment or delivery leg up to four days after second contractual payment or delivery leg || From 5 business days post second contractual payment or delivery leg until extinction of the transaction Free delivery || No capital charge || Treat as an exposure || Treat as an exposure risk weighted at 1 250 % 2.
In applying a risk weight to free delivery
exposures treated according to Column 3 of Table 2, an institution using
the Internal Ratings Based approach set out in Part Three, Title II, Chapter 3
may assign PDs to counterparties, for which it has no other non-trading book
exposure, on the basis of the counterparty's external rating. Institutions
using own estimates of ‘LGDs’ may apply the LGD set out in Article 157(1) to
free delivery exposures treated according to Column 3 of Table 2 provided
that they apply it to all such exposures. Alternatively, an institution using
the Internal Ratings Based approach set out in Part Three, Title II, Chapter 3
may apply the risk weights of the Standardised Approach, as set out in Part
Three, Title II, Chapter 2 provided that it applies them to all such exposures
or may apply a 100 % risk weight to all such exposures. If the amount of positive exposure resulting
from free delivery transactions is not material, institutions may apply a risk
weight of 100 % to these exposures, except where a risk weight of 1 250%
in accordance with Column 4 of Table 2 in paragraph 1 is required. 3.
As an alternative to applying a risk weight of 1
250 % to free delivery exposures according to Column 4 of Table 2 in paragraph
1, institutions may deduct the value transferred plus the current positive
exposure of those exposures from Common Equity Tier 1 items in accordance with
point (k) of Article 33(1). Article 370
Waiver Where a system wide failure of a settlement
or clearing system occurs, competent authorities may waive the own funds
requirements calculated as set out in Article 368 and 369 until the situation
is rectified. In this case, the failure of a counterparty to settle a trade
shall not be deemed a default for purposes of credit risk. Title VI
Own funds requirements for credit valuation adjustment risk Article 371
Meaning of Credit Value Adjustment For the purposes of this Title and Chapter
6 of Title III, ‘Credit Valuation Adjustment’ or 'CVA' means an adjustment to
the mid-market valuation of the portfolio of transactions with a counterparty.
That adjustment reflects the current market value of the credit risk of the
counterparty to the institution, but does not reflect the current market value
of the credit risk of the institution to the counterparty. Article 372
Scope 1.
An institution shall calculate the own funds
requirements for CVA risk in accordance with this Title for all OTC derivative
instruments in respect of all of its business activities, other than credit
derivatives recognised to reduce risk-weighted exposure amounts for credit
risk. 2.
An institution shall include securities
financing transactions in the calculation of own funds required by paragraph 1
if the competent authority determines that the institution's CVA risk exposures
arising from those transactions are material. 3.
Transactions with a central counterparty are
excluded from the own funds requirements for CVA risk. Article 373
Advanced method 1.
An institution which has permission to use an internal model
for the specific risk of debt instruments in accordance with Article 352 shall,
for all transactions for which it has permission to use the IMM for determining
the exposure value for the associated counterparty credit risk exposure in
accordance with Article 277, determine the own funds requirements for CVA risk
by modelling the impact of changes in the counterparties’ credit spreads on the
CVAs of all counterparties of these transactions, taking into account CVA
hedges that are eligible in accordance with Article 375. An institution shall use its internal model for
determining the own funds requirements for specific risk associated with traded
debt positions and shall apply a 99 percent confidence interval and a 10 day
equivalent holding period. The internal model shall be used in such way that it
simulates changes in the credit spreads of counterparties, but does not model
the sensitivity of CVA to changes in other market factors, including changes in
the value of the reference asset, commodity, currency or interest rate of a
derivative. The own funds requirements for CVA risk for
each counterparty shall be calculated in accordance with the following formula: where: ti = the time of the i-th revaluation,
starting from t0=0; tT = the longest contractual maturity
across the netting sets with the counterparty; si = is the credit spread of the
counterparty at tenor ti, used to calculate the CVA of the
counterparty. Where the credit default swap spread of the counterparty is
available, an institution shall use that spread. Where such a credit default
swap spread is not available, an institution shall use a proxy spread that is
appropriate having regard to the rating, industry and region of the
counterparty; LGDMKT = the loss given default of the counterparty
that shall be based on the spread of a market instrument of the counterparty if
a counterparty instrument is available. Where a counterparty instrument is not
available, it shall be based on the proxy spread that is appropriate having
regard to the rating, industry and region of the counterparty. The first factor
within the formula represents an approximation of the market implied marginal
probability of a default occurring between times ti-1 and ti;
EEi = the expected exposure to the
counterparty at revaluation time ti, as defined in point 19 of Article
267, where exposures of different netting sets for such counterparty are added,
and where the longest maturity of each netting set is given by the longest
contractual maturity inside the netting set; An institution shall apply the
treatment referred to in paragraph 2 in the case of margined trading, if the institution
uses the EPE measure referred to in point (a) or (b) of Article 279(1) for
margined trades; Di = the default risk-free discount factor
at time ti, where D0 =1. 2.
When calculating the own funds requirements for
CVA risk for a counterparty, an institution shall base
all inputs into its internal model for specific risk of debt instruments on the
following formulae (whichever is appropriate): (a)
where the model is based on credit spread
sensitivities for specific tenors, an institution shall base each credit spread
sensitivity ('Regulatory CS01') on the following formula: ; (b) where the model uses credit spread
sensitivities to parallel shifts in credit spreads, an institution shall use
the following formula: ; (c) where the model uses second-order
sensitivities to shifts in credit spreads (spread gamma), the gammas shall be
calculated based on the formula in paragraph 1. 3.
An institution using the EPE measure for
collateralised OTC derivatives referred to in point (a) or (b) of Article 279(1)
shall, when determining the own funds requirements for
CVA risk in accordance with paragraph 1, do both of the following: (a)
assume a constant EE profile; (b)
set EE equal to the effective expected exposure
as calculated under Article 279(1)(b) for a maturity equal to the greater of
the following: (i)
half of the longest maturity occurring in the
netting set; (ii)
the notional weighted average maturity of all
transactions inside the netting set. 4.
An institution which is permitted by the
competent authority in accordance with Article 277 to use IMM to calculate
exposure values in relation to the majority of its business, but which uses the
method set out in Section 3 or Section 4 of Title II, Chapter 6 for smaller
portfolios, and which is permitted to use the market risk internal models
approach for specific risk of traded debt instruments in accordance with
Article 352 may, subject to permission from the competent authorities, calculate
the own funds requirements for CVA risk in accordance with paragraph 1 for the
non-IMM netting sets. Competent authorities shall grant this permission only if
the institution uses the method set out in Section 3 or Section 4 of Title II,
Chapter 6 for a limited number of smaller portfolios. For the purposes of a calculation under the
preceding subparagraph and where the IMM model does not produce an expected
exposure profile, an institution shall do both of the
following: (a)
assume a constant EE profile; (b)
set EE equal to the exposure value as computed
under the methods set out in Section 3 or Section 5 of Title II, Chapter 6, or
IMM for a maturity equal to the greater of: (i) half of the longest maturity
occurring in the netting set; (ii) the notional weighted average
maturity of all transactions inside the netting set. 5.
An institution shall determine the own funds
requirements for CVA risk as the sum of non-stressed and stressed Value-at-Risk,
which shall be calculated as follows: (a)
for the non-stressed Value-at-Risk, current
parameter calibrations for expected exposure shall be used; (b)
for the stressed Value-at-Risk, future
counterparty EE profiles using a stressed calibration as set out in Article 286(2)
shall be used. The period of stress for the credit spread parameters shall be
the most severe one-year stress period contained within the three-year stress
period used for the exposure parameters. 6.
EBA shall develop draft regulatory technical
standards to specify in greater detail: (a) how a proxy spread should be
determined for the purposes of identifying LGDMKT for the purposes
of the calculation required by paragraph 1; (b) the number and size of portfolios that
fulfil the criterion of a limited number of smaller portfolios referred to in
paragraph 4. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010.
Article 374
Standardised method 1.
An institution which does not calculate the own
funds requirements for CVA risk for its counterparties in accordance with
Article 373 shall calculate a portfolio own funds requirements for CVA risk for
each counterparty in accordance with the following formula, taking into account
CVA hedges that are eligible in accordance with Article 375: where: h = the one-year risk horizon (in
units of a year); h = 1; wi = the weight applicable
to counterparty "i". Counterparty "i" shall be mapped to
one of the seven weights wi based on an external credit assessment by
a nominated ECAI, as set out in Table 1. For a counterparty for which a credit
assessment by a nominated ECAI is not available: (a) an institution using the approach in
Title II, Chapter 3 shall map the internal rating of the counterparty to one of
the external credit assessment; (b) an institution using the approach in
Title II, Chapter 2 shall assign credit quality step 3 to this counterparty; = the
total counterparty credit risk exposure value of counterparty "i"
(summed across its netting sets) including the effect of collateral in
accordance with the methods set out in Sections 3 to 6 of Title II, Chapter 6
as applicable to the calculation of the own funds requirements for counterparty
credit risk for that counterparty. For an institution not using the method set out
in Section 6 of Title II, Chapter 6, the exposure shall be discounted by
applying the following factor: ; Bi = the notional of
purchased single name credit default swap hedges (summed if more than one
position) referencing counterparty "i" and used to hedge CVA risk. That notional amount shall be discounted by
applying the following factor: ; Bind = is the full notional
of one or more index credit default swap of purchased protection used to hedge
CVA risk. That notional amount shall be discounted by
applying the following factor: ; wind
= is the weight applicable to index hedges. An institution shall map indices to one of the
seven weights wi based on the average spread of index ‘ind’; Mi
= the effective maturity of the transactions with counterparty i. For an institution using the method set out in
Section 6 of Title II, Chapter 6, Mi shall be calculated
in accordance with Article 158(2)(f). For an institution not using the method set out
in Section 6 of Title II, Chapter 6, Mi is the average notional
weighted maturity as referred to in point Article 158(2); = the
maturity of the hedge instrument with notional Bi (the quantities Mihedge
Bi are to be summed if these are several positions); Mind
= the maturity of the index hedge ind. In case of more than one index hedge
position, Mind is the notional-weighted maturity. 2.
Where a counterparty is included in an index on
which a credit default swap used for hedging counterparty credit risk is based,
the institution may subtract the notional amount attributable to that
counterparty in accordance with its reference entity weight from the index CDS
notional amount and treated as a single name hedge (Bi) of the
individual counterparty with maturity based on the maturity of the index. Table 1 Credit quality step || Weight wi 1 || 0.7% 2 || 0.8% 3 || 1.0% 4 || 2.0% 5 || 3.0% 6 || 10.0% Article 375
Eligible hedges 1.
Hedges shall be 'eligible hedges' for the
purposes of the calculation of own funds requirements for CVA risk in
accordance with Article 373 and Article 374 only where they are used for the
purpose of mitigating CVA risk and managed as such, and are one of the
following: (a)
single-name credit default swaps or other
equivalent hedging instruments referencing the counterparty directly; (b)
index credit default swaps, provided that the
basis between any individual counterparty spread and the spreads of index
credit default swap hedges is reflected in the Value-at-Risk. The requirement in point (b) that the basis
between any individual counterparty spread and the spreads of index credit
default swap hedges is reflected in the Value-at-Risk shall also apply to cases
where a proxy is used for the spread of a counterparty. For all counterparties for which a proxy is
used, an institution shall use reasonable basis time series out of a
representative group of similar names for which a spread is available. If the basis between any individual
counterparty spread and the spreads of index credit default swap hedges is not
reflected to the satisfaction of the competent authority, then an institution
shall reflect only 50% of the notional amount of index hedges in the
Value-at-Risk. The hedges referred to in point (b) may be used
only for the purposes of the calculation of own funds requirements for CVA risk
in accordance with Article 373. 2.
An institution shall not reflect other types of
counterparty risk hedges in the calculation of the own funds requirements for
CVA risk. In particular, tranched or nth-to-default credit default swaps and credit linked notes are not eligible hedges for the
purposes the calculation of the own funds requirements for CVA risk. 3.
Eligible hedges that are included in the
calculation of the own funds requirements for CVA risk shall not be included in
the calculation of the own funds requirements for specific risk as set out in
Title IV or treated as credit risk mitigation other than for the counterparty
credit risk of the same portfolio of transaction. PART FOUR
LARGE EXPOSURES Section I
Large exposure regime Article 376
Subject matter Institutions shall monitor and control
their large exposures in accordance with this Part. Article 377
Negative Scope This Part shall not apply to investment
firms that fulfil the criteria set out in Article 90(1) or Article 91(1). Article 378
Definition The following definition applies for the
purposes of this Part: ‘Exposures’, for the purposes of this Part
means any asset or off-balance-sheet item referred to in Part Three, Title II,
Chapter 2, without risk weights or degrees of risk. Article 379
Calculation of the exposure value 1.
Exposures arising from the items referred to in
Annex II shall be calculated in accordance with one of the methods set out in
Part Three, Title II, Chapter 6. 2.
Institutions with a permission to use the
Internal Model Method in accordance with Article 277 may use the Internal Model
Method for calculating the exposure value for repurchase transactions, securities
or commodities lending or borrowing transactions, margin lending transactions
and long settlement transactions. 3.
The exposures to individual clients which arise
on the trading book shall be calculated by those institutions that calculate
the own funds requirements for their trading-book business in accordance with Part
Three, Title IV, Chapter 2, Article 293 and Part Three, Title V and, as
appropriate, with Part Three, Title IV, Chapter 5, by summing the following
items: (a)
the positive excess of an institution's long
positions over its short positions in all the financial instruments issued by
the client in question, the net position in each of the different instruments
being calculated according to the methods laid down in Part Three, Title IV,
Chapter 2; (b)
the net exposure, in the case of the
underwriting of a debt or an equity instrument; (c)
the exposures due to the transactions,
agreements and contracts referred to in Articles 293 and 368 to 370 with the
client in question, such exposures being calculated in the manner laid down in those
Articles, for the calculation of exposure values. For the purposes of point (b), the net
exposure is calculated by deducting those underwriting positions which are
subscribed or sub-underwritten by third parties on the basis of a formal
agreement reduced by the factors set out in Article 334. For the purposes of point (b),
institutions shall set up systems to monitor and control their underwriting
exposures between the time of the initial commitment and the next business day
in the light of the nature of the risks incurred in the markets in question. For the purposes of point (c), Part Three,
Title II, Chapter 3 shall be excluded from the reference in Article 293. 4.
The overall exposures to individual clients or
groups of connected clients shall be calculated by summing the exposures of the
trading book and those of the non-trading book. 5.
The exposures to groups of connected clients
shall be calculated by summing the exposures to individual clients in a group. 6.
Exposures shall not include any of the
following: (a)
in the case of foreign exchange transactions,
exposures incurred in the ordinary course of settlement during the two working
days following payment; (b)
in the case of transactions for the purchase or
sale of securities, exposures incurred in the ordinary course of settlement
during five working days following payment or delivery of the securities,
whichever the earlier; (c)
in the case of the provision of money
transmission including the execution of payment services, clearing and
settlement in any currency and correspondent banking or financial instruments
clearing, settlement and custody services to clients, delayed receipts in
funding and other exposures arising from client activity which do not last
longer than the following business day; (d)
in the case of the provision of money
transmission including the execution of payment services, clearing and
settlement in any currency and correspondent banking, intra-day exposures to
institutions providing those services; (e)
exposures deducted from own funds in accordance
with Articles 33, 53 and 63. 7.
In order to determine the existence of a group
of connected clients, in respect of exposures referred to in points (l)
and (n) of 107 where there is an exposure to underlying assets, and in respect
of exposures referred to in point (p) of Article 107 where there is a scheme
and an exposure to underlying assets, an institution shall assess the scheme,
its underlying exposures, or both. For that purpose, an institution shall
evaluate the economic substance and the risks inherent in the structure of the
transaction. 8.
EBA shall develop draft regulatory technical
standards to specify the following: (a)
which exposures referred to in point (p) of
Article 107 are subject to the treatment of this paragraph; (b)
the conditions and methodologies used to
determine the existence of a group of connected clients in respect of such
exposures. EBA shall submit those draft regulatory technical
standards to the Commission by 1 January 2014. Power is delegated to the Commission to adopt the
regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No. 1093/2010. Article 380
Definition of an institution for large exposures purposes For the purposes of calculating the value
of exposures in accordance with this Part the term 'institution' also means any private or public undertaking, including
its branches, which meets the definition of institution’ and has been
authorised in a third country. Article 381
Definition of a large exposure An institution's exposure to a client or
group of connected clients shall be considered a large exposure where its value
is equal to or exceeds 10 % of its eligible capital. Article 382
Capacity to identify and manage large exposures An institution shall
have sound administrative and accounting procedures and adequate internal
control mechanisms for the purposes of identifying, managing, monitoring,
reporting and recording all large exposures and subsequent changes to them, in
accordance with this Regulation Article 383
Reporting requirements 1.
An institution shall report the following
information about every large exposure to the competent authorities, including
large exposures exempted from the application of Article 384(1) (a)
the identification of the client or the group of
connected clients to which an institution has a large exposure; (b)
the exposure value before taking into account
the effect of the credit risk mitigation, when applicable; (c)
where used, the type of funded or unfunded
credit protection; (d) the exposure
value after taking into account the effect of the credit risk mitigation
calculated for the purpose of Article 384(1). Where an institution is subject to Part Three,
Title II, Chapter 3 its 20 largest exposures on a consolidated basis, excluding
those exempted from the application of Article 384(1) shall be made available
to the competent authorities. 2.
Reporting shall be carried out at least twice a
year. 3.
EBA shall develop draft implementing technical
standards to specify the following: (a) the uniform formats for the reporting referred
to in paragraph 2 which shall be proportionate to the nature, scale and
complexity of institutions' activities and the instructions for using those
formats; (b) the frequencies and dates of the reporting
referred to in paragraph 2; (c) the IT solutions to be applied for the
reporting referred to in paragraph 2. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2013. Power is conferred to the Commission to adopt the
implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Article 384
Large exposures limit 1.
An institution shall not incur an exposure,
after taking into account the effect of the credit risk mitigation in
accordance with Articles 388 to 392, to a client or group of connected
clients the value of which exceeds 25 % of its eligible capital Where that
client is an institution or where a group of connected clients includes one or
more institutions, that value shall not exceed 25 % of the institution's eligible
capital or EUR 150 million, whichever the higher, provided that the
sum of exposure values, after taking into account the effect of the credit risk
mitigation in accordance with Articles 388 to 392, to all connected
clients that are not institutions does not exceed 25 % of the
institution’s eligible capital Where the amount of EUR 150 million
is higher than 25 % of the institution’s eligible capital the value of the
exposure, after taking into account the effect of credit risk mitigation in
accordance with Articles 388 to 392 shall not exceed a reasonable limit in
terms of the institution’s eligible capital That limit shall be determined by
the institution in accordance with the policies and procedures referred to in
Article 79 of Directive [inserted by OP], to address and control concentration
risk. This limit shall not exceed 100 % of the institution’s eligible
capital Competent authorities
may set a lower limit than EUR 150 million and shall inform EBA and
the Commission thereof. 2.
Subject to Article 385, an institution shall at
all times comply with the relevant limit laid down in paragraph 1. 3.
Assets constituting claims and other exposures
onto recognised third country investment firms may be subject to the same
treatment as laid down in paragraph 1. 4.
The limits laid down in this Article may be
exceeded for the exposures on the institution's trading book if the following
conditions are met: (a)
the exposure on the non-trading book to the
client or group of clients in question does not exceed the limit laid down in
paragraph 1, this limit being calculated with reference to eligible capital, so
that the excess arises entirely on the trading book; (b)
the institution meets an additional own funds
requirement on the excess in respect of the limit laid down in paragraph 1 which
is calculated in accordance with Articles 386 and 387; (c)
where 10 days or less have elapsed since
the excess occurred, the trading-book exposure to the client or group of
connected clients in question shall not exceed 500 % of the institution's eligible
capital; (d)
any excesses that have persisted for more than
10 days do not, in aggregate, exceed 600 % of the institution's eligible
capital. In each case in which the limit has been
exceeded, the institution shall report the amount of the excess and the name of
the client concerned without delay to the competent authorities. Article 385
Compliance with Large exposures requirements 1.
If, in an exceptional case, exposures exceed the
limit set out in Article 384(1), the institution shall report the value of the
exposure without delay to the competent authorities which may, where the
circumstances warrant it, allow the credit institution a limited period of time
in which to comply with the limit. Where the amount of EUR 150 million referred to
in Article 384(1) is applicable, the competent authorities may allow on a
case-by-case basis the 100 % limit in terms of the credit institution's
own funds to be exceeded. 2.
Where compliance by a institution on an individual
or sub-consolidated basis with the obligations imposed in this Part is
disapplied under Article 6(1), or the provisions of Article 8 are applied in
the case of parent institutions in a Member State, measures must be taken to
ensure the satisfactory allocation of risks within the group. Article 386
Calculating additional own funds requirements for large exposures in the
trading book 1.
The excess referred to in Article 384(4)(b)
shall be calculated by selecting those components of the total trading exposure
to the client or group of clients in question which attract the highest
specific-risk requirements in Part Three, Title IV, Chapter 2 and/or
requirements in Article 293 and Part Three, Title V, the sum of which equals
the amount of the excess referred to in point (a) of Article 384(4). 2.
Where the excess has not persisted for more than
10 days, the additional capital requirement shall be 200 % of the
requirements referred to in paragraph 1, on these components. 3.
As from 10 days after the excess has occurred,
the components of the excess, selected in accordance with paragraph 1,
shall be allocated to the appropriate line in Column 1 of Table 1 in
ascending order of specific-risk requirements in Part Three, Title IV, Chapter
2 and/or requirements in Article 293 and Part Three, Title V. The additional own
funds requirement shall be equal to the sum of the specific-risk requirements
in Part Three, Title IV, Chapter 2 and/or the Article 293 and Part Three, Title
V requirements on these components, multiplied by the corresponding factor in Column
2 of Table 1. Table 1 Column 1: Excess over the limits (on the basis of a percentage of eligible capital) || Column 2: Factors Up to 40 % || 200 % From 40 % to 60 % || 300 % From 60 % to 80 % || 400 % From 80 % to 100 % || 500 % From 100 % to 250 % || 600 % Over 250 % || 900 % Article 387
Procedures to prevent avoiding the additional own funds requirement Institutions shall not deliberately avoid
the additional own funds requirements set out in Article 386 that they would
otherwise incur, on exposures exceeding the limit laid down in Article 384(1)
once those exposures have been maintained for more than 10 days, by means of
temporarily transferring the exposures in question to another company, whether
within the same group or not, and/or by undertaking artificial transactions to
close out the exposure during the 10-day period and create a new exposure. Institutions shall maintain systems which
ensure that any transfer which has the effect referred to in the first
subparagraph is immediately reported to the competent authorities. Article 388
Eligible credit mitigation techniques 1.
For the purposes of Articles 389 to 392 the term
‘guarantee’ shall include credit derivatives recognised under Part Three, Title
II, Chapter 4 other than credit linked notes. 2.
Subject to paragraph 3 of this Article,
where, under Articles 389 to 392 the recognition of funded or unfunded
credit protection is permitted, this shall be subject to compliance with the
eligibility requirements and other requirements set out in Part Three, Title
II, Chapter 4. 3.
Where a institution relies upon Article 390(2),
the recognition of funded credit protection shall be subject to the relevant
requirements under Part Three, Title II, Chapter 3 For the purposes of this
Section, a credit institution shall not take into account the collateral
referred to in Article 195, paragraphs 3 to 5, unless permitted under
Article 391. 4.
Institutions shall analyse, to the extent
possible, their exposures to collateral issuers, providers of unfunded credit
protection and underlying assets pursuant to Article 379(7) for possible
concentrations and where appropriate take action and report any significant
findings to their competent authority. Article 389
Exemptions 1.
The following exposures shall be exempted from
the application of Article 384(1): (a)
asset items constituting claims on central
governments or central banks which, unsecured, would be assigned a 0 % risk
weight under Part Three, Title II, Chapter 2; (b)
asset items constituting claims on international
organisations or multilateral development banks which, unsecured, would be
assigned a 0 % risk weight under Part Three, Title II, Chapter 2; (c)
asset items constituting claims carrying the
explicit guarantees of central governments, central banks, international
organisations, multilateral development banks or public sector entities, where
unsecured claims on the entity providing the guarantee would be assigned a 0 %
risk weight under Part Three, Title II, Chapter 2; (d)
other exposures attributable to, or guaranteed
by, central governments, central banks, international organisations,
multilateral development banks or public sector entities, where unsecured
claims on the entity to which the exposure is attributable or by which it is
guaranteed would be assigned a 0 % risk weight under Part Three, Title II,
Chapter 2; (e)
asset items constituting claims on regional
governments or local authorities of Member States where those claims would be
assigned a 0 % risk weight under Part Three, Title II, Chapter 2 and
other exposures to or guaranteed by those regional governments or local
authorities, claims on which would be assigned a 0 % risk weight
under Part Three, Title II, Chapter 2; (f)
exposures to counterparties referred to in
Article 108(6) or Article 108(7) if they would be assigned a 0 % risk
weight under Part Three, Title II, Chapter 2. Exposures that do not meet those
criteria, whether or not exempted from Article 384(1) shall be treated as
exposures to a third party; (g)
asset items and other exposures secured by
collateral in the form of cash deposits placed with the lending institution or
with an institution which is the parent undertaking or a subsidiary of the
lending institution; (h)
asset items and other exposures secured by
collateral in the form of certificates of deposit issued by the lending
institution or by an institution which is the parent undertaking or a
subsidiary of the lending institution and lodged with either of them; (i)
exposures arising from undrawn credit facilities
that are classified as low-risk off-balance sheet items in Annex I and
provided that an agreement has been concluded with the client or group of
connected clients under which the facility may be drawn only if it has been
ascertained that it will not cause the limit applicable under Article 384(1)
to be exceeded; (j)
trade exposures to central counterparties and
default fund contributions to central counterparties; (k)
exposures to deposit guarantee schemes under
Directive 94/19/EC arising from the funding of those schemes, if the member
institutions of the scheme have a legal or contractual obligation to fund the
scheme. Cash received under a credit linked note issued
by the institution and loans and deposits of a counterparty to or with the
institution which are subject to an on-balance sheet netting agreement
recognised under Part Three, Title II, Chapter 4 shall be deemed to fall under
point (g). 2.
Member States or competent authorities may fully or partially exempt the
following exposures from the application of Article 384(1): (a)
covered bonds falling within the terms Article 124(1)
and Article 124(2); (b)
asset items constituting claims on regional
governments or local authorities of Member States where those claims would be
assigned a 20 % risk weight under Part Three, Title II, Chapter 2 and
other exposures to or guaranteed by those regional governments or local
authorities, claims on which would be assigned a 20 % risk weight under Part
Three, Title II, Chapter 2; (c)
exposures, including participations or other
kinds of holdings, incurred by an institution to its parent undertaking, to
other subsidiaries of that parent undertaking or to its own subsidiaries, in so
far as those undertakings are covered by the supervision on a consolidated
basis to which the institution itself is subject, in accordance with this Regulation
or with equivalent standards in force in a third country; exposures that do not
meet these criteria, whether or not exempted from Article 384(1) shall be
treated as exposures to a third party; (d)
asset items constituting claims on and other
exposures, including participations or other kinds of holdings, to regional or
central credit institutions with which the credit institution is associated in
a network in accordance with legal or statutory provisions and which are
responsible, under those provisions, for cash-clearing operations within the
network; (e)
asset items constituting claims on and other
exposures to credit institutions incurred by credit institutions operating on a
non-competitive basis, providing loans under legislative programmes or their statutes,
to promote specified sectors of the economy under some form of government
oversight and restrictions on the use of the loans, provided that the
respective exposures arise from such loans that are passed on to the
beneficiaries via other credit institutions; (f)
asset items constituting claims on and other
exposures to institutions, provided that those exposures do not constitute such
institutions' own funds, do not last longer than the following business day and
are not denominated in a major trading currency; (g)
asset items constituting claims on central banks
in the form of required minimum reserves held at those central banks which are
denominated in their national currencies; (h)
asset items constituting claims on central
governments in the form of statutory liquidity requirements held in government
securities which are denominated and funded in their national currencies
provided that, at the discretion of the competent authority, the credit
assessment of those central governments assigned by a nominated ECAI is
investment grade; (i)
50 % of medium/low risk off-balance-sheet
documentary credits and of medium/low risk off-balance sheet undrawn credit
facilities referred to in Annex I and subject to the competent
authorities’ agreement, 80 % of guarantees other than loan guarantees
which have a legal or regulatory basis and are given for their members by
mutual guarantee schemes possessing the status of credit institutions; (j)
legally required guarantees used when a mortgage
loan financed by issuing mortgage bonds is paid to the mortgage borrower before
the final registration of the mortgage in the land register, provided the
guarantee is not used as reducing the risk in calculating the risk weighted
assets; (k)
assets constituting claims and other exposures
to recognised exchanges. Article 390
Calculating the effect of the use of credit risk mitigation techniques 1.
For the purposes of calculating the value of
exposures for the purposes of Article 384(1) an institution may use the
‘fully adjusted exposure value’ as calculated under Part Three, Title II,
Chapter 4 taking into account the credit risk mitigation, volatility
adjustments, and any maturity mismatch (E*). 2.
An institution permitted to use own estimates of
LGDs and conversion factors for an exposure class under Part Three, Title II,
Chapter 3 may, subject to a permission by the competent authorities recognise the
effects of financial collateral in calculating the value of exposures for the
purposes of Article 384(1). Competent authorities shall grant the
permission referred to in preceding subparagraph only if the institution can
estimate the effects of financial collateral on their exposures separately from
other LGD-relevant aspects. An institution shall apply such procedures so
that its produced estimates are sufficiently suitable for reducing the exposure
value for the purposes of compliance with the provisions of Article 384. Where an institution is permitted to use its
own estimates of the effects of financial collateral, it shall do so on a basis
consistent with the approach adopted in the calculation of the own funds
requirements in accordance with this Regulation. Institutions permitted to use own estimates of
LGDs and conversion factors for an exposure class under Part Three, Title II,
Chapter 3, which do not calculate the value of their exposures using the method
referred to in the first subparagraph of this paragraph, may use the
Financial Collateral Comprehensive Method or the approach set out in
Article 392(1)(b) for calculating the value of exposures. 3.
An institution that makes use of the Financial
Collateral Comprehensive Method or is permitted to use the method described in
paragraph 2 of this Article in calculating the value of exposures for the
purposes of Article 384(1) shall conduct periodic stress tests of their
credit-risk concentrations, including in relation to the realisable value of
any collateral taken. These periodic stress tests referred to in the
first subparagraph shall address risks arising from potential changes in market
conditions that could adversely impact the institutions' adequacy of own funds
and risks arising from the realisation of collateral in stressed situations. The stress tests
carried out shall be adequate and appropriate for the assessment of such risks. In the event that the period stress test
indicates a lower realisable value of collateral taken than would be permitted
to be taken into account while making use of the Financial Collateral
Comprehensive Method or the method described in paragraph 2 as
appropriate, the value of collateral permitted to be recognised in calculating
the value of exposures for the purposes of Article 384(1) shall be reduced
accordingly. Institutions referred to in the first
subparagraph shall include the following in their strategies to address concentration
risk: (a)
policies and procedures to address risks arising
from maturity mismatches between exposures and any credit protection on those
exposures; (b)
policies and procedures in the event that a
stress test indicates a lower realisable value of collateral than taken into
account while making use of the Financial Collateral Comprehensive Method or
the method described in paragraph 2; (c)
policies and procedures relating to
concentration risk arising from the application of credit risk mitigation
techniques, and in particular large indirect credit exposures, for example to a
single issuer of securities taken as collateral. Article 391
Exposures arising from mortgage lending 1.
For the purposes of calculating the value of
exposures or any part of an exposure secured by mortgages on residential
property, an institution may reduce the exposure value by up to 50 %
of the value of the residential property concerned, where either of the
following conditions is met: (a)
the exposure is secured, by mortgages on
residential property or by shares in Finnish residential housing companies,
operating in accordance with the Finnish Housing Company Act of 1991 or
subsequent equivalent legislation; (b)
the exposure relates to a leasing transaction
under which the lessor retains full ownership of the residential property
leased for as long as the lessee has not exercised his option to purchase. The value of the property shall be calculated
on the basis of prudent valuation standards laid down by law, regulation or
administrative provisions. Valuation shall be carried out at least once every
three years for residential property. The requirements in Article 203 and in Article 224(1)
shall apply for the purpose of this paragraph. ‘Residential property’ shall mean a residence
to be occupied or let by the owner. 2.
For the purposes of calculating the value of
exposures or any part of an exposure secured by mortgages on commercial
property, an credit institution may reduce the exposure value by up
to 50 % of the value of the commercial property concerned only if the
competent authorities concerned in the Member State where the commercial
property is situated allow the following exposures to receive a 50 % risk
weight on the basis of the same conditions set out in Article 121: (a)
exposures secured by mortgages on offices or
other commercial premises, or by shares in Finnish housing companies, operating
in accordance with the Finnish Housing Company Act of 1991 or subsequent
equivalent legislation, in respect of offices or other commercial premises; (b)
exposures related to property leasing
transactions concerning offices or other commercial premises. The value of the property shall be calculated
on the basis of prudent valuation standards laid down by law, regulation or
administrative provisions. Commercial property shall be fully constructed,
leased and produce appropriate rental income. Article 392
Substitution approach 1.
Where an exposure to a client is guaranteed by a
third party, or secured by collateral issued by a third party, an institution
may: (a)
treat the portion of the exposure which is
guaranteed as having been incurred to the guarantor rather than to the client
provided that the unsecured exposure to the guarantor would be assigned an
equal or lower risk weight than a risk weight of the unsecured exposure to the
client under Part Three, Title II, Chapter 2; (b)
treat the portion of the exposure collateralised
by the market value of recognised collateral as having been incurred to the
third party rather than to the client, if the exposure is secured by collateral
and provided that the collateralised portion of the exposure would be assigned
an equal or lower risk weight than a risk weight of the unsecured exposure to
the client under Part Three, Title II, Chapter 2. The approach referred to in point (b) of
the first subparagraph shall not be used by an institution where there is a
mismatch between the maturity of the exposure and the maturity of the
protection. For the purpose of this Part, an institution
may use both the Financial Collateral Comprehensive Method and the treatment
provided for in point (b) of the first subparagraph only where it is
permitted to use both the Financial Collateral Comprehensive Method and the
Financial Collateral Simple Method for the purposes of Article 87. 2.
Where an institution applies point (a) of paragraph 1: (a)
where the guarantee is denominated in a currency
different from that in which the exposure is denominated the amount of the
exposure deemed to be covered shall be calculated in accordance with the
provisions on the treatment of currency mismatch for unfunded credit protection
in Part Three, Title II, Chapter 4; (b)
a mismatch between the maturity of the exposure
and the maturity of the protection shall be treated in accordance with the
provisions on the treatment of maturity mismatch in Part Three, Title II,
Chapter 4; (c)
partial coverage may be recognised in accordance
with the treatment set out in Part Three, Title II, Chapter 4. PART FIVE
EXPOSURES TO TRANSFERRED CREDIT RISK Title I
General provisions for this Part Article 393
Scope of application Titles
II and III shall apply to new securitisations issued on or after 1 January
2011. Titles II and III shall, after 31 December 2014, apply to existing
securitisations where new underlying exposures are added or substituted after
that date. Title II
Requirements for investor institutions Article 394
Retained interest of the issuer 1.
An institution, other
than when acting as an originator, a sponsor or original lender, shall be
exposed to the credit risk of a securitisation position in its trading book or
non-trading book only if the originator, sponsor or original lender has
explicitly disclosed to the institution that it will retain, on an ongoing
basis, a material net economic interest which, in any event, shall not be less
than 5 %. Only any of the following qualifies as
retention of a material net economic interest of not less than 5%: (a)
retention of no less than 5 % of the
nominal value of each of the tranches sold or transferred to the investors; (b)
in the case of securitisations of revolving
exposures, retention of the originator’s interest of no less than 5 % of
the nominal value of the securitised exposures; (c)
retention of randomly selected exposures,
equivalent to no less than 5 % of the nominal amount of the securitised
exposures, where such exposures would otherwise have been securitised in the
securitisation, provided that the number of potentially securitised exposures
is no less than 100 at origination; (d)
retention of the first loss tranche and, if
necessary, other tranches having the same or a more severe risk profile than
those transferred or sold to investors and not maturing any earlier than those
transferred or sold to investors, so that the retention equals in total no less
than 5 % of the nominal value of the securitised exposures. Net economic interest is measured at the
origination and shall be maintained on an ongoing basis. The net economic
interest, including retained positions, interest or exposures, shall not be
subject to any credit risk mitigation or any short positions or any other hedge
and shall not be sold. The net economic interest shall be determined by the
notional value for off-balance sheet items. There shall be no multiple applications of the
retention requirements for any given securitisation. 2.
Where an EU parent credit institution or an EU
financial holding company, or one of its subsidiaries, as an originator or a
sponsor, securitises exposures from several credit institutions, investment
firms or other financial institutions which are included in the scope of supervision
on a consolidated basis, the requirement referred to in
paragraph 1 may be satisfied on the basis of the consolidated
situation of the related EU parent credit institution or EU financial holding
company. The first subparagraph shall apply only where
credit institutions, investment firms or financial institutions which created
the securitised exposures have committed themselves to adhere to the
requirements set out in Article 397 and deliver, in a timely manner, to the
originator or sponsor and to the EU parent credit institution or an EU
financial holding company the information needed to satisfy the requirements
referred to in Article 398. 3.
Paragraph 1 shall not apply where the
securitised exposures are claims or contingent claims on or fully, unconditionally
and irrevocably guaranteed by the following entities: (a) central governments or central banks; (b) regional governments, local
authorities and public sector entities of Member States; (c) institutions to which a 50 % risk
weight or less is assigned under Part Three, Title II, Chapter 2; (d) multilateral development banks. 4.
Paragraph 1 shall not apply to the
following: (a) transactions based on a clear,
transparent and accessible index, where the underlying reference entities are
identical to those that make up an index of entities that is widely traded, or
are other tradable securities other than securitisation positions; (b) syndicated loans, purchased
receivables or credit default swaps where these instruments are not used to
package and/or hedge a securitisation that is covered by paragraph 1. Article 395
Due diligence 1.
Before investing, and as appropriate thereafter,
institutions, shall be able to demonstrate to the competent authorities for
each of their individual securitisation positions, that they have a
comprehensive and thorough understanding of and have implemented formal
policies and procedures appropriate to their trading book and non-trading book
and commensurate with the risk profile of their investments in securitised
positions for analysing and recording: (a)
information disclosed under Article 394(1), by
originators or sponsors to specify the net economic interest that they
maintain, on an ongoing basis, in the securitisation; (b)
the risk characteristics of the individual
securitisation position; (c)
the risk characteristics of the exposures
underlying the securitisation position; (d)
the reputation and loss experience in earlier
securitisations of the originators or sponsors in the relevant exposure classes
underlying the securitisation position; (e)
the statements and disclosures made by the
originators or sponsors, or their agents or advisors, about their due diligence
on the securitised exposures and, where applicable, on the quality of the
collateral supporting the securitised exposures; (f)
where applicable, the methodologies and concepts
on which the valuation of collateral supporting the securitised exposures is
based and the policies adopted by the originator or sponsor to ensure the
independence of the valuer; (g)
all the structural features of the
securitisation that can materially impact the performance of the institution’s
securitisation position. Institutions shall
regularly perform their own stress tests appropriate to their securitisation
positions. To this end, institutions may rely on financial models developed by
an ECAI provided that institutions can demonstrate, when requested, that they
took due care prior to investing to validate the relevant assumptions in and
structuring of the models and to understand methodology, assumptions and results. 2.
Institutions, other than
when acting as originators or sponsors or original lenders, shall establish
formal procedures appropriate to their trading book and non-trading book and
commensurate with the risk profile of their investments in securitised positions
to monitor on an ongoing basis and in a timely manner performance information
on the exposures underlying their securitisation positions. Where relevant,
this shall include the exposure type, the percentage of loans more than 30, 60
and 90 days past due, default rates, prepayment rates, loans in
foreclosure, collateral type and occupancy, and frequency distribution of
credit scores or other measures of credit worthiness across underlying
exposures, industry and geographical diversification, frequency distribution of
loan to value ratios with band widths that facilitate adequate sensitivity
analysis. Where the underlying exposures are themselves securitisation
positions, institutions shall have the information set out in this subparagraph
not only on the underlying securitisation tranches, such as the issuer name and
credit quality, but also on the characteristics and performance of the pools
underlying those securitisation tranches. Institutions shall have
a thorough understanding of all structural features of a securitisation
transaction that would materially impact the performance of their exposures to
the transaction such as the contractual waterfall and waterfall related
triggers, credit enhancements, liquidity enhancements, market value triggers, and
deal-specific definition of default. Article 396
Additional risk weight Where an institution does not meet the
requirements in Articles 394 or 395 in any material respect by reason of the
negligence or omission of the institution, the competent authorities shall
impose a proportionate additional risk weight of no less than 250 % of the
risk weight (capped at 1250 %) which shall apply to the relevant
securitisation positions in the manner specified in Articles 240(6) or 326(3)
respectively. The additional risk weight shall progressively increase with each
subsequent infringement of the due diligence provisions. The competent authorities shall take into
account the exemptions for certain securitisations provided in Article 394(3)
by reducing the risk weight it would otherwise impose under this Article in
respect of a securitisation to which Article 394(3) applies. Title III
Requirements for sponsor and originator institutions Article 397
Criteria for credit granting Sponsor and originator institutions shall
apply the same sound and well-defined criteria for credit-granting in
accordance with the requirements of Article 77 of Directive [inserted by OP] to
exposures to be securitised as they apply to exposures to be held on their
book. To this end the same processes for approving and, where relevant,
amending, renewing and re-financing credits shall be applied by the originator
and sponsor institutions. Institutions shall also apply the same standards of
analysis to participations or underwritings in securitisation issues purchased
from third parties whether such participations or underwritings are to be held
on their trading or non-trading book. Where the requirements referred to in the
first subparagraph of this Article are not met, Article 240(1) shall not be
applied by an originator institution and that originator institution shall not
be allowed to exclude the securitised exposures from the calculation of its
capital requirements under this Regulation. Article 398
Disclosure to investors Sponsor and originator institutions shall
disclose to investors the level of their commitment under Article 394 to
maintain a net economic interest in the securitisation. Sponsor and originator institutions
shall ensure that prospective investors have readily available access to all
materially relevant data on the credit quality and performance of the
individual underlying exposures, cash flows and collateral supporting a
securitisation exposure as well as such information that is necessary to
conduct comprehensive and well informed stress tests on the cash flows and
collateral values supporting the underlying exposures. For that purpose,
materially relevant data shall be determined as at the date of the
securitisation and where appropriate due to the nature of the securitisation
thereafter. Article 399
Uniform condition of application 1.
EBA shall report to the Commission annually on
measures taken by the competent authorities in order to ensure the
compliance with the requirements of Titles II and III by institutions. 2.
EBA shall develop draft implementing technical
standards for facilitating the convergence of supervisory practices with regard
to Articles 394 to 398, including the measures to be taken in case of breach of
the due diligence and risk management obligations. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 15 of Regulation (EU) No
1093/2010. PART SIX
LIQUIDITY Title I
Definitions and liquidity coverage requirement Article 400
Definitions For the purposes of this Part, the
following definitions apply: (1)
'Financial customer' means a customer that performs
one or more of the activities listed in Annex I of Directive [inserted by OP]
as their main business, or is one of the following: (a) a credit institution; (b) an investment firm; (c) a SSPE; (d) a CIU; (e) a non-open ended investment scheme (f) an insurance undertaking; (g) a financial holding company or
mixed-activity holding company. (2) 'Retail deposit' means a
liability to a natural person or to a small and medium sized enterprise where
the aggregate liability to such clients or group of connected clients is less
than 1 million EUR. Article 401
Liquidity coverage requirement 1.
Institutions shall at all times hold liquid
assets, the sum of the values of which equals, or is greater than, the
liquidity outflows less the liquidity inflows under stressed conditions so as
to ensure that institutions maintain levels of liquidity buffers which are
adequate to face any possible imbalance between liquidity inflows and outflows
under stressed conditions over a short period of time. 2.
Institutions shall not count double liquidity
inflows and liquid assets. 3.
Institutions may use the liquid assets referred
to in paragraph 1 to meet their obligations under stress circumstances as
specified under Article 402. 4.
The provisions set out in Title II shall apply
exclusively for the purposes of specifying reporting obligations set out in
Article 403. Article 402
Compliance with liquidity requirements Where a credit institution does not meet, or is expected
not to meet the requirement set out in Article 401(1), it shall immediately
notify the competent authorities and shall submit without undue delay to the
competent authority a plan for the timely restoration of compliance with
Article 401. Until such compliance has been restored, the credit institution
shall report the items daily by the end of each business day unless the
competent authority authorises a lower frequency and a longer delay. Competent
authorities shall only grant such authorisations based on the individual
situation of a credit institution. They shall monitor the implementation of the
restoration plan and shall require a more timely restoration if appropriate. Title II
Liquidity reporting Article 403
Reporting obligation and reporting format 1.
Institutions shall report to the competent
authorities the items referred to in Title II and III and their components,
including the composition of its liquid assets according to Article 404 and
Annex III. The reporting frequency shall not be less than monthly for the
requirement in Title II and Annex III and not less than quarterly for items
referred to in Title III. Competent authorities shall only authorise a
lower reporting frequency or a longer reporting delay on the basis of the
individual situation of a credit institution. They shall monitor the
implementation of the restoration plan referred to in that Article and shall,
if appropriate, require a more timely restoration than it is set out in the
plan. 2.
When a competent authority decides that an
institution has a significant liquidity risk in another currency or a significant
branch as defined in Article 52 of Directive [inserted by OP] in a host Member
State using a different currency than its home Member State, the institution
shall separately report to the competent authorities of the home Member States
the items denominated in or indexed to the former currency. 3.
EBA shall develop draft implementing technical
standards to specify the following: (a)
uniform formats with associated instructions for
and frequencies, dates and delays of reporting. The reporting formats and frequencies
shall be proportionate to the nature, scale and complexity of different
institutions' activities and shall comprise the reporting required according to
paragraphs 1 and 2; (b)
additional liquidity monitoring metrics required,
to allow competent authorities to obtain a comprehensive view of the liquidity
risk profile, proportionate to the nature, scale and complexity of an
institution's activities; (c)
the IT solutions to be applied for such
reporting which allow for direct and immediate electronic access to the
reporting of an institution where required by Directive [inserted by OP] and
this Regulation. n. EBA shall submit
those draft technical standards to the Commission by 1 January 2013. Power is conferred on
the Commission to adopt the draft implementing technical standards referred to
in the first sub-paragraph in accordance with Article 15 of Regulation (EU) No.
1093/2010. 4.
Competent authorities of the home Member State shall upon request provide the competent authorities and the national central bank
of the host Member States and EBA with direct and immediate electronic access
to the individual reporting in accordance with this Article. 5.
Competent authorities that exercise supervision
on a consolidated basis according to Article 107 of Directive [inserted by OP]
shall provide upon request the following authorities with direct and immediate
electronic access to all reporting submitted by the institution in accordance
with this Article: (a)
the competent authorities and the national
central bank of the host Member States in which there are significant branches
of subsidiaries of the parent institution or institutions controlled by the
same parent financial holding company; (b)
the competent authorities that have authorised
subsidiaries of the parent institution or institutions controlled by the same
parent financial holding company and the national central bank of the same
Member State; (c)
EBA; (d)
ECB. 6.
The competent authorities that have authorised
an institution that is a subsidiary of a parent institution or parent financial
holding company shall provide upon request the competent authorities that shall
exercise supervision on a consolidated basis according to Article 106 of
Directive [inserted by OP], the central bank of the Member State where the institution
is authorised and EBA with direct and immediate electronic access to all
reporting submitted by the institution in accordance with the uniform formats
referred to in paragraph 3. Article 404
Reporting on liquid assets 1.
Institutions shall report the following as liquid
assets unless excluded by paragraph 2 and only if the liquid assets fulfil the
conditions in paragraph 3: (a)
cash and deposits held with central banks to the
extent that these deposits can be withdrawn in times of stress; (b)
transferable assets that are of extremely high
liquidity and credit quality; (c)
transferable assets representing claims on or
guaranteed by the central government of a Member State or a third country if
the institution incurs a liquidity risk in that Member State or third country
that it covers by holding those liquid assets; (d)
transferable assets that are of high liquidity
and credit quality. Pending a uniform definition in accordance with
Article 481(2) of high and extremely high liquidity and credit quality,
institutions shall identify themselves in a given currency transferable assets
that are respectively of high or extremely high liquidity and credit quality.
Pending a uniform definition, competent authorities may, taking into account
the criteria listed in Article 481(2), provide general guidance that
institutions shall follow in identifying assets of high and extremely high
liquidity and credit quality. In the absence of such guidance, institutions
shall use transparent and objective criteria to this end, including some or all
of the criteria listed in Article 481(2). 2.
The following shall not be considered liquid
assets: (a)
assets that are issued by a credit institution
unless they fulfil one of the following conditions: (i) they are bonds eligible for the
treatment set out in Article 124(3) or (4); (ii) they are bonds as defined in Article
52(4) of Directive 2009/65/EC other than those referred to in (i); (iii) the credit institution has been set
up and is sponsored by a Member State central or regional government and the
asset is guaranteed by that government and used to fund promotional loans
granted on a non-competitive, not for profit basis in order to promote its
public policy objectives; (b)
assets issued by any of the following: (i) an investment firm; (ii) an insurance undertaking; (iii) a financial holding company; (iv) a mixed-activity holding companies; (v) any other entity that performs one or
more of the activities listed in Annex I of Directive [inserted by OP] as its
main business. 3.
Institutions shall only report as liquid assets
that fulfil each of the following conditions: (a)
they are not issued by the institution itself or
its parent or subsidiary institutions or another subsidiary of its parent
institutions or parent financial holding company; (b)
they are eligible collateral in normal times for
intraday liquidity needs and overnight liquidity facilities of a central bank
in a Member State or if the liquid assets are held to meet liquidity outflows
in the currency of a third country, of the central bank of that third country; (c)
their price can be determined by a formula that
is easy to calculate based on publicly available inputs and does not depend on
strong assumptions as is typically the case for structured or exotic products; (d)
they are listed on a recognised exchange; (e)
they are tradable on active outright sale or
repurchase agreement markets with a large and diverse number of market
participants, a high trading volume, and market breadth and depth. The condition in point (b) shall not apply in
case of liquid assets held to meet liquidity outflows in a currency in which
there is an extremely narrow definition of central bank eligibility. In case of
currencies of third countries, this exception shall apply and only apply if the
competent authorities of the third country apply the same exception and the
third country has comparable reporting requirements in place. 4.
EBA shall develop draft implementing technical
standards listing the currencies which meet the conditions referred to in the
paragraph 3. EBA shall submit those draft technical
standards to the Commission by 1 January 2013. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Before the entry into force of the technical
standards referred to in the previous subparagraph, institutions may continue
to apply the treatment set out in the first subparagraph, where the competent
authorities have applied that treatment before 1 January 2013. 5.
Shares or units in CIUs may be treated as liquid
assets up to an absolute amount of 250 million EUR provided that the
requirements in Article 127(3) are met and that the CIU, apart from derivatives
to mitigate interest rate or credit risk, only invests in liquid assets. 6.
Where a liquid asset ceases to be eligible for
paragraph 1, an institution may nevertheless continue to consider it a liquid
asset for an additional period of 30 calendar days. Article 405
Operational requirements for holdings of liquid assets The institution shall only report as liquid
assets those holdings of liquid assets that meet the following conditions: (a)
they are appropriately diversified; (b)
not less than 60% of the liquid assets that the
institution reports are assets referred to under points (a) to (c) of Article 404(1).
Such assets owed and due or callable within 30 calendar days shall not count
towards the 60% unless the assets have been obtained against collateral that
also qualifies under points (a) to (c) of Article 404(1); (c)
they are legally and practically readily
available at any time during the next 30 days to be liquidated via outright
sale or repurchase agreements in order to meet obligations coming due. Liquid
assets referred to in point (c) of Article 404 which are held in third
countries where there are transfer restrictions or which are denominated in
non-convertible currencies shall be considered available only to the extent
that they correspond to outflows in the third country or currency in question; (d)
the liquid assets are controlled by a liquidity
management function; (e)
a portion of the liquid assets is periodically
and at least annually liquidated via outright sale or repurchase agreements for
the following purposes: (i) to test the access to the market for
these assets, (ii) to test the effectiveness of its
processes for the liquidation of assets (iii) to test the usability of the assets,
(iv) to minimise the risk of negative
signalling during a period of stress; (f)
price risks associated with the assets may be
hedged but the liquid assets are subject to appropriate internal arrangements
that ensure that they will not be used in other ongoing operations, including: (i) hedging or other trading strategies; (ii) providing credit enhancements in
structured transactions; (iii) to cover operational costs. (g)
the denomination of the liquid assets is
consistent with the distribution by currency of liquidity outflows after the
deduction of capped inflows. Article 406
Valuation of liquid assets 1.
The value of a liquid asset to be reported shall
be its market value, subject to appropriate haircuts that reflect at least the
duration, the credit and liquidity risk and typical repo haircuts in periods of
general market stress. The haircuts shall not be less than 15% for the assets
in point (d) of Article 404(1). If the credit institution hedges the price risk
associated with an asset, it shall take into account the cash flow resulting
from the potential close-out of the hedge. 2.
Shares or units in CIUs as referred to in
Article 404(4) shall be subject to haircuts, looking through to the underlying
assets as follows: (a)
0% for the assets in point (a) of Article 404(1)
; (b)
5% for the assets in points (b) and (c) of Article
404(1) ; (c)
20% for the assets in point (d) of Article 404(1). The look-through approach shall be applied as
follows: (a)
where the institution is aware of the underlying
exposures of a CIU, it may look through to those underlying exposures in order
to assign them to point (a) to (d) of Article 404(1); (b)
where the institution is not aware of the underlying
exposures of a CIU, it shall be assumed that the CIU invests, to the maximum
extent allowed under its mandate, in descending order in the asset types
referred to in points (a) to (d) of Article 404(1) until the maximum total
investment limit is reached. 3.
Institutions may rely on the following third
parties to calculate and report the haircuts for shares or units in CIUs, in
accordance with the methods set out in points (a) and (b) in the second
subparagraph of paragraph 2: (a)
the depository institution of the CIU provided
that the CIU exclusively invests in securities and deposits all securities at
this depository institution; (b)
for other CIUs, the CIU management company,
provided that the CIU management company meets the criteria set out in Article 127(3)(a).
The correctness of the calculations by the
depository institution or the CIU management company shall be confirmed by an
external auditor. Article 407
Currencies with constraints on the availability of liquid assets 1.
EBA shall assess the availability for
institutions of the liquid assets referred to in point (b) of Article 404(1) in
the currencies that are relevant for EU institutions. 2.
Where the justified needs for liquid assets in
light of the requirement in Article 401 are exceeding the availability of those
liquid assets in a currency, one or more of the following derogations shall
apply: (a) by derogation to point (b) of Article 405,
the percentage share of the assets referred to in points (a) to (c) of Article 404(1)
in the liquid assets that the institution reports may be lower than 60%; (b) by derogation to point (h) of Article 405
, the denomination of the liquid assets may be inconsistent with the
distribution by currency of liquidity outflows after the deduction of capped
inflows. (c) for currencies of third countries,
required liquid assets may be substituted by credit lines from the central bank
of that third country, which are contractually irrevocably committed for the
next 30 days and are fairly priced, independent of the amount currently drawn,
provided that the competent authorities of the third country do the same and
the third country has comparable reporting requirements in place. 3.
The derogations applied in accordance with
paragraph 2 shall be inversely proportional to the availability of the relevant
assets. The justified needs of institutions shall be assessed taking into
account their ability to reduce, by sound liquidity management, the need for
those liquid assets and the holdings of those assets by other market
participants. 4.
EBA shall develop draft implementing technical
standards listing the currencies which meet the conditions set out in this
Article. EBA shall submit those draft implementing technical
standards to the Commission by 1 January 2013. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU)No
1093/2010. 5.
EBA shall develop draft regulatory technical
standards to specify the exceptions referred to in paragraph 2. EBA shall submit those draft regulatory technical
standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation
(EU)No 1093/2010. 6.
EBA shall provide advice to the Commission by 31
December 2013 about the appropriate haircuts for assets held as a result of the
derogation referred to in point (a) of paragraph 2. Article 408
Liquidity outflows 1.
Liquidity outflows to be reported shall be
calculated as the sum of the following items: (a)
the percentages of the current amount
outstanding for retail deposits as set out in Article 409; (b)
the percentages of the current amounts
outstanding of other liabilities that come due, can be called for payout or
entail an implicit expectation of the provider of the funding that the
institution would repay the liability during the next 30 days as set out in
Article 410; (c)
the additional outflows referred to in Article 411; (d)
the percentage of the maximum amount that can be
drawn during the next 30 days from undrawn credit and liquidity facilities that
qualify as medium or medium to low risk under Annex I, as set out in Article 412;
(e)
the additional outflows identified in the
assessment according to paragraph 2. 2.
Institutions shall regularly assess the
likelihood and potential volume of liquidity outflows during the next 30 days
as far as products or services are concerned, which are not captured in
Articles 410 to 412 and which these institutions offer or sponsor or which
potential purchasers would consider to be associated with these institutions,
including any contractual arrangements such as other off balance sheet and
contingent funding obligations. These outflows shall be assessed under the
assumption of a combined idiosyncratic and market-wide stress scenario. For this assessment, institutions shall take
particular account of material reputational damages that could result from them
not providing liquidity support to such products or services. Institutions
shall report products and services the likelihood and volume referred to in the
first subparagraph is material to the competent authorities not less than
yearly and the competent authorities shall determine the outflows to be
assigned. The competent authorities shall at least
annually report to EBA the types of products or services for which they have
determined outflows on the basis of the reports from institutions. They shall
in this report also explain the methodology applied to determine the outflows. 3.
EBA shall develop draft regulatory technical
standards specifying the treatment of products and services referred to in
paragraph 2, identifying products or services that shall be covered for these
purposes and the appropriate methods to determine the outflows to be assigned. EBA
shall submit those draft regulatory technical standards to the Commission by 30
June 2014. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 409
Outflows on retail deposits 1.
Institutions shall multiply the amount of retail
deposits that are covered by a Deposit Guarantee Scheme according to Directive 94/19/EG
or an equivalent deposit guarantee scheme in a third country by at least 5%
where the deposit is either (a)
part of an established relationship making
withdrawal highly unlikely; (b)
held in a transactional account, including
accounts to which salaries are regularly credited. 2.
Institutions shall multiply other retail
deposits not referred to in paragraph 1 by at least 10%. 3.
EBA shall develop draft implementing technical
standards to determine the conditions of application of paragraphs 1 and 2 in
relation to the identification of retail deposits subject to higher outflows
than specified in paragraph 1 or 2 and the definitions of those products and
the appropriate outflows for purposes of this Title. These standards shall take
account of the likelihood of these deposits to lead to outflows of liquidity
during the next 30 days. These outflows shall be assessed under the assumption
of a combined idiosyncratic and market-wide stress scenario. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2013. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. 4.
Institutions shall multiply retail deposits that
they have taken in third countries by a higher percentage than provided for in
paragraphs 1 and 2 if such percentage is provided by comparable third country
reporting requirements. 5.
Institutions may exclude from the calculation of
outflows certain clearly circumscribed categories of retail deposits as long as
in each and every instance the institution rigorously applies the following for
the whole category of those deposits, unless in individually justified
circumstances of hardship for the depositor: (a)
within 30 days, the depositor is not allowed to
withdraw the deposit; (b)
for early withdrawals within 30 days, the
depositor has to pay a penalty for early withdrawal that is materially greater
than losing the interest he would obtain for the remaining maturity absent the
early withdrawal. Notwithstanding the previous sentence, the penalty does not
have to exceed the interest due for the time elapsed since the current term of
the deposit had been agreed. Article 410
Outflows on other liabilities 1.
Institutions shall multiply liabilities
resulting from the institutions own operating expenses by 0%. 2.
Institutions shall multiply liabilities
resulting from secured lending and capital market driven transactions as
defined in Article 188 if they are collateralised by assets that would qualify
as liquid assets according to Article 404 by: (a) 0% up to the value of the liquid assets according to
Article 406; (b) 100% for the remaining liability. 3.
Institutions shall multiply liabilities
resulting from secured lending and capital market driven transactions as
defined in Article 188 by 25% if the assets would not qualify as liquid assets
according to Article 404 and the lender is the central bank or another public
sector entity of the Member State in which the credit institution was
authorised. 4.
Institutions shall multiply liabilities
resulting from deposits that have to be maintained: (a)
by the depositor in order to obtain clearing,
custody or cash management services from the institution; (b)
in the context of common task sharing within an
institutional protection scheme meeting the requirements of Article 108(7) or
as a legal or statutory minimum deposit by another entity being a Member of the
same institutional protection scheme; by 5% in the case of point (a) to the extent to
which they are covered by a Deposit Guarantee Scheme according to Directive 94/19/EC
or an equivalent deposit guarantee scheme in a third country and by 25% otherwise.
Clearing, custody or cash management services
referred to in point (a) only covers such services to the extent that they are
rendered in the context of an established relationship on which the depositor
has substantial dependency. They shall not merely consist in correspondent
banking or prime brokerage services and the institution shall have objective
evidence that the client is unable to withdraw those amounts over a 30 day
horizon without compromising its operational functioning. 5.
Institutions shall multiply liabilities
resulting from deposits by clients that are not financial customers by 75% to
the extent they do not fall under paragraph 4. 6.
Institutions shall take payables and receivables
expected over the 30 day horizon from the contracts listed in Annex II into
account on a net basis across counterparties and shall multiply them by 100% in
case of a net amount payable. Net basis shall mean also net of collateral to be
received that qualifies as liquid assets under Article 404. 7.
Institutions shall multiply other liabilities
that do not fall under paragraphs 1 to 5 by 100%. 8.
By derogation from paragraph 7, competent
authorities may grant the permission to apply a lower percentage on a
case-by-case basis when where all of the following conditions are fulfilled: (a)
the depositor is a parent or subsidiary
institution of the institution or another subsidiary of the same parent
institution or linked to the institution by a relationship within the meaning
of Article 12(1) of Directive 83/349/EEC; (b)
there are reasons to expect a lower outflow over
the next 30 days even under combined idiosyncratic and market-wide stress
scenario; (c)
a corresponding symmetric or more conservative
inflow is applied by the depositor by derogation from Article 413; (d)
the institution and the depositor are
established in the same Member State unless Article 18(1)(b) applies. Where such lower outflow is permitted to be
applied, the competent authorities shall inform EBA about the decision and its
reasons. The conditions for such lower outflows shall be regularly reviewed by
the competent authorities. Article 411
Additional Outflows 1.
Collateral other than assets corresponding to
Article 404(1) a) to c), which is posted by the institution for contracts
listed in Annex II, shall be subject to an additional outflow of 15% of the
market value of assets corresponding to Article 404(1)(d) and 20% of the market
value of other assets. 2.
If the competent authority considers the
dealings of an institution in capital market driven transactions defined in Article
188 or in the contracts listed in Annex II material in relation to the
potential liquidity outflows of the institution, the institution shall add an
additional outflow for the additional collateral needs resulting, according to
the contracts that the institution has entered into, from a material
deterioration in the credit quality of the institution such as a downgrade in
its external credit assessment by three notches. The extent of this material
deterioration shall be reviewed regularly and notified to the competent
authority. 3.
The institution shall add an additional outflow
corresponding to collateral needs that would result from the impact of an
adverse market scenario on the institution's dealings in the contracts listed
in Annex II if the latter are material. EBA shall develop draft regulatory technical
standards to determine the conditions of application in relation to the notion
of materiality and methods for the measurement of this additional outflow. EBA shall submit those draft regulatory technical
standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the second subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. 4.
The institution shall add an additional outflow
corresponding to the market value of securities or other assets sold short and
to be delivered within the 30 days horizon unless the institution owns the
securities to be delivered or has borrowed them at terms requiring their return
only after the 30 day horizon and the securities do not form part of the
institutions liquid assets. Article 412
Outflows from credit and liquidity facilities 1.
Institutions shall report outflows from credit
and liquidity facilities, which shall be determined as a percentage of the
maximum amount that can be drawn. This maximum amount that can be drawn may be
assessed net of the value according to Article 406 of collateral to be provided
if the institution can reuse the collateral and if the collateral in the form
of liquid assets in accordance with Article 404. The collateral to be provided
may not be assets issued by the counterparty of the facility or one of its
affiliated entities. If the necessary information is available to the
institution, the maximum amount that can be drawn for credit and liquidity
facilities provided to SSPEs shall be determined as the maximum amount that
could be drawn given an SSPEs own obligations coming due over the next 30 days. 2.
The maximum amount that can be drawn of undrawn
credit and liquidity facilities shall be multiplied by 5% if they qualify for
the retail exposure class under the Standardised or IRB approaches for credit
risk. 3.
The maximum amount that can be drawn of undrawn
credit and liquidity facilities shall be multiplied by 10% where they meet the
following conditions: (a) they do not qualify for the retail
exposure class under the Standardised or IRB approaches for credit risk; (b) they have been provided to clients
that are not financial customers; (c) they have not been provided for the
purpose of replacing funding of the client in situations where he is unable to
obtain its funding requirements in the financial markets. 4.
The maximum amount that can be drawn of other
undrawn credit and liquidity facilities shall be multiplied by 100%. This
applies in particular to the following: (a)
liquidity facilities that the institution has
granted to SSPEs; (b)
arrangements under which the institution is
required to buy or swap assets from an SSPE. 5.
Institutions, which have been set up and are
sponsored by a Member State central or regional government may apply the
treatments in paragraphs 2 and 3 by derogation from paragraph 4 also to credit
and liquidity facilities that are provided to institutions for the sole purpose
of directly or indirectly funding promotional loans qualifying for the exposure
classes referred to in those paragraphs. Those promotional loans shall be
available only to persons who are not financial customers on a non-competitive,
not for profit basis in order to promote public policy objectives of that Member State central or regional government. It shall only be possible to draw on such
facilities following a request for a promotional loan and up to the amount of
such request. Article 413
Inflows 1.
Institutions shall report their capped liquidity
inflows. Capped liquidity inflows shall be the liquidity inflows limited to 75%
of liquidity outflows. Institutions may exempt liquidity inflows from deposits
placed with other institutions and qualifying for the treatments set out in
Article 108(6) or Article 108(7) from this limit. 2.
The liquidity inflows shall be measured over the
next 30 days. They shall comprise only contractual inflows from exposures that
are not past due and for which the bank has no reason to expect non-performance
within the 30-day time horizon. The inflow shall be taken into account in full
with the exception of the following: (a)
monies due from customers that are not financial
customers shall be reduced by 50% of their value or by the contractual
commitments to those customers to extend funding, whichever is higher. This
does not apply to monies due from secured lending and capital market driven
transactions as defined in Article 188 that are collateralised by liquid assets
according to Article 404; (b)
monies due from secured lending and capital
market driven transactions as defined in Article 188 if they are collateralised
by liquid assets, shall not be taken into account up to the value net of
haircuts of the liquid assets and shall be taken into account in full for the
remaining monies due; (c)
monies due that the institution owing those
monies treats according to Article 410(4), any undrawn credit or liquidity
facilities and any other commitments received shall not be taken into account. 3.
Payables and receivables expected over the 30
day horizon from the contracts listed in Annex II shall be reflected on a net
basis across counterparties and shall be multiplied by 100% of a net amount
receivable. Net basis shall mean also net of collateral to be received that
qualifies as liquid assets under Article 404. 4.
Competent authorities may grant the permission
to apply, by derogation from paragraph 2 point c), a higher inflow on a case by
case basis for credit and liquidity facilities when all of the following
conditions are fulfilled: (a)
there are reasons to expect a higher inflow even
under idiosyncratic stress; (b)
the provider is a parent or subsidiary
institution of the institution or another subsidiary of the same parent
institution or linked to the institution by a relationship within the meaning
of Article 12(1) of Directive 83/349/EEC; (c)
the institution and the provider shall be
established in the same Member State unless Article 18(1)(b) applies. Where such higher inflow is permitted to be
applied, the competent authorities shall inform EBA about the decision and its
reasons. The conditions for such higher inflows shall be regularly reviewed by
the competent authorities. 5.
Institutions shall not report inflows from any
of the liquid assets reported in accordance with Article 404 other than
payments due on the assets that are not reflected in the market value of the
asset. 6.
Institutions shall not report inflows from new
issuance of any obligations. 7.
Institutions shall take liquidity inflows which
are to be received in third countries where there are transfer restrictions or
which are denominated in non-convertible currencies into account only to the
extent that they correspond to outflows in the third country or currency in
question.. Title III
Reporting on stable funding Article 414
Items providing stable funding 1.
The following items shall be reported to
competent authorities separately in order to allow an assessment of the
availability of stable funding: (a) own funds; (b) the following liabilities not included
in point (a): (i) retail deposits as defined in Article
409(1); (ii) of the deposits in (i), those that
qualify for the treatment in Article 409(2). (iii) deposits that qualify for the
treatment in Article 410(3); (iv) of the deposits in (iii), those that
are subject to a deposit guarantee according to Directive 94/19/EC or
equivalent third country deposit guarantees within the terms of Article 409(2); (v) of the deposits in (iii), those that
fall under point (b) in Article 410(3) (vi) amounts deposited not falling under
(i) or (iii) if they are not deposited financial customers; (vii) all funding obtained from financial
customers; (viii) separately for amounts falling under
(vi) and (vii) respectively, funding from secured lending and capital market
driven transactions as defined in Article 188 –
collateralised by liquid assets as set out in
Article 404; –
collateralised by any other assets; (ix) liabilities resulting from securities
issued qualifying for the treatment in Article 124; (x) other liabilities resulting from
securities issued; (xi) any other liabilities. 2.
Where applicable, all items shall be presented
in the following five buckets according to the closer of their maturity date
and the earliest date at which they can contractually be called: (a)
within three months, (b)
between three and 6 months; (c)
between 6 and 9 months; (d)
between 9 and 12 months; (e)
after 12 months. Article 415
Items requiring stable funding 1.
The following items shall be reported to
competent authorities separately in order to allow an assessment of the needs
for stable funding: (a)
the assets referred to in Article 404, broken
down by asset type; (b)
securities and money market instruments not
included in (a); (c)
equity securities of non-financial entities
listed on a major index in a recognised exchange; (d)
other equity securities; (e)
gold; (f)
other precious metals; (g)
non-renewable loans and receivables, separately
those the borrowers of which are: (i) natural persons other than commercial
sole proprietor and partnerships and deposits placed by small and medium sized enterprises
where the aggregate deposit placed by that client or group of connected clients
is less than 1 million EUR; (ii) sovereigns, central banks and PSEs; (iii) clients not referred to in (i) and
(ii) other than financial customers; (iv) any other borrowers; (h)
derivatives receivables; (i)
any other assets; (j)
undrawn credit facilities that qualify as 'medium
risk' or 'medium/low risk' under Annex I. 2.
Where applicable, all items shall be presented
in the five buckets described in Article 414(2). PART SEVEN
LEVERAGE Article 416
Calculation of the leverage ratio 1.
Institutions shall calculate their leverage
ratio according to the methodology set out in paragraphs 2 to 10. 2.
The leverage ratio shall be calculated as an
institution's capital measure divided by that institution's total exposure
measure and shall be expressed as a percentage. Institutions shall calculate the leverage ratio
as the simple arithmetic mean of the monthly leverage ratios over a quarter. 3.
For the purposes of paragraph 2, the capital
measure shall be the Tier 1 capital. 4.
The total exposure measure is the sum of the
exposure values of all assets and off-balance sheet items not deducted when
determining the capital measure referred to in paragraph 3. Where institutions include relevant entities in
which they hold significant investments in their consolidation according to the
relevant accounting framework, but not in their prudential consolidation
according to Chapter 2 of Title II of Part One, they shall reduce their
exposure measure by the amount that is obtained by multiplying the amount
defined in point (a) with the factor defined in point (b): (a)
the sum of the exposure values of all the assets
of those relevant entities which are included in the consolidation according to
the relevant accounting framework, but not in the prudential consolidation
according to Chapter 2 of Title II of Part One; (b)
the sum of the deductions from Tier 1 items
specified in point (i) of Article 33(1) and in point (d) of Article 53 divided
by the total amount of Tier 1 items. Institutions shall effect the valuation of
assets and off-balance sheet items in accordance with Article 94. 5.
Institutions shall determine the exposure value
of assets in accordance with the following principles: (a)
the exposure values of assets, excluding items
listed in Annex II and credit derivatives, means exposure values as defined in
Article 106(1); (b)
physical or financial collateral, guarantees or
credit risk mitigation purchased shall not be used to reduce exposure values of
assets; (c)
netting of loans and deposits shall not be
permitted. 6.
Institutions shall determine the exposure value
of items listed in Annex II and of credit derivatives in accordance with either
the Mark-to-Market Method set out in Article 269 or the Original Exposure Method
set out in Article 270. Institutions may use the Original Exposure Method to
determine the exposure value of items listed in Annex II and of credit
derivatives only if they also use this method for determining the exposure
value of these items for the purposes of meeting the own funds requirements set
out in Article 87. In determining the exposure value of items
listed in Annex II and of credit derivatives, institutions shall take into
account the effects of contracts for novation and other netting agreements,
except contractual cross-product netting agreements, in accordance with Article
289. 7.
Institutions shall determine the exposure value
of repurchase transactions, securities or commodities lending or borrowing
transactions, long settlement transactions and margin lending transactions in
accordance with Article 215(1) to (3) and shall take into account the effects
of master netting agreements, except contractual cross-product netting
agreements, in accordance with Article 201. 8.
Institutions shall determine the exposure value
of off-balance sheet items, except the items listed in Annex II, credit
derivatives, repurchase transactions, securities or commodities lending or
borrowing transactions, long settlement transactions and margin lending
transactions, in accordance with Article 106(1), subject to the following
modifications to the specific credit risk adjustments listed in that Article: (a)
the specific credit risk adjustment for undrawn
credit facilities, which may be cancelled unconditionally at any time without
notice, referred to in the first indent of paragraph 4 of Annex I, is 10%; (b)
the specific credit risk adjustment for all
other off-balance-sheet items listed in Annex I is 100%. 9.
Institutions shall determine the exposure values
of items listed in Annex II and of credit derivatives that are off-balance
sheet items in accordance with the approach set out in paragraph 6. Institutions shall determine the exposure
values of repurchase transactions, securities or commodities lending or
borrowing transactions, long settlement transactions and margin lending
transactions that are off-balance sheet items in accordance with the approach
set out in paragraph 7. 10.
For the purpose of the calculations set out in
paragraphs 6, 7 and 9 institutions may choose not to apply the principle set
out in point (b)of paragraph 5. Article 417
Reporting requirement 1.
Institutions shall submit to the competent
authorities all necessary information on the leverage ratio and its components
as determined in Article 416. Competent authorities shall take into account
this information when undertaking the supervisory review referred to in Article
92 of Directive [inserted by OP]. Competent authorities shall submit the
information received from institutions to EBA upon its request to facilitate the
review referred to in Article 482. 2.
EBA shall develop draft implementing technical
standards to determine the contents and format of the uniform reporting
template for the reporting requirement referred to in paragraph 1, the
instructions on how to use such template and the frequencies and dates of
reporting. EBA shall submit those draft implementing
technical standards to the Commission by 1 January 2013. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. PART EIGHT
DISCLOSURE BY INSTITUTIONS Title I
General Principles Article 418
Scope of disclosure requirements 1.
Institutions shall publicly disclose the
information laid down in Title II, subject to the provisions laid down in
Article 419. 2.
Permission by the
competent authorities under Part three of the instruments and methodologies
referred to in Title III shall be subject to the public disclosure by institutions
of the information laid down therein. 3.
Institutions shall adopt
a formal policy to comply with the disclosure requirements laid down in this
Part, and have policies for assessing the appropriateness of their disclosures,
including their verification and frequency. Institutions shall also have
policies for assessing whether their disclosures convey their risk profile
comprehensively to market participants. Where those disclosures do not convey the risk
profile comprehensively to market participants, institutions shall publicly
disclose the information necessary in addition to that required in accordance
with paragraph 1. However, they shall only be required to disclose information
which is material and not proprietary or confidential in accordance with
Article 419. 4.
Institutions shall, if
requested, explain their rating decisions to small and medium-size enterprises and
other corporate applicants for loans, providing an explanation in writing when
asked. The administrative costs of the explanation shall be proportionate to
the size of the loan. Article 419
Non-material, proprietary or confidential information 1.
Institutions may omit
one or more of the disclosures listed in Title II if the information provided
by such disclosures is not regarded as material, except for the disclosures
laid down in Article 424. Information shall be regarded as material in
disclosures if its omission or misstatement could change or influence the
assessment or decision of a user relying on that information for the purpose of
making economic decisions. 2.
Institutions may also
omit one or more items of information included in the disclosures listed in
Titles II and III if those items include information which is regarded as
proprietary or confidential in accordance with the second
and third subparagraphs, except for the disclosures
laid down in Article 424. Information shall be regarded as proprietary to
an institution if disclosing it publicly would undermine its competitive
position. It may include information on products or systems which, if shared
with competitors, would render an institution's investments therein less
valuable. Information shall be regarded as confidential
if there are obligations to customers or other counterparty relationships
binding an institution to confidentiality. 3.
In the cases referred to in paragraph 2, the institution
concerned shall state in its disclosures the fact that the specific items of
information are not disclosed, the reason for non-disclosure, and publish more
general information about the subject matter of the disclosure requirement,
except where these are to be classified as proprietary or confidential. Article 420
Frequency of disclosure Institutions shall
publish the disclosures required by this Part at least on an annual basis. Annual disclosures shall be published in
conjunction with the date of publication of the financial statements. Institutions shall
assess the need to publish some or all disclosures more frequently than
annually in the light of the relevant characteristics of their business such as
scale of operations, range of activities, presence in different countries,
involvement in different financial sectors, and participation in international
financial markets and payment, settlement and clearing systems. That assessment
shall pay particular attention to the possible need for more frequent
disclosure of items of information laid down in Article 424, and points (b) to
(e) of Article 425, and information on risk exposure and other items prone to
rapid change. Article 421
Means of disclosures 1.
Institutions may
determine the appropriate medium, location and means of verification to comply
effectively with the disclosure requirements laid down in this Part. To the
degree feasible, all disclosures shall be provided in one medium or location. 2.
Equivalent disclosures made by institutions
under accounting, listing or other requirements may be deemed to constitute
compliance with this Part. If disclosures are not included in the financial
statements, institutions shall indicate where they can be found. Title II
Technical criteria on transparency and disclosure Article 422
Risk management objectives and policies 1.
Institutions shall disclose their risk
management objectives and for each separate category of risk, including the
risks referred to under this Title. These disclosures shall include: (a) the strategies and processes to manage
those risks; (b) the structure and organisation of the
relevant risk management function including information on its authority and
statute, or other appropriate arrangements; (c) the scope and nature of risk reporting
and measurement systems; (d) the policies for hedging and
mitigating risk, and the strategies and processes for monitoring the continuing
effectiveness of hedges and mitigants; (e) a declaration approved by the
management body on the adequacy of risk management arrangements of the
institution providing assurance that the risk management systems put in place
are adequate with regard to institution's profile and strategy; (f) a concise risk statement approved by
the management body succinctly describing the institution's overall risk
profile associated with the business strategy. This statement shall include key
ratios and figures providing external stakeholders with a concise but
comprehensive view of how risk profile of the institution interacts with the
risk tolerance set by the management body. 2.
Institutions shall disclose the following
information, including regular, at least annual updates, regarding governance
arrangements: (a) the number of directorships held by
members of the management body; (b) the recruitment policy for the
selection of members of the management body and their actual knowledge, skills
and expertise; (c) the policy on diversity with regard to
selection of members of the management body, its objectives and any relevant
targets set out in that policy, and the extent to which these objectives and
targets have been achieved; (d) whether or not the institution has set
up a separate risk committee and the number of times the risk committee has
met; (e) the description of the information
flow on risk to the management body in its supervisory function. Article 423
Scope of application Institutions shall disclose the following information regarding the scope of application of the
requirements of this Regulation in accordance with Directive [inserted by OP]: (a)
the name of the institution to which the
requirements of this Regulation apply; (b)
an outline of the differences in the basis of
consolidation for accounting and prudential purposes, with a brief description
of the entities therein, explaining whether they are: (i) fully consolidated; (ii) proportionally consolidated; (iii) deducted from own funds; (iv) neither consolidated nor deducted; (c)
any current or foreseen material practical or
legal impediment to the prompt transfer of own funds or repayment of
liabilities among the parent undertaking and its subsidiaries; (d)
the aggregate amount by which the actual own
funds are less than required in all subsidiaries not included in the
consolidation, and the name or names of such subsidiaries; (e)
if applicable, the circumstance of making use of
the provisions laid down in Articles 6 and 8 Article 424
Own funds 1.
Institutions shall disclose the following
information regarding their own funds: (a)
a full reconciliation of Common Equity Tier 1 items,
Additional Tier 1 items, Tier 2 items and filters and deductions applied
pursuant to Articles 29 to 32, 33, 53, 63 and 74 to own funds of the
institution and the balance sheet in the audited financial statements of the
institution; (b)
a description of the main features of the Common
Equity Tier 1 and Additional Tier 1 instruments and Tier 2 instruments issued
by the institution; (c)
the full terms and conditions of all Common
Equity Tier 1, Additional Tier 1 and Tier 2 instruments; (d)
separate disclosure of the nature and amounts of
the following: (i) each prudential filter applied
pursuant to Articles 29 to 32; (ii) each deduction made pursuant to Articles
33, 53 and 63; (iii) items not deducted in accordance
with Articles 44, 45, 53, 63 and 74; (e)
a description of all restrictions applied to the
calculation of own funds in accordance with this Regulation and the
instruments, prudential filters and deductions to which those restrictions
apply; (f)
where institutions disclose capital ratios
calculated using elements of own funds determined on a basis other than that
laid down in this Regulation, a comprehensive explanation of the basis on which
those capital ratios are calculated. 2.
EBA shall develop draft implementing technical
standards to specify uniform templates for disclosure under points (a), (b),
(d) and (e) of paragraph 1. EBA shall submit those draft implementing technical
standards to the Commission by 31 December 2013. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first sub-paragraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 425
Own funds requirements Institutions shall disclose the following information regarding the compliance by the institution
with the requirements laid down in Articles 87 and Article 72 of Directive [inserted
by OP]: (a)
a summary of the institution's approach to
assessing the adequacy of its internal capital to support current and future
activities; (b)
for institutions calculating the risk-weighted
exposure amounts in accordance with Chapter 2 of Part Three, Title II, 8% of
the risk-weighted exposure amounts for each of the exposure classes specified
in Article 107; (c)
for institutions calculating risk-weighted
exposure amounts in accordance with Chapter 3 of Part Three, Title II, 8% of
the risk-weighted exposure amounts for each of the exposure classes specified
in Article 142. For the retail exposure class, this requirement applies to each
of the categories of exposures to which the different correlations in Article 149(1)
to (4) correspond. For the equity exposure class, this requirement applies to: (i) each of the approaches provided in
Article 150; (ii) exchange traded exposures, private
equity exposures in sufficiently diversified portfolios, and other exposures; (iii) exposures subject to supervisory
transition regarding own funds requirements; (iv) exposures subject to grandfathering
provisions regarding own funds requirements; (d)
own funds requirements calculated in accordance
with points (b) and (c) of Article 87; (e)
own funds requirements calculated in accordance
with Part Three, Title III, Sections 2 to 4 and disclosed separately. The institutions calculating the
risk-weighted exposure amounts in accordance with Article 148(5) or 150(2)
shall disclose the exposures assigned to each category in Table 1 in paragraph
5 of Article 148(5), or to each risk weight mentioned in Article 150(2). Article 426
Exposure to counterparty credit risk Institutions shall disclose the following information regarding the institution's exposure to
counterparty credit risk as defined in Title III, Chapter 6: (a)
a discussion of the methodology used to assign
internal capital and credit limits for counterparty credit exposures; (b)
a discussion of policies for securing collateral
and establishing credit reserves; (c)
a discussion of policies with respect to
wrong-way risk exposures; (d)
a discussion of the impact of the amount of
collateral the institution would have to provide given a downgrade in its
credit rating; (e)
gross positive fair value of contracts, netting
benefits, netted current credit exposure, collateral held and net derivatives
credit exposure. Net derivatives credit exposure is the credit exposure on
derivatives transactions after considering both the benefits from legally
enforceable netting agreements and collateral arrangements; (f)
measures for exposure value under the methods
set out in Sections 3 to 6 of Title III, Chapter 6 whichever method is
applicable; (g)
the notional value of credit derivative hedges,
and the distribution of current credit exposure by types of credit exposure; (h)
the notional amounts of credit derivative
transactions, segregated between use for the institution's own credit
portfolio, as well as in its intermediation activities, including the distribution
of the credit derivatives products used, broken down further by protection
bought and sold within each product group; (i)
the estimate of α if the institution has
received the permission of the competent authorities to estimate α. Article 427
Capital buffers 1.
An institution shall disclose the following
information in relation to its compliance with the requirement for a
countercyclical capital buffer referred to in Title VII, Chapter 4 of Directive
[inserted by OP]: (a) the geographical distribution of its
credit exposures relevant for the calculation of its countercyclical capital
buffer; (b) the composition of its institution
specific countercyclical capital buffer. 2.
EBA shall develop draft regulatory technical standards
specifying the disclosure requirements set out in paragraph 1. EBA shall submit
those draft regulatory technical standards to the Commission by 31 December
2014. Power is delegated to the Commission to adopt the
regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1093/2010. Article 428
Credit risk adjustments Institutions shall disclose the following information regarding the institution's exposure to
credit risk and dilution risk: (a)
the definitions for accounting purposes of ‘past
due’ and ‘impaired’; (b)
a description of the approaches and methods
adopted for determining specific and general credit risk adjustments; (c)
the total amount of exposures after accounting
offsets and without taking into account the effects of credit risk mitigation,
and the average amount of the exposures over the period broken down by
different types of exposure classes; (d)
the geographic distribution of the exposures,
broken down in significant areas by material exposure classes, and further
detailed if appropriate; (e)
the distribution of the exposures by industry or
counterparty type, broken down by exposure classes, and further detailed if
appropriate; (f)
the residual maturity breakdown of all the
exposures, broken down by exposure classes, and further detailed if
appropriate; (g)
by significant industry or counterparty type,
the amount of: (i) impaired exposures and past due
exposures, provided separately; (ii) Specific and general credit risk
adjustments; (iii) charges for specific and general
credit risk adjustments during the reporting period; (h)
the amount of the impaired exposures and past
due exposures, provided separately, broken down by significant geographical
areas including, if practical, the amounts of specific and general credit risk
adjustments related to each geographical area; (i)
the reconciliation of changes in the specific
and general credit risk adjustments for impaired exposures, shown separately.
The information shall comprise: (i) a description of the type of specific
and general credit risk adjustments; (ii) the opening balances; (iii) the amounts taken against the credit
risk adjustments during the reporting period; (iv) the amounts set aside or reversed for
estimated probable losses on exposures during the reporting period, any other
adjustments including those determined by exchange rate differences, business
combinations, acquisitions and disposals of subsidiaries, and transfers between
credit risk adjustments; (v) the closing balances. Specific credit risk adjustments and recoveries recorded directly to the income statement shall be
disclosed separately. Article 429
Use of ECAIs For institutions calculating the
risk-weighted exposure amounts in accordance with Part Three, Title II, Chapter
2, the following information shall be disclosed for each of the exposure
classes specified in Article 107: (a)
the names of the nominated ECAIs and ECAs and
the reasons for any changes; (b)
the exposure classes for which each ECAI or ECA
is used; (c)
a description of the process used to transfer
the issuer and issue credit assessments onto items not included in the trading
book; (d)
the association of the external rating of each
nominated ECAI or ECA with the credit quality steps prescribed in Part Three,
Title II, Chapter 2, taking into account that this information needs not be
disclosed if the institution complies with the standard association published
by EBA; (e)
the exposure values and the exposure values
after credit risk mitigation associated with each credit quality step
prescribed in Part Three, Title II, Chapter 2 as well as those deducted from
own funds. Article 430
Exposure to market risk The institutions calculating their own
funds requirements in accordance with points (b) and (c) of Article 87(3) shall
disclose those requirements separately for each risk referred to in those
provisions. In addition, the own funds requirement for specific interest rate
risk of securitisation positions shall be disclosed separately. Article 431
Operational risk Institutions shall disclose the approaches for the assessment of own funds requirements for
operational risk that the institution qualifies for; a description of the
methodology set out in Article 301(2), if used by the institution, including a
discussion of relevant internal and external factors considered in the institution's
measurement approach, and in the case of partial use, the scope and coverage of
the different methodologies used. Article 432
Exposures in equities not included in the trading book Institutions shall disclose the following information regarding the exposures in equities not
included in the trading book: (a)
the differentiation between exposures based on
their objectives, including for capital gains relationship and strategic
reasons, and an overview of the accounting techniques and valuation
methodologies used, including key assumptions and practices affecting valuation
and any significant changes in these practices; (b)
the balance sheet value, the fair value and, for
those exchange-traded, a comparison to the market price where it is materially
different from the fair value; (c)
the types, nature and amounts of exchange-traded
exposures, private equity exposures in sufficiently diversified portfolios, and
other exposures; (d)
the cumulative realised gains or losses arising
from sales and liquidations in the period; and (e)
the total unrealised gains or losses, the total
latent revaluation gains or losses, and any of these amounts included in the
original or additional own funds. Article 433
Exposure to interest rate risk on positions not included in the trading book Institutions shall disclose the following information on their exposure to interest rate risk
on positions not included in the trading book: (a)
the nature of the interest rate risk and the key
assumptions (including assumptions regarding loan prepayments and behaviour of
non-maturity deposits), and frequency of measurement of the interest rate risk;
(b)
the variation in earnings, economic value or
other relevant measure used by the management for upward and downward rate
shocks according to management's method for measuring the interest rate risk,
broken down by currency. Article 434
Exposure to securitisation positions Institutions
calculating risk weighted exposure amounts in accordance with Part Three, Title
II, Chapter 5 or own funds requirements in accordance with Article 326 or Article
327 shall disclose the following information, where relevant, separately for
their trading and non-trading book: (a)
a description of the institution’s objectives in
relation to securitisation activity; (b)
the nature of other risks including liquidity
risk inherent in securitised assets; (c)
the type of risks in terms of seniority of
underlying securitisation positions and in terms of assets underlying those
latter securitisation positions assumed and retained with re-securitisation
activity; (d)
the different roles played by the institution in
the securitisation process; (e)
an indication of the extent of the institution’s
involvement in each of the roles referred to in point (d); (f)
a description of the processes in place to
monitor changes in the credit and market risk of securitisation exposures
including, how the behaviour of the underlying assets impacts securitisation
exposures and a description of how those processes differ for re-securitisation
exposures; (g)
a description of the institution’s policy
governing the use of hedging and unfunded protection to mitigate the risks of
retained securitisation and re-securitisation exposures, including
identification of material hedge counterparties by relevant type of risk
exposure; (h)
the approaches to calculating risk weighted
exposure amounts that the institution follows for its securitisation activities
including the types of securitisation exposures to which each approach applies; (i)
the types of SSPE that the institution, as
sponsor, uses to securitise third-party exposures including whether and in what
form and to what extent the institution has exposures to those SSPEs,
separately for on- and off-balance sheet exposures, as well as a list of the
entities that the institution manages or advises and that invest in either the
securitisation positions that the institution has securitised or in SSPEs that
the institution sponsors; (j)
a summary of the institution’s accounting
policies for securitisation activities, including: (i) whether the transactions are treated
as sales or financings; (ii) the recognition of gains on sales; (iii) the methods, key assumptions, inputs
and changes from the previous period for valuing securitisation positions; (iv) the treatment of synthetic
securitisations if not covered by other accounting policies; (v) how assets awaiting securitisation are
valued and whether they are recorded in the institution’s non-trading book or
the trading book; (vi) policies for recognising liabilities
on the balance sheet for arrangements that could require the institution to
provide financial support for securitised assets; (k)
the names of the ECAIs used for securitisations
and the types of exposure for which each agency is used; (l)
where applicable, a description of the Internal
Assessment Approach as set out in Part Three, Title II, Chapter 5, Section 3,
including the structure of the internal assessment process and relation between
internal assessment and external ratings, the use of internal assessment other
than for IAA capital purposes, the control mechanisms for the internal
assessment process including discussion of independence, accountability, and
internal assessment process review, the exposure types to which the internal
assessment process is applied and the stress factors used for determining
credit enhancement levels, by exposure type; (m)
an explanation of significant changes to any of
the quantitative disclosures in points (n) to (q) since the last reporting
period; (n)
separately for the trading and the non-trading
book, the following information broken down by exposure type: (i) the total amount of outstanding
exposures securitised by the institution, separately for traditional and
synthetic securitisations and securitisations for which the institution acts
only as sponsor; (ii) the aggregate amount of on-balance
sheet securitisation positions retained or purchased and off-balance sheet
securitisation exposures; (iii) the aggregate amount of assets
awaiting securitisation; (iv) for securitised facilities subject to
the early amortisation treatment, the aggregate drawn exposures attributed to
the originator’s and investors’ interests respectively, the aggregate capital
requirements incurred by the institution against the originator’s interest and the
aggregate capital requirements incurred by the institution against the
investor’s shares of drawn balances and undrawn lines; (v) the amount of securitisation positions
that are deducted from own funds or risk-weighted at 1250 %; (vi) a summary of the securitisation
activity of the current period, including the amount of exposures securitised
and recognised gain or loss on sale; (o)
separately for the
trading and the non-trading book, the following information: (i) the aggregate amount of
securitisation positions retained or purchased and the associated capital
requirements, broken down between securitisation and re-securitisation
exposures and further broken down into a meaningful number of risk-weight or
capital requirement bands, for each capital requirements approach used; (ii) the aggregate amount of
re-securitisation exposures retained or purchased broken down according to the
exposure before and after hedging/insurance and the exposure to financial
guarantors, broken down according to guarantor credit worthiness categories or
guarantor name; (p)
for the non-trading book and regarding exposures
securitised by the institution, the amount of impaired/past due assets
securitised and the losses recognised by the institution during the current
period, both broken down by exposure type; (q)
for the trading book, the total outstanding
exposures securitised by the institution and subject to a capital requirement
for market risk, broken down into traditional/synthetic and by exposure
type."; (r)
where applicable, whether the institution has
provided support within the terms of Article 243(1) and the impact on own
funds. Article 435
Remuneration policy 1.
Institutions shall disclose the following information, regarding the remuneration policy and
practices of the institution for those categories of staff whose professional
activities have a material impact on its risk profile: (a) information concerning the
decision-making process used for determining the remuneration policy, including
if applicable, information about the composition and the mandate of a
remuneration committee, the external consultant whose services have been used
for the determination of the remuneration policy and the role of the relevant
stakeholders; (b) information on link between pay and
performance; (c) the most important design
characteristics of the remuneration system, including information on the
criteria used for performance measurement and risk adjustment, deferral policy
and vesting criteria; (d) information on the performance
criteria on which the entitlement to shares, options or variable components of
remuneration is based; (e) the main parameters and rationale for
any variable component scheme and any other non-cash benefits; (f) aggregate quantitative information on
remuneration, broken down by business area; (g) aggregate quantitative information on
remuneration, broken down by senior management and members of staff whose
actions have a material impact on the risk profile of the institution,
indicating the following: (i) the amounts of remuneration for the
financial year, split into fixed and variable remuneration, and the number of
beneficiaries; (ii) the amounts and forms of variable
remuneration, split into cash, shares, share-linked instruments and other
types; (iii) the amounts of outstanding deferred
remuneration, split into vested and unvested portions; (iv) the amounts of deferred remuneration
awarded during the financial year, paid out and reduced through performance
adjustments; (v) new sign-on and severance payments
made during the financial year, and the number of beneficiaries of such
payments; (vi) the amounts of severance payments
awarded during the financial year, number of beneficiaries and highest such
award to a single person. (h) the number of individuals being
remunerated EUR 1 million or more per financial year, broken down into pay
bands of EUR 500 000. 2.
For institutions that are significant in terms
of their size, internal organisation and the nature, scope and the complexity
of their activities, the quantitative information referred to in this point
shall also be made available to the public at the level of persons who
effectively direct the business of the institution within the meaning of
Article 13(1) of Directive [inserted by OP]. Institutions shall
comply with the requirements set out in this point in a manner that is
appropriate to their size, internal organisation and the nature, scope and
complexity of their activities and without prejudice to Directive 95/46/EC. Article 436
Leverage 1.
Institutions shall disclose the following
information regarding their leverage ratio as defined in Article 416 and their
management of the risk of excessive leverage as defined in point (B) of Article
4(2) of Directive [inserted by OP]: (a)
the leverage ratio; (b)
a breakdown of the total exposure measure; (c)
a description of the processes used to manage
the risk of excessive leverage; (d)
a description of the factors that had an impact
on the leverage ratio during the period to which the disclosed leverage ratio
refers. 2.
EBA shall develop draft implementing technical
standards to determine the uniform disclosure template for the disclosure referred
to in paragraph 1 and the instructions on how to use such template. EBA shall submit those draft implementing
technical standards to the Commission by 30 June 2014. Power is conferred on the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Article 15 of Regulation (EU) No
1093/2010. Title III
Qualifying requirements for the use of particular instruments or methodologies Article 437
Use of the IRB Approach to credit risk Institutions calculating the risk-weighted
exposure amounts under the IRB Approach shall disclose the following
information (a)
the competent authority's permission of the
approach or approved transition; (b)
an explanation and review of: (i) the structure of internal rating
systems and relation between internal and external ratings; (ii) the use of internal estimates other
than for calculating risk-weighted exposure amounts in accordance with Part
Three, Title II, Chapter 3; (iii) the process for managing and
recognising credit risk mitigation; (iv) the control mechanisms for rating
systems including a description of independence, accountability, and rating
systems review; (c)
a description of the internal ratings process,
provided separately for the following exposure classes: (i) central governments and central
banks; (ii) institutions; (iii) corporate, including SMEs,
specialised lending and purchased corporate receivables; (iv) retail, for each of the categories of
exposures to which the different correlations in Article 149(1) to 149(4)
correspond; (v) equities; (d)
the exposure values for each of the exposure
classes specified in Article 142. Exposures to central governments and central
banks, institutions and corporates where institutions use own estimates of LGDs
or conversion factors for the calculation of risk-weighted exposure amounts
shall be disclosed separately from exposures for which the institutions do not
use such estimates; (e)
for each of the exposure classes central
governments and central banks, institutions, corporate and equity, and across a
sufficient number of obligor grades (including default) to allow for a
meaningful differentiation of credit risk, institutions shall disclose: (i) the total exposures, including for
the exposure classes central governments and central banks, institutions and
corporate, the sum of outstanding loans and exposure values for undrawn
commitments; and for equities the outstanding amount; (ii) the exposure-weighted average risk
weight; (iii) for the institutions using own
estimates of conversion factors for the calculation of risk-weighted exposure
amounts, the amount of undrawn commitments and exposure-weighted average
exposure values for each exposure class; (f)
For the retail exposure class and for each of
the categories as defined under point (c)(iv), either the disclosures outlined
under (e) above (if applicable, on a pooled basis), or an analysis of exposures
(outstanding loans and exposure values for undrawn commitments) against a
sufficient number of EL grades to allow for a meaningful differentiation of
credit risk (if applicable, on a pooled basis); (g)
the actual specific credit risk adjustments in
the preceding period for each exposure class (for retail, for each of the
categories as defined under point (c)(iv) and how they differ from past
experience; (h)
a description of the factors that impacted on
the loss experience in the preceding period (for example, has the institution
experienced higher than average default rates, or higher than average LGDs and
conversion factors); (i)
the institution's estimates against actual
outcomes over a longer period. At a minimum, this shall include information on
estimates of losses against actual losses in each exposure class (for retail,
for each of the categories as defined under point (c)(iv) over a period
sufficient to allow for a meaningful assessment of the performance of the
internal rating processes for each exposure class (for retail for each of the
categories as defined under point (c)(iv). Where appropriate, the institutions
shall further decompose this to provide analysis of PD and, for the institutions
using own estimates of LGDs and/or conversion factors, LGD and conversion
factor outcomes against estimates provided in the quantitative risk assessment
disclosures above. (j)
for all exposure classes specified in Article 142
and for each category of exposure to which the different correlations in Article
149 (1) to 149(4) correspond: (i) for the institutions using own LGD
estimates for the calculation of risk-weighted exposure amounts, the
exposure-weighted average LGD and PD in percentage for each relevant
geographical location of credit exposures; (ii) for the institutions that do not use
own LGD estimates, the exposure-weighted average PD in percentage for each
relevant geographical location of credit exposures. For the purposes of point (c), the
description shall include the types of exposure included in the exposure class,
the definitions, methods and data for estimation and validation of PD and, if
applicable, LGD and conversion factors, including assumptions employed in the
derivation of these variables, and the descriptions of material deviations from
the definition of default as set out in Article 174, including the broad
segments affected by such deviations. For the purposes of point (j), the relevant
geographical location of credit exposures means exposures in the Member States
in which the institution has been authorised and Member States or third
countries in which institutions carry out activities through a branch or a
subsidiary. Article 438
Use of credit risk mitigation techniques The institutions applying credit risk
mitigation techniques shall disclose the following information: (a)
the policies and processes for, and an
indication of the extent to which the entity makes use of, on- and off-balance
sheet netting; (b)
the policies and processes for collateral
valuation and management; (c)
a description of the main types of collateral
taken by the institution; (d)
the main types of guarantor and credit
derivative counterparty and their creditworthiness; (e)
information about market or credit risk
concentrations within the credit mitigation taken; (f)
for institutions calculating risk-weighted
exposure amounts under the Standardised Approach or the IRB Approach, but not
providing own estimates of LGDs or conversion factors in respect of the
exposure class, separately for each exposure class, the total exposure value
(after, where applicable, on- or off-balance sheet netting) that is covered —
after the application of volatility adjustments — by eligible financial
collateral, and other eligible collateral; (g)
for institutions calculating risk-weighted
exposure amounts under the Standardised Approach or the IRB Approach,
separately for each exposure class, the total exposure (after, where
applicable, on- or off-balance sheet netting) that is covered by guarantees or
credit derivatives. For the equity exposure class, this requirement applies to
each of the approaches provided in Article 150. Article 439
Use of the Advanced Measurement Approaches to operational risk The institutions using the Advanced
Measurement Approaches set out in Articles 310 to 313 for the calculation of
their own funds requirements for operational risk shall disclose a description
of the use of insurances and other risk transfer mechanisms for the purpose of
mitigation of this risk. Article 440
Use of Internal Market Risk Models Institutions calculating their capital requirements in accordance with Article 352
shall disclose the following information: (a)
for each sub-portfolio covered: (i) the characteristics of the models
used; (ii) where applicable, for the internal
models for incremental default and migration risk and for correlation trading,
the methodologies used and the risks measured through the use of an internal
model including a description of the approach used by the institution to
determine liquidity horizons, the methodologies used to achieve a capital
assessment that is consistent with the required soundness standard and the
approaches used in the validation of the model; (iii) a description of stress testing
applied to the sub-portfolio; (iv) a description of the approaches used
for back-testing and validating the accuracy and consistency of the internal
models and modeling processes; (b)
the scope of permission by the competent
authority; (c)
a description of the extent and methodologies
for compliance with the requirements set out in Articles 99 and 100; (d)
the highest, the lowest and the mean of the
following: (i) the daily value-at-risk measures over
the reporting period and as per the period end; (ii) the stressed value-at-risk measures
over the reporting period and as per the period end; (iii) the risk numbers for incremental
default and migration risk and for the specific risk of the correlation trading
portfolio over the reporting period and as per the period-end; (e)
the elements of the own funds requirement as
specified in Article 353; (f)
the weighted average liquidity horizon for each
sub-portfolio covered by the internal models for incremental default and
migration risk and for correlation trading; (g)
a comparison of the daily end-of-day
value-at-risk measures to the one-day changes of the portfolio’s value by the
end of the subsequent business day together with an analysis of any important
overshooting during the reporting period. PART NINE
DELEGATED AND IMPLEMENTING ACTS Article 441
Delegated Acts The Commission shall be empowered to adopt
delegated acts in accordance with Article 445, concerning the following
aspects: (a)
clarification of the definitions set out in
Articles 4, 22, 137, 148, 188, 237, 267, 294, 371 and 400 to ensure uniform
application of this Regulation (b)
clarification of the definitions set out in
Articles 4, 22, 137, 148, 188, 237, 267, 294, 371 and 400 in order to take
account, in the application of this Regulation of developments on financial
markets; (c)
amendment of the list of exposure classes in
Articles 107 and 142 in order to take account of developments on financial
markets; (d)
the amount specified in point c of Article 118,
Article 142(5)(a), Article 148(4) and Article 158(4), to take into account the
effects of inflation; (e)
the list and classification of off-balance sheet
items in Annexes I and II; (f)
adjustment of the categories of investment firms
in Article 90(1) and Article 91(1) to take account of developments on financial
markets; (g)
clarification of the requirement laid down in
Article 92 to ensure uniform application of this Regulation. (h)
a clarification of exemptions provided for in Article
389; (i)
the extension by twelve months of the duration
of the requirement to provide own funds which are at all times more than or
equal to the amount specified in Article 476 beyond the periods provided for in
paragraphs 1 and 2 of that Article; (j)
the modification of the capital measure and the
total exposure measure of the leverage ratio referred to in Article 416(2) in
order to correct any shortcomings discovered on the basis of the reporting
referred to in Article 417(1) before the leverage ratio has to be published by
institutions as set out in Article 436(1)(a). This delegation of power shall be
subject to the procedure referred to in Article 446. The Commission may adopt a measure as
referred to under point (i) of paragraph 1 more than once, provided that the
requirement to provide own funds which are at all times more than or equal to
the amount specified in Article 476 is extended for consecutive periods of
twelve months. However, the requirement may not be extended beyond 31 December
2018. If the requirement is not extended before the expiry of the relevant
twelve months period, the Commission may not adopt any further measures under
paragraph 1(i). By 30 June 2015, EBA shall report to the
Commission whether the evolving economic situation and developments in relevant
regulatory requirements would justify an extension of the requirements set out
in Article 476. Article
442
Technical adjustments and corrections The Commission shall be empowered to adopt
delegated acts in accordance with Article 445, to make technical adjustment and
corrections of non-essential elements in the following provisions in order to
take account of developments on financial markets, in particular new financial
products, to make adjustments to developments after the adoption of this
Regulation in other EU legislative acts on financial services and accounting
including accounting standards based on Regulation No. (EU) 1605/2002, or to
reflect convergence of supervisory practice: (a) the own funds requirements for
credit risk laid down in Articles 106 to 129, and in Articles 138 to 187; (b) the effects of credit risk
mitigation in accordance with Articles 189 to 236 ; (c) the own funds requirements for
securitisation laid down in Articles 238 to 261; (d) the own funds requirements for
counterparty credit risks in accordance with articles 267 to 300; (e) the own funds requirements for
operational risk laid down in Articles 304 to 313; (f) the own funds requirements for
market risk laid down in Articles 314 to 367; (g) the own funds requirements for
settlement Risk laid down in Articles 368 and 369; (h) the own funds requirements for
credit valuation adjustment risk laid down in Articles 373, 374 and 375; (i) Part Two and Article 95 as a
result of developments in accounting standards or requirements which take
account of Union legislation or with regard to the convergence of supervisory
practices. Article 443
Prudential requirements The Commission shall be empowered to adopt
delegated acts in accordance with Article 445, to impose stricter prudential
requirements, for a limited period of time, for all exposures or for exposures
to one or more sectors, regions or Member States, where this is necessary to
address changes in the intensity of micro-prudential and macro-prudential risks
which arise from market developments emerging after the entry into force of
this Regulation, in particular upon the recommendation or opinion of the ESRB,
concerning (a) a temporary increase in the
level of own funds laid down in Article 87; (b) the prudential filters laid down
in Articles 29 to 32; (c) the deductions from elements of
own funds set out in Articles 33, 53 and 63; (d) the own funds requirements for
credit risk laid down in Articles 106 to 129, and in Articles 138 to 187; (e) the effects of credit risk
mitigation in accordance with Articles 189 to 236; (f) the own funds requirements for
securitisation laid down in Articles 238 to 261; (g) the own funds requirements for
credit risks in accordance with articles 268 to 300; (h) the own funds requirements for
operational risk laid down in Articles 304 to 313; (i) the own funds requirements for
market risk laid down in Articles 314 to 367; (j) the own funds requirements for
settlement Risk laid down in Articles 368 and 369; (k) the own funds requirements for
credit valuation adjustment risk laid down in Articles 373, 374 and 375. This delegation of power shall be subject to
the procedure referred to in Article 446. Article 444
Liquidity 1. The Commission shall be
empowered to adopt a delegated act in accordance with Article 445 to specify in
detail the general requirement set out in Article 401. Such specification shall
be based on the items to be reported according to Part Six, Title II. The
delegated act shall also specify under which circumstances competent
authorities have to impose specific in- and outflow levels on credit
institutions in order to capture specific risks to which they are exposed. 2. The Commission shall be
empowered to modify the items referred to in paragraph 1 or add additional
items only if one of the following conditions is met: (a)
a liquidity coverage requirement based on those
criteria, considered either individually or cumulatively, would have a material
detrimental impact on the business and risk profile of European institutions or
on financial markets or the economy; or (b)
modification is appropriate to align them with
internationally agreed standards for liquidity supervision. For the purposes of point (a), in assessing the
impact of a liquidity coverage requirement based on those criteria, the
Commission shall take into account the reports referred to in paragraphs 1 and
2 of Article 481. 3. The Commission shall adopt
the first delegated act referred to in paragraph 1 at the latest by 31 December
2015. A delegated act adopted in accordance with this Article shall, however,
not apply before 1 January 2015. Article 445
Exercise of the delegation 1.
The power to adopt delegated acts is conferred
on the Commission subject to the conditions laid down in this Article. 2.
The delegation of powers referred to in Articles
441 to 444 shall be conferred for an indeterminate period of time from the date
referred to in Article 488. 3.
The delegation of power referred to in Articles 441
to 444 may be revoked at any time by the European Parliament or by the Council.
A decision of revocation shall put an end to the delegation of the power
specified in that decision. It shall take effect the day following the
publication of the decision in the Official Journal of the European Union or at
a later date specified therein. It shall not affect the validity of the
delegated acts already in force. 4.
As soon as it adopts a delegated act, the
Commission shall notify it simultaneously to the European Parliament and to the
Council. 5.
A delegated act adopted pursuant to Articles 441
to 444 shall enter into force only if no objection has been expressed by the
European Parliament or the Council within a period of 2 months of notification
of that act to the European Parliament and the Council or if, before the expiry
of that period, the European Parliament and the Council have both informed the
Commission that they will not object. That period shall be extended by 2 moths
at the initiative of the European Parliament or the Council. Article 446
Urgency procedure 1.
Delegated acts adopted under this Article shall
enter into force without delay and shall apply as long as no objection is
expressed in accordance with paragraph 2. The notification of a delegated act
to the European Parliament and to the Council shall state the reasons for the
use of the urgency procedure. 2.
Either the European Parliament or the Council
may object to a delegated act in accordance with the procedure referred to in
Article 445(5). In such a case, the Commission shall repeal the act without
delay following the notification of the decision to object by the European
Parliament or the Council. Article 447
European Banking Committee 1. For the adoption of implementing acts, the
Commission shall be assisted by the European Banking Committee established by
Commission Decision 2004/10/EC. That committee shall be a committee within the
meaning of Article 3(2) of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph,
Article 5 of Regulation (EU) No. 182/2011 shall apply. PART TEN
TRANSITIONAL PROVISIONS, REPORTS AND REVIEWS Title I
Transitional provisions Chapter 1
Own funds requirements, unrealised gains and losses measured at fair value and
deductions Section 1
Own funds requirements Article 448
Own funds requirements 1.
By way of derogation from points (a) and (b) of
Article 87(1), institutions shall satisfy the following own funds requirements:
(a)
at all times during the period from 1 January
2013 to 31 December 2013: (i) a Common Equity Tier 1 capital ratio
of a level that falls within a range with a lowest value of 3.5% and a highest
value of 4.5%; (ii) a Tier 1 capital ratio of a level
that falls within a range with a lowest value of 4.5 % and a highest value of
6%; (b)
at all times during the period from 1 January
2014 to 31 December 2014: (i) a Common Equity Tier 1 capital ratio of
a level that falls within a range of 4 % to 4.5 %; (ii) a Tier 1 capital ratio of a level
that falls within a range of 4.5 % to 6%. 2.
Competent authorities shall: (a)
determine the levels of the Common Equity Tier 1
and Tier 1 capital ratios in the ranges specified in points (a) and (b) of
paragraph 1 that institutions shall satisfy; (b)
publish the determination made in accordance
with point (a). Section 2
Unrealised gains and losses measured at fair value Article 449
Unrealised losses measured at fair value 1.
By way of derogation from Article 32, during the
period from 1 January 2013 to 31 December 2017 institutions shall include in
the calculation of their Common Equity Tier 1 items only the applicable
percentage of unrealised losses measured at fair value, excluding those
referred to in Article 30. 2.
The applicable percentage for the purposes of
paragraph 1 shall fall within following ranges: (a)
0 % to 100 % during the period from 1 January
2013 to 31 December 2013; (b)
20 % to 100 % during the period from 1 January
2014 to 31 December 2014; (c)
40 % to 100 % during the period from 1 January
2015 to 31 December 2015; (d)
60 % to 100 % during the period from 1 January
2016 to 31 December 2016; and (e)
80 % to 100 % for the period from1 January 2017 to
31 December 2017. 3.
Competent authorities shall: (a)
determine the applicable percentage in the
ranges specified in points (a) to (e) of paragraph 2; (b)
publish the determination made in accordance
with point (a). Article 450
Unrealised gains measured at fair value 1.
By way of derogation from Article 32, during the
period from 1 January 2013 to 31 December 2017, institutions shall not remove
from their Common Equity Tier 1 items the applicable percentage of unrealised gains
measured at fair value, excluding those referred to in Article 30. The resulting
residual amount shall be removed from Common Equity Tier 1 items. 2.
For the purposes of paragraph 1, the applicable
percentage shall be 0 % during the period from 1 January 2013 to 31 December
2013, and shall, after that date, fall within the following ranges: (a)
0 % to 20 % during the period from 1 January
2014 to 31 December 2014; (b)
0 % to 40 % during the period from 1 January
2015 to 31 December 2015; (c)
0 % to 60 % during the period from 1 January
2016 to 31 December 2016; (d)
0 % to 80 % for the period from 1 January 2017 to
31 December 2017. 3.
By way of derogation from Article 59, institutions
shall include the applicable percentage of the residual amount removed from
Common Equity Tier 1 capital in accordance with paragraph 1 in Tier 2 items, to
the extent that those unrealised gains measured at fair value would have been
recognised as additional own funds according to national transposition for Directive
2006/48/EC. The applicable percentage shall fall within the following ranges: (a)
100 % during the period from 1 January 2013 to 31
December 2013; (b)
80 % during the period from 1 January 2014 to 31
December 2014; (c)
60 % during the period from 1 January 2015 to 31
December 2015; (d)
40 % during the period from 1 January 2016 to 31
December 2016. (e)
20 % during the period from 1 January 2017 to 31
December 2017. 4.
Competent authorities shall: (a)
determine the applicable percentage of
unrealised gains in the ranges specified in points (a) to (d) of paragraph 2
that is not removed from Common Equity Tier 1 capital; (b)
publish the determination made in accordance
with point (a). Section 3
Deductions Sub-section 1
Deductions from Common Equity Tier 1 items Article 451
Deductions from Common Equity Tier 1 items 1.
By way of derogation from Article 33(1), during
the period from 1 January 2013 to 31 December 2017, the following shall apply: (a)
institutions shall deduct from Common Equity
Tier 1 items the applicable percentage specified in Article 458 of the amounts
required to be deducted pursuant to points (a) to (h) of Article 33(1),
excluding deferred tax assets that rely on future profitability and arise from
temporary differences; (b)
institutions shall apply the relevant provisions
laid down in Article 453 to the residual amounts of items required to be deducted
pursuant to points (a) to (h) of Article 33(1), excluding deferred tax assets that
rely on future profitability and arise from temporary differences; (c)
institutions shall deduct from Common Equity
Tier 1 items the applicable percentage specified in Article 458 of the total
amount required to be deducted pursuant to points (c) and (i) of Article 33(1)
after applying Article 452; (d)
institutions shall apply the requirements laid
down in Article 453(4) or Article 453(10), as applicable, to the total residual
amount of items required to be deducted pursuant to points (c) and (i) of
Article 33(1) after applying Article 452. 2.
Institutions shall determine the portion of the
total residual amount referred to point (d) of paragraph 1, that is subject to
Article 453(4), by dividing the amount specified in point (a) by the amount
specified in point (b): (a)
the amount of deferred tax assets that are
dependent on future profitability and arise from temporary differences referred
to in point (a) of Article 452(2); (b)
the sum of the amounts referred to in points (a)
and (b) of Article 452(2). 3.
Institutions shall determine the portion of the
total residual amount referred to point (d) of paragraph 1 that is subject to
Article 453(10) by dividing the amount specified in point (a) by the amount
specified in point (b): (a)
the amount of direct and indirect holdings of
the Common Equity Tier 1 instruments referred to in point (b) of Article 452(2); (b)
the sum of the amounts referred to in points (a)
and (b) of Article 452(2). Article 452
Exemption from deduction from Common Equity Tier 1 items 1.
For the purposes of this Article, relevant
Common Equity Tier 1 items shall comprise the Common Equity Tier 1 items of the
institution calculated after applying the provisions of Article 3 and making the
deductions pursuant to points (a) to (h) and (j), (k) and (l) of Article 33(1),
excluding deferred tax assets that rely on future profitability and arise from
temporary differences. 2.
By way of derogation from Article 45(1), during
the period from 1 January 2013 to 31 December 2017, institutions shall not
deduct the items listed in points (a) and (b) which in aggregate are equal to
or less than 15 % of relevant Common Equity Tier 1 items of the institution: (a)
deferred tax assets that are dependent on future
profitability and arise from temporary differences and in aggregate are equal
to or less than 10 % of relevant Common Equity Tier 1 items; (b)
where an institution has a significant
investment in a relevant entity, the direct and indirect holdings by the institution
of the Common Equity Tier 1 instruments of that entity that in aggregate are
equal to or less than 10 % of relevant Common Equity Tier 1 items. 3.
By way of derogation from Article 45(2), the items
exempt from deduction pursuant to paragraph 2 shall be risk weighted at 250 %.
The items referred to in point (b) of paragraph 2 shall be subject to the
requirements of Title IV of Part Three, as applicable. Article 453
Items not deducted from Common Equity Tier 1 1.
By way of derogation from points (a) to (i)
Article 33(1), during the period from 1 January 2013 to 31 December 2017, institutions
shall apply this Article to the residual amounts of items referred to in points
(b) and (d) of Article 451(1): 2.
Institutions shall apply the following to the
residual amount of losses of the current financial year referred to in point
(a) of Article 33(1): (a)
losses that are material are deducted from Tier
1 items; (b)
losses that are not material are not deducted. 3.
Institutions shall deduct the residual amount of
the intangible assets referred to in point (b) of Article 33(1)(b) from Tier 1
items. 4.
The residual amount of the deferred tax assets
referred to in point (c) of Article 33(1) shall not be deducted and shall be subject
to a risk weight of 0 %. 5.
The residual amount of the items referred to in
point (d) of Article 33(1) shall be deducted half from Tier 1 items and half
from Tier 2 items. 6.
The residual amount of the assets of a defined
benefit pension fund referred to in point (e) of Article 33(1) shall not be deducted
from any element of own funds and shall be included in Common Equity Tier 1
items to the extent that amount would have been recognised as original own
funds according to the national transposition measures for points (a) to (ca)
of Article 57 of Directive 2006/48/EC. 7.
Institutions shall apply the following to the
residual amount of holdings of own Common Equity Tier 1 instruments referred to
in point (f) of Article 33(1): (a)
the amount of direct holdings is deducted from
Tier 1 items; (b)
the amount of indirect holdings, including own
Common Equity Tier 1 instruments that an institution could be obliged to
purchase by virtue of an existing or contingent contractual obligation is not
deducted and is subject to a risk weight in accordance with Chapter 2 or 3 of
Title II of Part Three and to the requirements laid down in Title IV of Part
Three, as applicable. 8.
Institutions shall apply the following to the
residual amount of holdings of Common Equity Tier 1 instruments of a relevant
entity where the institution has reciprocal cross holdings with that entity referred
to in point (g) of Article 33(1): (a)
where an institution does not have a significant
investment in that relevant entity, the amount of its holding of the Common
Equity Tier 1 instruments of that entity is treated as falling under point (h)
of Article 33(1); (b)
where an institution has a significant
investment in that relevant entity, the amount of its holdings of Common Equity
Tier 1 instruments of that entity is treated as falling under point (i) of Article
33(1). 9.
Institutions shall apply the following to the residual
amounts of items referred to in point (h) of Article 33(1): (a)
the amounts required to be deducted that relate
to direct holdings are deducted half from Tier 1 items and half from Tier 2
items; (b)
the amounts that relate to indirect holdings are
not deducted and are subject to a risk weights in accordance with Chapter 2 or
3 of Title II of Part Three and to the requirements laid down in Title IV of
Part Three, as applicable; 10.
Institutions shall apply the following to the
residual amounts of the items referred to in point (i) of Article 33(1): (a)
the amounts required to be deducted that relate
to direct holdings are deducted half from Tier 1 items and half from Tier 2
items; (b)
the amounts that relate to indirect holdings are
not deducted and are subject to risk weights in accordance with Chapter 2 or 3
of Title II of Part Three and to the requirements laid down in Title IV of Part
Three, as applicable. Sub-section 2
Deductions from Additional Tier 1 items Article 454
Deductions from Additional Tier 1 items By
way of derogation from Article 53, during the period from 1 January 2013 to 31
December 2017, the following shall apply: (a) institutions shall deduct from
Additional Tier 1 items the applicable percentage specified in Article 458 of
the amounts required to be deducted pursuant to Article 53; (b) institutions shall apply the
requirements laid down in Article 455 to the residual amounts of the items required
to be deducted pursuant to Article 53. Article 455
Items not deducted from Additional Tier 1 items 1.
By way of derogation from Article 53, during the
period from 1 January 2013 to 31 December 2017, the requirements laid down in
this Article shall apply to the residual amounts referred to in point (b) of
Article 454. 2.
Institutions shall apply the following to residual
amount of the items referred to in point (a) of Article 53: (a)
direct holdings of own Additional Tier 1
instruments that are shares are deducted at book value from Tier 1 items; (b)
direct holdings of own Additional Tier 1
instruments that are not shares are not deducted and are risk weighted in
accordance with Chapter 2 or 3 of Title II of Part Three and subject to the
requirements of Title IV of Part Three, as applicable; (c)
indirect holdings of own Additional Tier 1
instruments, including own Additional Tier 1 instruments that an institution
could be obliged to purchase by virtue of an existing or contingent contractual
obligation, are not deducted and are risk weighted in accordance with Chapter 2
or 3 of Title II of Part Three and subject to the requirements of Title IV of
Part Three, as applicable. 3.
Institutions shall apply the following to the
residual amount of the items referred to in point (b) of Article 53: (a)
where an institution does not have a significant
investment in a relevant entity with which it has reciprocal cross holdings,
the amount of its direct and indirect holdings of those Additional Tier 1
instruments of that entity is treated as falling within point (c) of Article 53; (b)
where the institution has a significant
investment in a relevant entity with which it has reciprocal cross holdings,
the amount of its direct and indirect holdings of those Additional Tier 1
instruments of that entity is treated as falling within point (d) of Article 53. 4.
Institutions shall apply the following to the
residual amount of the items referred to in points (c) and (d) of Article 53: (a)
the amount relating to direct holdings required
to be deducted in accordance with points (c) and (d) of Article 53 are deducted
half from Tier 1 items and half from Tier 2 items; (b)
the amount relating to indirect holdings
required to be deducted in accordance with points (c) and (d) of Article 53 shall
not be deducted and shall be subject to a risk weight in accordance with
Chapter 2 or 3 of Title II of Part Three and to the requirements of Title IV of
Part Three, as applicable. Sub-section 3
Deductions from Tier 2 items Article 456
Deductions from Tier 2 items 1.
By way of derogation from Article 63, during the
period from 1 January 2013 to 31 December 2017, the following shall apply: (a)
institutions shall deduct from Tier 2 items the
applicable percentage specified in Article 458 of the amounts required to be
deducted pursuant to Article 63; (b)
Institutions shall apply the requirements laid
down in Article 457 to the residual amounts required to be deducted pursuant to
Article 63. Article 457
Deductions from Tier 2 items 1.
By way of derogation from Article 63, during the
period from 1 January 2013 to 31 December 2017, the requirements laid down in
this Article shall apply to the residual amounts referred to in point (b) of
Article 456. 2.
Institutions shall apply the following to the
residual amount of items referred to in point (a) of Article 63: (a)
direct holdings of own Tier 2 instruments that
are shares are deducted at book value from Tier 2 items; (b)
direct holdings of own Tier 2 instruments that
are not shares are not deducted and are risk weighted in accordance with
Chapter 2 or 3 of Title II of Part Three and subject to the requirements of
Title IV of Part Three, as applicable; (c)
indirect holdings of own Tier 2 instruments,
including own Tier 2 instruments that an institution could be obliged to
purchase by virtue of an existing or contingent contractual obligation are not
deducted and are risk weighted in accordance with Chapter 2 or 3 of Title II of
Part Three and subject to the requirements of Title IV of Part Three, as
applicable. 3.
Institutions shall apply the following to the residual
amount of the items referred to in point (b) of Article 63: (a)
where an institution does not have a significant
investment in a relevant entity with which it has reciprocal cross holdings,
the amount of its direct and indirect holdings of the Tier 2 instruments of
that entity is treated as falling within point (c) of Article 63; (b)
where the institution has a significant
investment in a relevant entity with which it has reciprocal cross holdings, the
amount of direct and indirect holdings of the Tier 2 instruments of that
relevant entity are treated as falling within point (d) of Article 63. 4.
Institutions shall apply the following to the residual
amount of the items referred to in points (c) and (d) of Article 63: (a)
the amount relating to direct holdings that is
required to be deducted in accordance with points (c) and (d) of Article 63 is deducted
half from Tier 1 items and half from Tier 2 items; (b)
the amount relating to indirect holdings that is
required to be deducted in accordance with points (c) and (d) of Article 63 is
not be deducted and are subject to a risk weight under Chapter 2 or 3 of Title
II of Part Three and the requirements laid down in Title IV of Part Three, as
applicable. Sub-section 4
Applicable percentages for deduction Article 458
Applicable percentages for deduction from Common Equity Tier 1, Additional Tier
1 and Tier 2 items 1.
The applicable percentage for the purposes of
points (a) and (c) of Article 451(1), point (a) of Article 454 and point (a) of
Article 456shall fall within the following ranges: (a) 0 % to 100 % for the period from 1
January 2013 to 31 December 2013; (b) 20 % to 100 % for the period from 1
January 2014 to 31 December 2014; (c) 40 % to 100 % for the period from 1
January 2015 to 31 December 2015; (d) 60 % to 100 % for the period from 1
January 2016 to 31 December 2016; (e) 80 % to 100 % for the period from 1
January 2017 to 31 December 2017. 2.
Competent authorities shall: (a)
determine the applicable percentage in the
ranges specified in paragraph 1 for each of the following: (i) the items referred to in points (a)
to (h) of Article 33(1), excluding deferred tax assets that rely on future
profitability and arise from temporary differences; (ii) deferred tax assets that rely on
future profitability and arise from temporary differences and the items
referred to in point (i) of Article 33(1); (iii) the items referred to in points (a)
to (d) of Article 53; (iv) the items referred to in points (a)
to (d) of Article 63; (b)
publish the determination made in accordance
with point (a). Section 4
Minority interest and Additional Tier 1 and Tier 2 instruments issued by subsidiaries Article 459
Recognition in consolidated Common Equity Tier 1 capital of instruments and
items that do not qualify as minority interests 1.
By way of derogation from Title III of Part Two,
during the period from 1 January 2013 to 31 December 2017, recognition in
consolidated own funds of the of items that would qualify as consolidated
reserves in accordance with national transposition measures pursuant to Article
65 of Directive 2006/48/EC that do not qualify as consolidated Common Equity
Tier 1 capital for any of the following reasons shall be determined by the
competent authorities in accordance with paragraphs 2 and 3: (a)
the instrument does not qualify as a Common
Equity Tier 1 instrument, and the related retained earnings and share premium
accounts consequently do not qualify as consolidated Common Equity Tier 1
items; (b)
as a result of paragraph 2 of Article 76; (c)
because the subsidiary is not an institution or
an entity that is subject by virtue of applicable national law to the
requirements of this Regulation and Directive [inserted by OP]; (d)
because the subsidiary is not included fully in
the consolidation pursuant to Chapter 2 of Title II of Part One. 2.
The applicable percentage of the items referred
to in paragraph 1 that would have qualified as consolidated reserves in
accordance with the national transposition measures for Article 65 of Directive
2006/48/EC shall qualify as consolidated Common Equity Tier 1 capital. 3.
For the purposes of paragraph 2, the applicable
percentages shall fall within the following ranges: (a)
0 % to 100 % for the period from 1 January 2013 to
31 December 2013; (b)
0 % to 80 % for the period from 1 January 2014 to
31 December 2014; (c)
0 % to 60 % for the period from 1 January 2015 to
31 December 2015; (d)
0 % to 40 % for the period from 1 January 2016 to
31 December 2016; (e)
0 % to 20% for the period from 1 January 2017 to
31 December 2017. 4.
Competent authorities shall: (a)
determine the applicable percentage in the
ranges specified in paragraph 3; (b)
publish the determination made in accordance with
point (a). Article 460
Recognition of in consolidated own funds of minority interests and qualifying
Additional Tier1 and Tier 2 capital 1.
By way of derogation from point (b) of Article 79,
point (b) of Article 80 and point (b) of Article 82, during the period from 1
January 2013 to 31 December 2017, the percentages referred to in those points shall
be multiplied by an applicable factor. 2.
For the purposes of paragraph 1, the applicable
factor shall fall within the following ranges: (a)
0 to 1 in the period from 1 January 2013 to 31
December 2013; (b)
0.2 to 1 in the period from 1 January 2014 to 31
December 2014; (c)
0.4 to 1 in the period from 1 January 2015 to 31
December 2015; (d)
0.6 to 1 in the period from 1 January 2016 to 31
December 2016; and (e) 0.8 to 1 in the period from 1 January 2017 to 31 December
2017. 3.
Competent authorities shall: (a)
determine the value of the applicable factor in
the ranges specified in paragraph 2; (b)
publish the determination made in accordance
with point (a). Section 5
Additional filters and deductions Article 461
Additional filters and deductions 1.
By way of derogation from Articles 29 to 33, 53
and 63, during the period from 1 January 2013 to 31 December 2017, institutions
shall make adjustments to include in or deduct from Common Equity Tier 1 items,
Tier 1 items, Tier 2 items or own funds items the applicable percentage of
filters or deductions required under national transposition measures for
Articles 57 and 66 of Directive 2006/48/EC, and for Articles 13 and 16 of
Directive 2006/49/EC, and which are not required in accordance with Part Two. 2.
For the purposes of paragraph 1, the applicable
percentage shall fall within the following ranges: (a)
0 % to 100 % for the period from 1 January 2013 to
31 December 2013; (b)
0 % to 80 % for the period from 1 January 2014 to
31 December 2014; (c)
0 % to 60 % for the period from 1 January 2015 to
31 December 2015; (d)
0 % to 40 % for the period from 1 January 2016 to
31 December 2016; and (e)
0 % to 20 % for the period from 1 January 2017 to
31 December 2017. 3.
For each filter or deduction referred to in
paragraph 1, competent authorities shall: (a)
determine the applicable percentages in the
ranges specified in paragraph 2; (b)
publish the determination made in accordance
with point (a). 4.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which competent authorities
shall determine whether adjustments made to own funds, or elements thereof, in
accordance with national transposition measures for Directive 2006/48/EC or
Directive 2006/49/EC that are not included in Part Two should for the purposes
of this Article be made to Common Equity Tier 1 items, Additional Tier 1 items,
Tier 1 items, Tier 2 items or own funds. EBA shall submit those draft regulatory
technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first sub-paragraph in
accordance with the procedures laid down in Articles 10 to 14 of Regulation
(EU) No 1093/2010. Chapter 2
Grandfathering of capital instruments Section 1
Instruments constituting State aid Article 462
Grandfathering of State aid instruments 1.
By way of derogation from Articles 24 to 27, 48,
49, 59 and 60 during the period from 1 January 2013 to 31 December 2017, this
Article applies to capital instruments where the following conditions are met: (a)
the instruments were issued prior to 20 July
2011; (b)
the instruments constitute State aid; (c)
the instruments were considered compatible with
the internal market by the Commission under Article 107 TFEU. 2.
Instruments that qualified in accordance with
the national transposition measures for point (a) of Article 57 of Directive
2006/48/EC shall qualify as Common Equity Tier 1 instruments notwithstanding
either of the following: (a)
the conditions laid down in Article 26 are not
met; (b)
the instruments were issued by an undertaking
referred to in Article 25 and the conditions laid down in Articles 26, or Article
27 as applicable, are not met. 3.
Instruments that qualified in accordance with
the national transposition measures for point (ca) of Article 57 and for
Article 66(1) of Directive 2006/48/EC shall qualify as Additional Tier 1 instruments
notwithstanding the conditions laid down in Article 49(1) not being met. 4.
Items that qualified in accordance with national
transposition measures for points (f), (g) or (h) of Article 57 and for Article
66(1) of Directive 2006/48/EC shall qualify as Tier 2 instruments
notwithstanding the items not being referred to in Article 59 or the conditions
laid down in Article 60 not being met. Section 2
Instruments not constituting State aid Sub-section 1
Grandfathering eligibility and limits Article 463
Eligibility for grandfathering of items that qualified as own funds under
national transposition measures for Directive 2006/48/EC 1.
This Article shall apply only to instruments
that were issued prior to 20 July 2011 and are not those referred to in Article
462(1). 2.
By way of derogation from Articles 24 to 27, 48,
49, 59 and 60 , this Article shall apply during the period from 1 January 2013 to
31 December 2021. 3.
Subject to the limit specified in Article 464(2),
capital within the meaning of Article 22 of Directive 86/365/EC, and the
related share premium accounts, that qualified as original own funds under the
national transposition measures for point (a) of Article 57 of Directive
2006/48/EC shall qualify as Common Equity Tier 1 items notwithstanding that
capital not meeting the conditions laid down in Articles 262, or Article 27 as
applicable. 4.
Subject to the limit specified Article 464(3), instruments,
and the related share premium accounts, that qualified as original own funds
under national transposition measures for point (ca) of Article 57 and Article
154(8) and (9) of Directive 2006/48/shall qualify as Additional Tier 1 items, notwithstanding
the conditions laid down in Article 49 not being met. 5.
Subject to the limits specified in Article 464(4),
items, and the related share premium accounts, that qualified under national
transposition measures for points (f), (g) or (h) of Article 57 of Directive
2006/48/EC shall qualify as Tier 2 items, notwithstanding those items not being
included in Article 59 or the conditions laid down in Article 60 not being met. Article 464
Limits for grandfathering of items within Common Equity Tier 1, Additional Tier
1 and Tier 2 items 1.
During the period from 1 January 2013 to 31
December 2021, the extent to which instruments referred to in Article 463 shall
qualify as own funds shall be limited in accordance with this Article. 2.
The amount of items referred to Article 463(3)
that shall qualify as Common Equity Tier 1 items is limited to the applicable
percentage of the sum of the amounts specified in points (a) and (b): (a)
the nominal amount of capital referred to in Article
463(3) that were in issue on 31 December 2012; (b)
the share premium accounts related to the items
referred to in point (a). 3.
The amount of items referred to Article 463(4)
that shall qualify as Additional Tier 1 items is limited to the applicable
percentage multiplied by the result of subtracting from the sum of the amounts
specified in points (a) and (b) the sum of the amounts specified in points (c)
to (f): (a)
the nominal amount of instruments referred to in
Article 463(4), that remained in issue on 31 December 2012; (b)
the share premium accounts related to the
instruments referred to in point (a); (c)
the amount of instruments referred to in Article
463(4) which on 31 December 2012 which exceeded the limits specified in the
national transposition measures for point (a) of Article 66(1) and Article
66(1a) of Directive 2006/48/EC; (d)
the share premium accounts related to the
instruments referred to in point (c); (e)
the nominal amount of instruments referred to Article
463(4) that were in issue on 31 December 2012 but do not qualify as Additional
Tier 1 instruments pursuant to Article 467(4); (f)
the share premium accounts related to the
instruments referred to in point (e). 4.
The amount of items referred to Article 463(5)
that shall qualify as Tier 2 items is limited to the applicable percentage of
the result of subtracting from the sum of the amounts specified in points (a)
to (d) the sum of amounts specified in points (e) to (h): (a)
the nominal amount of instruments referred to in
Article 463(5) that remained in issue on 31 December 2012; (b)
the share premium accounts related to the
instruments referred to in point (a); (c)
the nominal amount of subordinated loan capital
that remained in issue on 31 December, reduced by the amount required pursuant
to national transposition measures for point (c) of Article 64(3) of Directive
2006/48/EC; (d)
the nominal amount of items referred to in
Article 463(5), other than the instruments and subordinated loan capital
referred to in points (a) and (c) of this paragraph, that were in issue on 31
December 2012; (e)
the nominal amount of instruments and items referred
to in Article 463(5) that were in issue on 31 December 2012 that exceeded the
limits specified in the national transposition measures for point (a) of Article
66(1) of Directive 2006/48/EEC ; (f)
the share premium accounts related to the
instruments referred to in point (e); (g)
the nominal amount of instruments referred to in
Article 463(5) that were in issue on 31 December 2012 that do not qualify as
Tier 2 items pursuant to Article 468(4); (h)
the share premium accounts related to the
instruments referred to in point (g). 5.
For the purposes of this Article, the applicable
percentages referred to in paragraphs 2 to 4 shall fall within the following
ranges: (a)
0 % to 90 % during the period from 1 January
2013 to 31 December 2013; (b)
0 % to 80 % during the period from 1 January
2014 to 31 December 2014; (c)
0 % to 70 % during the period from 1 January
2015 to 31 December 2015; (d)
0 % to 60 % during the period from 1 January
2016 to 31 December 2016; (e)
0 % to 50 % during the period from 1 January 2017
to 31 December 2017; (f)
0 % to 40 % during the period from 1 January
2018 to 31 December 2018; (g)
0 % to 30 % during the period from 1 January
2019 to 31 December 2019; (h)
0 % to 20 % during the period from 1 January
2020 to 31 December 2020; (i)
0 % to 10 % during the period from 1 January
2021 to 31 December 2021. 6.
Competent authorities shall: (a)
determine the applicable percentages in the
ranges specified in paragraph 5; (b)
publish the determination made in accordance
with point (a). Article 465
Items excluded from grandfathering in Common Equity Tier 1 or Additional Tier 1
items in other elements of own funds 1.
By way of derogation from Articles 48, 49, 59
and 60 , during the period from 1 January 2013 to 31 December 2021, institutions
may treat as items referred to in Article 463(4), capital, and the related
share premium accounts, referred to in Article 463(3) that are excluded from
Common Equity Tier 1 items because they exceed the applicable percentage
specified in Article 464(2), to the extent that the inclusion of that capital
and the related share premium accounts, does not exceed the applicable
percentage limit referred to in Article 464(3). 2.
By way of derogation from Articles 48, 49, 59
and 60 , during the period from 1 January 2013 to 31 December 2021, institutions
may treat the following as items referred to in Article 463(5), to the extent
that their inclusion does not exceed the applicable percentage limit referred
to in Article 464(4): (a)
capital, and the related share premium accounts,
referred to in Article 463(3) that are excluded from Common Equity Tier 1 items
because they exceed the applicable percentage specified in Article 464(2); (b)
instruments, and the related share premium
accounts, referred to in Article 463(4) that exceed the applicable percentage referred
to in Article 464(3). 3.
EBA shall develop draft regulatory technical
standards to specify the conditions for treating own funds instruments referred
to in paragraphs 1 and 2 as falling under Article 464(4) or 464(5) during the
period from 1 January 2013 to 31 December 2021. EBA shall submit
those draft regulatory technical standards to the Commission by 1 January 2013. Power is delegated to
the Commission to adopt the regulatory technical standards referred to in the
first sub-paragraph in accordance with the procedure laid down in Articles 10
to 14 of Regulation (EU) No 1093/2010. Article 466
Amortisation of items grandfathered as Tier 2 items The
items referred to Article 463(5) that qualify as Tier 2 items pursuant to
Article 463(5) or Article 464(2) shall be subject to the requirements laid down
in Article 61. Sub-section 2
Inclusion of instruments with a call and incentive to redeem in Additional Tier
1 and Tier 2 items Article 467
Hybrid instruments with a call and incentive to redeem 1.
By way of derogation from Article 48 and 49, during
the period from 1 January 2013 to 31 December 2021, instruments referred to in
Article 463(4) that qualified under the national transposition measures for Article
57(ca) of Directive 2006/48/EC and include in their terms and conditions a call
with an incentive for them to be redeemed by the institution shall be subject
to the requirements laid down in paragraphs 2 to 7. 2.
The instruments shall qualify as Additional Tier
1 instruments provided the following conditions are met: (a)
the institution was able to exercise a call with
an incentive to redeem only prior to 1 January 2013; (b)
the institution did not exercise the call; (c)
the conditions laid down in Article 49 are met from
1 January 2013. 3.
The instruments shall qualify as Additional Tier
1 instruments in accordance with Article 463(4) between 1 January 2013 and the
date of their effective maturity and thereafter qualify as Additional Tier 1 items
without limit provided: (a)
the institution was able to exercise a call with
an incentive to redeem only on or after 1 January 2013; (b)
the institution did not exercise the call on the
date of the effective maturity of the instruments; (c)
the conditions laid down in Article 49 are met from
the date of the effective maturity of the instruments. 4.
The instruments shall not qualify as Additional
Tier 1 instruments, and shall not be subject to Article 463(4), from 1 January
2013 where the following conditions are met: (a)
the institution was able to exercise a call with
an incentive to redeem between 20 July 2011 and 1 January 2013; (b)
the institution did not exercise the call on the
date of the effective maturity of the instruments; (c)
the conditions laid down in Article 49 are not
met from the date of the effective maturity of the instruments. 5.
The instruments shall qualify as Additional Tier
1 instruments in accordance with Article 463(4) between 1 January 2013 and the
date of their effective maturity, and shall not qualify as Additional Tier 1
instruments thereafter, where the following conditions are met: (a)
the institution was able to exercise a call with
an incentive to redeem on or after 1 January 2013; (b)
the institution did not exercise the call on the
date of the effective maturity of the instruments; (c)
the conditions laid down in Article 49 are not
met from the date of the effective maturity of the instruments. 6.
The instruments shall qualify as Additional Tier
1 instruments in accordance with Article 463(4) where the following conditions
are met: (a)
the institution was able to exercise a call with
an incentive to redeem only prior to or on 20 July 2011; (b)
the institution did not exercise the call on the
date of the effective maturity of the instruments; (c)
the conditions laid down in Article 49 were not
met from the date of the effective maturity of the instruments. Article 468
Tier 2 items with an incentive to redeem 1.
By way of derogation from Articles 59 and 60 ,
during the period from 1 January 2013 to 31 December 2021, items referred to in
Article 463(5) that qualified under the national transposition measures for points
(f), (g) or (h) of Article 57 of Directive 2006/48/EC and include in their
terms and conditions a call with an incentive for them to be redeemed by the
institution shall be subject to the requirements laid down in paragraphs 2 to 7.
2.
The items shall qualify as Tier 2 instruments
provided: (a)
the institution was able to exercise a call with
an incentive to redeem only prior to 1 January 2013; (b)
the institution did not exercise the call; (c)
from 1 January 2013 the conditions laid down in
Article 60 are met. 3.
The items shall qualify as Tier 2 items in
accordance with Article 463(5) between 1 January 2013 and the date of their
effective maturity, and shall qualify thereafter as Tier 2 items without limit,
provided the following conditions are met: (a)
the institution was able to exercise a call with
an incentive to redeem only on or after 1 January 2013; (b)
the institution did not exercise the call on the
date of the effective maturity of the items; (c)
the conditions laid down in Article 60 are met from
the date of the effective maturity of the items. 4.
The items shall not qualify as Tier 2 items from
1 January 2013 where the following conditions are met: (a)
the institution was able to exercise a call with
an incentive to redeem only between 20 July 2011 and 1 January 2013; (b)
the institution did not exercise the call on the
date of the effective maturity of the items; (c)
the conditions laid down in Article 60 are not
met from the date of the effective maturity of the items. 5.
The items shall qualify as Tier 2 items in
accordance with Article 463(5) between 1 January 2013 and the date of their
effective maturity, and shall not qualify as Tier 2 items thereafter, where: (a)
the institution was able to exercise a call with
an incentive to redeem on or after 1 January 2013; (b)
the institution did not exercise the call on the
date of their effective maturity; (c)
the conditions set out in Article 60 are not met
from the date of effective maturity of the items. 6.
The items shall qualify as Tier 2 items in
accordance with Article 463(5) where: (a)
the institution was able to exercise a call with
an incentive to redeem only prior to or on 20 July 2011; (b)
the institution did not exercise the call on the
date of the effective maturity of the items; (c)
the conditions laid down in Article 60 are not
met from the date of the effective maturity of the items. Article 469
Effective maturity For the purposes of Articles 467 and 468,
effective maturity shall be determined as follows: (a)
for the items referred to in paragraphs 3and 5
of those Articles, it is the date of the first call with an incentive to redeem
occurring on or after 1 January 2013; (b)
for the items referred to in paragraph 4 of
those Articles, it is the date of the first call with an incentive to redeem
occurring between 20 July 2011 and 1 January 2013; (c)
for the items referred to in paragraph 6 of
those Articles, it is the date of the first call with an incentive to redeem
prior to 20 July 2011. Chapter 3
Transitional provisions for disclosure of own funds Article 470
Disclosure of own funds 1.
Institutions shall apply during the period from 1
January 2013 to 31 December 2021. 2.
During the period from 1 January 2013 to 31
December 2015, institutions shall disclose the extent to which the level of
Common Equity Tier 1 capital and Tier 1 capital exceed the requirements laid
down in Article 448. 3.
During the period from 1 January 2013 to 31
December 2017, institutions shall disclose the following additional information
about their own funds: (a)
the nature and effect on Common Equity Tier 1
capital, Additional Tier 1 capital, Tier 2 capital and own funds of the
individual filters and deductions applied in accordance with Articles 449 to
452, 454, 456 and 459; (b)
the amounts of minority interests and Additional
Tier 1 and Tier 2 instruments, and related retained earnings and share premium
accounts, issued by subsidiaries that are included in consolidated Common
Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds
in accordance with Section 4 of Chapter 1; (c)
the effect on Common Equity Tier 1 capital,
Additional Tier 1 capital, Tier 2 capital and own funds of the individual
filters and deductions applied in accordance with Article 461; (d)
the nature and amount of items that qualify as
Common Equity Tier 1 items, Tier 1 items and Tier 2 items by virtue of applying
the derogations specified in Section 2 of Chapter 2. 4.
During the period from 1 January 2013 to 31
December 2021, institutions shall disclose the amount of instruments that
qualify as Common Equity Tier 1 instruments, Additional Tier 1 instruments and
Tier 2 instruments by virtue of applying Article 463. Chapter 4
Large exposures, own funds requirements, leverage and the Basel I floor Article 471
Transitional provisions for large exposures 1.
The provisions on large exposures as laid down
in Articles 376 to 392 shall not apply to investment firms whose main business
consists exclusively of the provision of investment services or activities in
relation to the financial instruments set out in points 5, 6, 7, 9 and 10
of Section C of Annex I to Directive 2004/39/EC and to whom
Directive 93/22/EEC did not apply on 31 December 2006. This exemption
is available until 31 December 2014 or the date of entry into force of any
amendments pursuant to paragraph 2, whichever is the earlier. 2.
By 31 December 2014, the Commission shall, on
the basis of public consultations and in the light of discussions with the
competent authorities, report to the Parliament and the Council on: (a) an appropriate regime for the
prudential supervision of investment firms whose main business consists
exclusively of the provision of investment services or activities in relation
to the commodity derivatives or derivatives contracts set out in points 5,
6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC; (b) the desirability of amending
Directive 2004/39/EC to create a further category of investment firm whose
main business consists exclusively of the provision of investment services or
activities in relation to the financial instruments set out in points 5,
6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC
relating to energy supplies. On
the basis of this report, the Commission may submit proposals for amendments to
this Regulation. Article 472
Own funds requirements under the IRB approach 1.
By way of derogation from Chapter 3 of Part
Three, until 31 December 2017, the competent authority may exempt from the IRB
treatment certain categories of equity exposures held by institutions and EU
subsidiaries of institutions in that Member State as at 31 December 2007. The
competent authority shall publish the categories of equity exposures which
benefit from this treatment in accordance with Article 133 of Directive [inserted
by OP]. The exempted position shall be measured as the
number of shares as at 31 December 2007 and any additional share arising
directly as a result of owning those holdings, provided they do not increase
the proportional share of ownership in a portfolio company. If an acquisition increases the proportional
share of ownership in a specific holding the exceeding Part of the holding
shall not be subject to the exemption. Nor shall the exemption apply to
holdings that were originally subject to the exemption, but have been sold and
then bought back. Equity exposures subject to this provision
shall be subject to the capital requirements calculated in accordance with the
Standardised Approach under Part III, Title 2, Chapter II and the requirements
set out in Title IV of Part Three, as applicable. Competent authorities shall notify the
Commission and EBA of the implementation of this paragraph. 2.
In the calculation of risk weighted exposure
amounts for the purposes of Article 109(4), until 31 December 2015 the
same risk weight shall be assigned in relation to exposures to the central
governments or central banks of Member States denominated and funded in the
domestic currency of any Member State as would be applied to such exposures
denominated and funded in their domestic currency. 3.
EBA shall develop draft regulatory technical
standards to specify the conditions according to which Member States shall
afford the exemption referred to in paragraph 1. EBA shall submit
those draft regulatory technical standards to the Commission by 1 January 2013.
Power is delegated to
the Commission to adopt the regulatory technical standards referred to in the
first sub-paragraph in accordance with the procedure laid down in Articles 10
to 14 of Regulation (EU) No 1093/2010. Article 473
Own funds requirements for covered bonds 1.
Until 31 December 2014, the 10 % limit for
senior units issued by French Fonds Communs de Créances or by equivalent
securitisation entities laid down in points (d) and (e) of Article 124(1) shall
not apply, provided that: (a) the securitised residential or
commercial immovable property exposures were originated by a member of the same
consolidated group of which the issuer of the covered bonds is also a member,
or by an entity affiliated to the same central body to which the issuer of the
covered bonds is also affiliated, where that common group membership or affiliation
shall be determined at the time the senior units are made collateral for
covered bonds; (b) a member of the same consolidated
group of which the issuer of the covered bonds is also a member, or an entity
affiliated to the same central body to which the issuer of the covered bonds is
also affiliated, retains the whole first loss tranche supporting those senior
units. 2.
By 1 January 2013, the Commission shall review
the appropriateness of the derogation set out in paragraph 1 and, if relevant,
the appropriateness of extending similar treatment to any other form of covered
bond. In the light of that review, the Commission may, if appropriate, adopt
delegated acts in accordance with Article 445 to make that derogation permanent
or make legislative proposals to extend it to other forms of covered bonds. 3.
Until 31 December 2014, for the purposes of
point (c) in Article 124(1), institutions' senior unsecured exposures which
qualified for a 20% risk weight under national law before the entry into force
of this regulation shall be considered to qualify for credit quality step 1. 4.
Until 31 December 2014, for the purposes of
Article 124(3), institutions' senior unsecured exposures to which qualified for
a 20% risk weight under national law before the entry into force of this
regulation shall be considered to qualify for a 20% risk weight. Article 474
Exemption for Commodities dealers 1.
The provisions on capital requirements as set
out in this Regulation shall not apply to investment firms whose main business
consists exclusively of the provision of investment services or activities in
relation to the financial instruments set out in points 5, 6, 7, 9 and 10
of Section C of Annex I to Directive 2004/39/EC and to whom
Directive 93/22/EEC did not apply on 31 December 2006. This exemption shall apply until
31 December 2014 or the date of entry into force of any modifications
pursuant to paragraphs 2 and 3, whichever is the earlier. 2.
By 31 December 2014, the Commission shall, on
the basis of public consultations and in the light of discussions with the
competent authorities, report to the Parliament and the Council on: (a)
an appropriate regime for the prudential
supervision of investment firms whose main business consists exclusively of the
provision of investment services or activities in relation to the commodity
derivatives or derivatives contracts set out in points 5, 6, 7, 9 and 10
of Section C of Annex I to Directive 2004/39/EC; (b)
the desirability of amending
Directive 2004/39/EC to create a further category of investment firm whose
main business consists exclusively of the provision of investment services or
activities in relation to the financial instruments set out in points 5,
6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC
relating to energy supplies, including electricity, coal, gas and oil. 3.
On the basis of the report referred to in
paragraph 2, the Commission may submit proposals for amendments to this
regulation. Article 475
Leverage 1.
By way of derogation from Article 416 and 417,
during the period between 1 January 2013 and 31 December 2021, institutions
shall calculate and report the leverage ratio by using both of the following as
the capital measure: (a)
Tier 1 capital ; (b)
Tier 1 capital, subject to the derogations laid
down in Chapters 2 and 3 of this Title. 2.
By way of derogation from Article 436(1),
institutions may choose whether to disclose the information on the leverage
ratio based on either just one or both of the definitions of the capital
measure specified in points (a) and (b) of paragraph 1. Where institutions
change their decision on which leverage ratio to disclose, the first disclosure
that occurs after such change shall contain a reconciliation of the information
on all leverage ratios disclosed up to the moment of the change. 3.
By way of derogation from Article 416(2), during
the period from 1 January 2013 to 31 December 2017, competent authorities may
permit institutions to calculate the end-of-quarter leverage ratio where they
consider that institutions may not have data of sufficiently good quality to
calculate a leverage ratio that is an arithmetic mean of the monthly leverage
ratios over a quarter. Article 476
Transitional provisions – Basel I floor 1.
Until 31 December 2015, institutions calculating risk-weighted exposure amounts in accordance
with Part Three, Title II, Chapter 3 and institutions using the Advanced
Measurement Approaches as specified in Part Three, Title III, Chapter 4 for the
calculation of their own funds requirements for operational risk shall meet
both of the following requirements: (a)
They shall hold own funds as required by Part
Three Title II Chapter 1; (b)
They shall meet a temporary capital ratio of
not less 6.4%. The temporary capital ratio is the own funds of the institution
expressed as a percentage of the risk-adjusted assets and off-balance sheet
items as set out in Annex IV. 2.
The competent authorities may, after having
consulted EBA, waive the application of paragraph 1(b) to institutions provided
that all the requirements for the Internal Ratings Based Approach set out in
Part Three, Title II, Chapter 3, Section 6 and the qualifying criteria for the
use of the Advanced Measurement Approach set out in Part Three, Title III,
Chapter 4 are met. Title II
Reports and reviews Article 477
Cyclicality of capital requirements The Commission, in cooperation with EBA,
ESRB and the Member States, and taking into account the contribution of the
European Central Bank, shall periodically monitor whether this Regulation taken
as a whole, together with Directive [inserted by OP] has significant effects on
the economic cycle and, in the light of that examination, shall consider
whether any remedial measures are justified. By 31 December 2013, the EBA shall
report to the Commission if and how methodologies of institutions under the IRB
Approach should converge with a view to more comparable capital requirements
while mitigating pro-cyclicality. Based on that analysis and taking into
account the contribution of the European Central Bank, the Commission shall
draw up a biennial report and submit it to the European Parliament and to the
Council, together with any appropriate proposals. Contributions from credit
taking and credit lending parties shall be adequately acknowledged when the
report is drawn up. Article 478
Own funds requirements for exposures in the form of covered bonds The Commission shall, by 31 December 2015
and after consulting the EBA, report to the Parliament and the Council,
together with any appropriate proposals, whether the risk weights laid down in
Article 124 and the own funds requirements for specific risk in Article 325(5)
are adequate for all the instruments that qualify for these treatments and whether
the criteria in Article 124 should be made stricter. Article 479
Large exposures By 31 December 2013 the Commission shall
review and report on the application of Article 389(1)(j) and 389(2), including
whether exemptions in Article 389(2) should be discretionary, and shall submit
this report to the European Parliament and the Council and, if appropriate, a
legislative proposal. With respect to the potential elimination
of the national discretion under Article 389(2)(c) and its potential
application at the Union level, the review shall in particular take into
account the efficiency of group’s risk management while ensuring that
sufficient safeguards are in place to ensure financial stability in all Member
states in which an entity of a group is incorporated. Article 480
Level of application 1.
By 31 December 2013,
the Commission shall review and report on the application of Part One, Title
II, and Article 108(6) and 108(7) and shall submit this report to the European
Parliament and the Council, and, if appropriate, a legislative proposal. 2.
By 31 December 2014, the Commission shall report
on whether and how the liquidity coverage requirement laid down in Article 401 should
apply to investment firms and shall, after consulting EBA, submit this report
to the European Parliament and the Council, and, if appropriate, a
legislative proposal. Article 481
Liquidity requirements 1.
EBA shall monitor and evaluate the reports made
in accordance with Article 403(1), across currencies and across different
business models. EBA shall, and after consulting the ESRB, annually and for the
first time by 31 December 2013 report to the Commission whether a specification
of the general liquidity coverage requirement in Article 401 based on the
criteria for liquidity reporting in Part Six Title II, considered either
individually or cumulatively, is likely to have a material detrimental impact
on the business and risk profile of Union institutions or on financial markets
or the economy and bank lending, with a particular focus on lending to small
and medium enterprises and on trade financing, including lending under official
export credit insurance schemes. EBA shall in its report review in particular
the appropriateness of the calibration of the following: (a) the mechanisms restricting the value
of liquidity inflows; (b) the outflows in accordance with
Article 410(5); (c) the appropriate haircuts for purposes
of Article 406 for assets held in accordance with the derogations laid down to
in Article 407. 2.
EBA shall, by 31 December 2013, report to the
Commission on appropriate uniform definitions of high and of extremely high
liquidity and credit quality of transferable assets for purposes of Article 404.
EBA shall in particular test the adequacy of the following criteria and the
appropriate levels for such definitions: (a)
minimum trade volume of the assets (b)
minimum outstanding volume of the assets (c)
transparent pricing and post-trade information (d)
credit quality steps referred to in Sub-section
2 of Annex VI (e)
proven record of price stability (f)
average volume traded and average trade size (g)
maximum bid/ask spread (h)
remaining time to maturity (i)
minimum turnover ratio 3.
By 31 December 2015, EBA shall report to the
Commission on whether and how it would be appropriate to ensure that
institutions use stable sources of funding, including an assessment of the
impact on the business and risk profile of Union institutions or on financial
markets or the economy and bank lending, with a particular focus on lending to
small and medium enterprises and on trade financing, including lending under
official export credit insurance schemes. By 31 December 2016, the Commission shall, on
the basis of these reports, submit a report, and if appropriate a legislative
proposal to the European Parliament and Council. Article 482
Leverage 1.
The Commission shall submit by 31 December 2016
a report on the impact and effectiveness of the leverage ratio to the European
Parliament and the Council. Where appropriate, the report shall be accompanied
by a legislative proposal on the introduction of one or more levels for the
leverage ratio that institutions would be required to meet, suggesting an
adequate calibration for those levels and any appropriate adjustments to the
capital measure and the total exposure measure as defined in Article 416. 2.
For the purposes of paragraph 1, the EBA shall
report to the Commission by 31 October 2016 on at least the following: (a)
whether the requirements laid out in Articles 75
and 85 of Directive [inserted by OP] in accordance with Articles 72 and 92 of
Directive [inserted by OP] for addressing the risk of excessive leverage ensure
sound management of this risk by institutions and, if not, which further
enhancement they need in order to ensure these objectives; (b)
whether – and if so, which - changes to the
calculation methodology detailed in Article 416 would be necessary to ensure
that the leverage ratio can be used as an appropriate indicator of an
institution’s risk of excessive leverage; (c)
whether, in the context of the calculation of
the total exposure measure of the leverage ratio, the exposure value of items
listed in Annex II and credit derivatives determined by using the Original Exposure
Method differs in a material way from the exposure value determined by using
the Mark-to-Market Method; (d)
whether using either own funds or Common Equity
Tier 1 capital as the capital measure of the leverage ratio could be more
appropriate for the intended purpose of tracking the risk of excessive leverage
and, if so, what would be the appropriate calibration of the leverage ratio; (e)
whether the 10% conversion factor for
commitments that are unconditionally cancellable is appropriately conservative
based on the evidence collected during the observation period; (f)
whether the frequency and format of the
disclosure of items referred to in Article 436 are adequate; (g)
whether 3% would be an appropriate level for the
leverage ratio based on Tier 1 capital and, if not, what level would be the
appropriate one; (h)
whether introducing the leverage ratio as a
requirement for institutions would necessitate any changes to the leverage
ratio framework provided by this Regulation and, if so, which ones; (i)
whether introducing the leverage ratio as a
requirement for institutions would effectively constrain the risk of excessive
leverage on the part of those institutions and, if so, whether the level for
the leverage ratio should be the same for all institutions or should differ for
different types of institution and, in the latter case, what additional
calibrations would be required. 3.
The report referred to in paragraph 2 shall
cover at least the period from 1 January 2013 until 30 June 2016 and shall take
account of at least the following: (a)
the impact of introducing the leverage ratio,
determined in accordance with Article 416, as a requirement that institutions
would have to meet on: (i) financial markets in general and
markets for repurchase transactions, derivatives and covered bonds in
particular; (ii) the robustness of institutions; (iii) business models and balance-sheet
structures of institutions; (iv) the migration of exposures to
entities which are not subject to prudential supervision; (v) financial innovation, in particular
the development of instruments with embedded leverage; (vi) institutions' risk-taking behaviour; (vii) clearing, settlement and custody
activities; (viii) cyclicality of the capital measure
and the total exposure measure of the leverage ratio; (ix) bank lending, with a particular focus
on lending to small and medium enterprises and on trade financing, including
lending under official export credit insurance schemes; (b)
the interaction of the leverage ratio with the risk-based
own funds requirements and the liquidity requirements as specified in this
Regulation; (c)
the impact of accounting differences between accounting
standards applicable under Regulation (EC) No 1606/2002, accounting standards
applicable under Directive 86/635/EC and other relevant accounting standards on
the comparability of the leverage ratio. Article 483
Exposures to transferred credit risk By 31 December 2013 the Commission
shall report to the European Parliament and the Council on the application and
effectiveness of the provisions of Part Five in the light of international
market developments. Article 484
Counterparty Credit Risk and the Original Exposure Method By 31 December 2016 the Commission shall
review and report on the application of Article 270 and shall submit this
report to the European Parliament and the Council, and, if appropriate, a
legislative proposal. Article 485
Retail exposures The Commission shall within 24 months after the entry
into force of this Regulation, report on the impact of the own funds
requirements laid down in this Regulation on lending
to small and medium-sized enterprises and natural persons and shall submit this
report to the European Parliament and the Council, and, if appropriate, a
legislative proposal. For these purposes, EBA shall report the following to the Commission with regard to Article 118: (a)
a comparison between actual unexpected credit
losses on lending to small and medium sized enterprises and natural persons within
the European Union over a full economic cycle and the unexpected credit losses
based on the credit risk weights applicable to lending to small and
medium-sized enterprises; (b)
an analysis whether the limit of EUR 1 million
constrains the appropriate application of the risk-weighting. Article 486
Definition of eligible capital By 31 December 2013 the Commission shall
review and report on the appropriateness of the definition of eligible capital
being applied for the purposes of Title IV of Part Two and Part Four and shall
submit this report to the European Parliament and the Council, and, if
appropriate, a legislative proposal. PART ELEVEN
FINAL PROVISIONS Article 487 1.
Subject to paragraph 2, this Regulation shall
apply from 1 January 2013. 2.
Article 436(1) shall apply from 1 January 2015. Article 488 This Regulation shall enter into force on
the day following that of its publication in the Official Journal of the
European Union. This Regulation shall be binding
in its entirety and directly applicable in all Member States. Done at Brussels, For the European Parliament For
the Council The President The
President Annex I
Classification of Off-balance-sheet items 1.
Full risk: –
Guarantees having the character of credit
substitutes, –
Credit derivatives, –
Acceptances, –
Endorsements on bills not bearing the name of
another institution, –
Transactions with recourse, –
Irrevocable standby letters of credit having the
character of credit substitutes, –
Assets purchased under outright forward purchase
agreements, –
Forward deposits, –
The unpaid portion of partly-paid shares and
securities, –
Asset sale and repurchase agreements as defined
in Article 12(3) and (5) of Directive 86/635/EEC, –
Other items also carrying full risk. 2.
Medium risk: –
Documentary credits issued and confirmed (see
also ‘Medium/low risk’), –
Warranties and indemnities (including tender,
performance, customs and tax bonds) and guarantees not having the character of
credit substitutes, –
Irrevocable standby letters of credit not having
the character of credit substitutes, –
Undrawn credit facilities (agreements to lend,
purchase securities, provide guarantees or acceptance facilities) with an
original maturity of more than one year, –
Note issuance facilities (NIFs) and revolving
underwriting facilities (RUFs), –
Other items also carrying medium risk and as
communicated to EBA. 3.
Medium/low risk: –
Documentary credits in which underlying shipment
acts as collateral and other self-liquidating transactions, –
Undrawn credit facilities which comprise
agreements to lend, purchase securities, provide guarantees or acceptance
facilities with an original maturity of up to and including one year which may
not be cancelled unconditionally at any time without notice or that do not
effectively provide for automatic cancellation due to deterioration in a
borrower's creditworthiness, –
Other items also carrying medium/low risk and as
communicated to EBA. 4.
Low risk: –
Undrawn credit facilities comprising agreements
to lend, purchase securities, provide guarantees or acceptance facilities which
may be cancelled unconditionally at any time without notice, or that do
effectively provide for automatic cancellation due to deterioration in a
borrower's creditworthiness. Retail credit lines may be considered as
unconditionally cancellable if the terms permit the institution to cancel them
to the full extent allowable under consumer protection and related legislation;
and –
Other items also carrying low risk and as
communicated to EBA. Annex II
Types of derivatives 1.
Interest-rate contracts: (a)
single-currency interest rate swaps; (b)
basis-swaps; (c)
forward rate agreements; (d)
interest-rate futures; (e)
interest-rate options purchased; (f)
other contracts of similar nature. 2.
Foreign-exchange contracts and contracts
concerning gold: (a)
cross-currency interest-rate swaps; (b)
forward foreign-exchange contracts; (c)
currency futures; (d)
currency options purchased; (e)
other contracts of a similar nature; (f)
contracts of a nature similar to (a) to (e)
concerning gold. 3.
Contracts of a nature similar to those in points
1(a) to (e) and 2(a) to (d) concerning other reference items or indices. This
includes as a minimum all instruments specified in points 4 to 7, 9 and 10 of
Section C of Annex I to Directive 2004/39/EC not otherwise included in points 1
or 2. Annex III
Items subject to supplementary reporting of liquid assets 1.
cash; 2.
central bank reserves, to the extent that these
reserves can be drawn down in times of stress; 3.
transferable securities representing claims on
or claims guaranteed by sovereigns, central banks, public sector entities,
regional governments and local authorities, the Bank for International
Settlements, the International Monetary Fund, the European Commission, or
multilateral development banks and satisfying all of the following conditions: (a)
they are assigned a 0% risk-weight under Section
2 of Title III, Chapter 2; (b)
they are traded in large, deep and active
repurchase agreement or cash markets characterized by a low level of
concentration; (c)
they have a proven record as a reliable source
of liquidity by either repurchase agreement or sale even during stressed market
conditions; (d)
they are not an obligation of an institution or
any of its affiliated entities. 4.
transferable securities other than those
referred to in point (3) representing claims on or claims guaranteed by
sovereigns or central banks issued in domestic currencies by the sovereign or
central bank in the currency and country in which the liquidity risk is being
taken or issued in foreign currencies, to the extent that holding of such debt
matches the liquidity needs of the bank’s operations in that third country; 5.
transferable securities representing claims on
or claims guaranteed by sovereigns, central banks, public sector entities,
regional governments and local authorities, or multilateral development banks
and satisfying all of the following conditions. (a)
they are assigned a 20% risk-weight under
Section 2 of Title III, Chapter 2; (b)
they are traded in large, deep and active
repurchase agreement or cash markets characterized by a low level of
concentration; (c)
they have a proven record as a reliable source
of liquidity by either repurchase agreement or sale even during stressed market
conditions; (d)
they are not an obligation of an institution or
any of its affiliated entities. 6.
transferable securities other than those
referred to in points (3) to (5) that qualify for a 20% or better risk weight
under Section 2 of Title III, Chapter 2 or are internally rated as having an
equivalent credit quality, and fulfil any of the following conditions: (a)
they do not represent a claim on an SSPE, an
institution or any of its affiliated entities; (b)
they are bonds as defined in Article 22(4) of
Directive 85/611/EEC qualify for the treatment in Article 124 Annex IV
Risk-adjusted assets and off-balance sheet items for the temporary capital
ratio Part 1 - Definitions 1.
"Zone A" comprises all the Member
States and all other countries which are full members of the Organisation for
Economic Cooperation and Development (OECD) and those countries which have
concluded special lending arrangements with the International Monetary Fund
(IMF) associated with the Fund's general arrangements to borrow (GAB). Any
country which reschedules its external sovereign debt is, however, precluded
from Zone A for a period of five years; 2.
"Zone B" comprises all countries not
in Zone A; 3.
"Zone A credit institutions" means all
credit institutions authorised in the Member States, including their branches
in third countries, and all credit institutions authorised in other Zone A
countries, including their branches; 4.
"Zone B credit institutions" means all
credit institutions authorised outside Zone A, including their branches within
the Union; 5.
"non-bank sector" means all borrowers
other than credit institutions, central governments and central banks, regional
governments and local authorities, the European Union, the European Investment
Bank (EIB) and multilateral development banks; 6.
multilateral development banks referred to in
Article 112. Part 2 - Risk-adjusted assets and
off-balance-sheet items 7.
Degrees of credit risk, expressed as percentage
weightings, shall be assigned to asset items in accordance with Part 3 and 4,
and exceptionally Part 5. The balance-sheet value of each asset shall then be
multiplied by the relevant weighting to produce a risk-adjusted value. 8.
In the case of the off-balance-sheet items
listed in Annex I, a two-stage calculation as prescribed in Point 17 shall be
used. 9.
In the case of the off-balance-sheet items
referred to in Point 17, the potential costs of replacing contracts in the
event of counterparty default shall be calculated by means of one of the two
methods set out in Annex II. Those costs shall be multiplied by the relevant
counterparty weightings in points 11-15, except the 100 % weightings as
provided for there shall be replaced by 50 % weightings to produce
risk-adjusted values. 10.
The total of the risk-adjusted values of the
assets and off-balance-sheet items mentioned in points 8 and 9 shall be the
denominator of the solvency ratio. Part 3 - Risk weightings 11.
The following weightings shall be applied to the
various categories of asset items, although the competent authorities may fix
higher weightings as they see fit: 12.
Zero weighting (a)
cash in hand and equivalent items; (b)
asset items constituting claims on Zone A
central governments and central banks; (c)
asset items constituting claims on the European
Union; (d)
asset items constituting claims carrying the
explicit guarantees of Zone A central governments and central banks or of the
European Union; (e)
asset items constituting claims on Zone B
central governments and central banks denominated and funded in the national
currencies of the borrowers; (f)
asset items constituting claims carrying the
explicit guarantees of Zone B central governments and central banks denominated
and funded in the national currency common to the guarantor and the borrower; (g)
asset items secured to the satisfaction of the
competent authorities, by collateral in the form of Zone A central government
or central bank securities or securities issued by the European Union or by
cash deposits placed with the lending institution or by certificates of deposit
or similar instruments issued by and lodged with the latter; 13.
20% weighting (a)
asset items constituting claims on the EIB; (b)
asset items constituting claims on multilateral
development banks; (c)
asset items constituting claims carrying the
explicit guarantee of the EIB; (d)
asset items constituting claims carrying the
explicit guarantees of multilateral development banks; (e)
asset items constituting claims on Zone A
regional governments or local authorities, subject to Part 4; (f)
asset items constituting claims carrying the
explicit guarantees of Zone A regional governments or local authorities,
subject to Part 4; (g)
asset items constituting claims on Zone A credit
institutions but not constituting such institutions' own funds; (h)
asset items constituting claims with a maturity
of one year or less, on Zone B credit institutions, other than securities
issued by such institutions which are recognised as components of their own
funds; (i)
asset items carrying the explicit guarantees of
Zone A credit institutions; (j)
asset items constituting claims with a maturity
of one year or less carrying the explicit guarantees of Zone B credit
institutions; (k)
asset items secured, to the satisfaction of the
competent authorities, by collateral in the form of securities issued by the
EIB or by multilateral development banks; (l)
cash items in the process of collection; 14.
50% weighting (a)
loans fully and completely secured, to the
satisfaction of the competent authorities, by mortgages on residential property
which is or will be occupied or let by the borrower, and loans fully and
completely secured, to the satisfaction of the competent authorities, by shares
in Finnish residential housing companies, operating in accordance with the
Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in
respect of residential property which is or will be occupied or let by the borrower; (b)
"mortgage-backed securities" which may
be treated as loans referred to in point (a), if the competent authorities
consider, having regard to the legal framework in force in each Member State,
that they are equivalent in the light of the credit risk. Without prejudice to
the types of securities which may be included in and are capable of fulfilling
the conditions in this point 1, "mortgage-backed securities" may
include instruments within the meaning of Annex I C (1) and C (3) of Directive
2004/39/EC. The competent authorities must in particular be satisfied that: (i) such securities are fully and
directly backed by a pool of mortgages which are of the same nature as those
defined in point (a) and are fully performing when the mortgage-backed
securities are created; (ii) an acceptable high-priority charge
on the underlying mortgage-asset items is held either directly by investors in
mortgage-backed securities or on their behalf by a trustee or mandated
representative in the same proportion to the securities which they hold; (c)
prepayments and accrued income: these assets
shall be subject to the weighting corresponding to the counterparty where a
credit institution is able to determine it in accordance with Directive
86/635/EEC. Otherwise, where it is unable to determine the counterparty, it
shall apply a flat-rate weighting of 50%; 15.
100% weighting (a)
asset items constituting claims on Zone B
central governments and central banks except where denominated and funded in
the national currency of the borrower; (b)
asset items constituting claims on Zone B
regional governments or local authorities; (c)
asset items constituting claims with a maturity
of more than one year on Zone B credit institutions; (d)
asset items constituting claims on the Zone A
and Zone B non-bank sectors; (e)
tangible "Assets" within the meaning
of Article 4(10) of Directive 86/635/EEC; (f)
holdings of shares, participation and other
components of the own funds of other credit institutions which are not deducted
from the own funds of the lending institutions; (g)
all other assets except where deducted from own
funds. 16.
The following treatment shall apply to
off-balance-sheet items other than those covered in point 17. They shall first
be grouped according to the risk groupings set out in Annex II. The full value
of the full-risk items shall be taken into account, 50% of the value of the
medium-risk items and 20% of the medium/low-risk items, while the value of
low-risk items shall be set at zero. The second stage shall be to multiply the
off-balance-sheet values, adjusted as described above, by the weightings
attributable to the relevant counterparties in accordance with the treatment of
asset items prescribed in points 11-15 and Part 4. In the case of asset sale
and repurchase agreements and outright forward purchases, the weightings shall
be those attaching to the assets in question and not to the counterparties to
the transactions. The portion of unpaid capital subscribed to the European
Investment Fund may be weighted at 20%. 17.
The methods set out in Annex II shall be applied
to the off-balance-sheet items listed in Annex I except for: (a)
contracts traded on recognised exchanges, (b)
foreign-exchange contracts (except contracts
concerning gold) with an original maturity of 14 calendar days or less. 18.
Where off-balance-sheet items carry explicit
guarantees, they shall be weighted as if they had been incurred on behalf of
the guarantor rather than the counterparty. Where the potential exposure
arising from off-balance-sheet transactions is fully and completely secured, to
the satisfaction of the competent authorities, by any of the asset items
recognised as collateral in points 12(g) and 13(k), weightings of zero or 20 %
shall apply depending on the collateral in question. 19.
The Member States may apply a 50% weighting to
off-balance-sheet items which are sureties or guarantees having the character
of credit substitutes and which are fully guaranteed, to the satisfaction of
the competent authorities, by mortgages meeting the conditions set out in point
14(a), subject to the guarantor having a direct right to such collateral. 20.
Where asset and off-balance-sheet items are
given a lower weighting because of the existence of explicit guarantees or
collateral acceptable to the competent authorities, the lower weighting shall
apply only to that part which is guaranteed or which is fully covered by the
collateral. Part 4 - Weighting of claims for
regional governments or local authorities of the Member States 21.
Notwithstanding the requirements of point 13,
the Member States may fix a weighting of zero for their own regional
governments and local authorities if there is no difference in risk between
claims on the latter and claims on their central governments because of the
revenue-raising powers of the regional governments and local authorities and
the existence of specific institutional arrangements the effect of which is to
reduce the chances of default by the latter. A zero-weighting fixed in
accordance with these criteria shall apply to claims on and off-balance-sheet
items incurred on behalf of the regional governments and local authorities in
question and claims on others and off-balance-sheet items incurred on behalf of
others and guaranteed by those regional governments and local authorities or
secured, to the satisfaction of the competent authorities concerned, by
collateral in the form of securities issued by those regional governments or
local authorities. 22.
The Member States shall notify EBA if they
believe a zero-weighting to be justified according to the criteria laid down in
point 21. Other Member States may offer the credit institutions under the
supervision of their competent authorities the possibility of applying a
zero-weighting where they undertake business with the regional governments or
local authorities in question or where they hold claims guaranteed by the
latter, including collateral in the form of securities. Part 5 - Other weighting 23.
Without prejudice to point 21, the Member States
may apply a weighting of 20% to asset items which are secured, to the
satisfaction of the competent authorities concerned, by collateral in the form
of securities issued by Zone A regional governments or local authorities, by
deposits placed with Zone A credit institutions other than the lending
institution, or by certificates of deposit or similar instruments issued by
such credit institutions. 24.
The Member States may apply a weighting of 10%
to claims on institutions specialising in the inter-bank and public-debt
markets in their home Member States and subject to close supervision by the
competent authorities where those asset items are fully and completely secured,
to the satisfaction of the competent authorities of the home Member States, by
a combination of asset items mentioned in points 12 and 13 recognised by the
latter as constituting adequate collateral. 25.
The Member States shall notify EBA of any
provisions adopted pursuant to points 23 and 24 and of the grounds for such
provisions. Part 6 - Administrative bodies and
non-commercial undertakings 26.
For the purposes of point 13, the competent
authorities may include within the concept of regional governments and local
authorities non-commercial administrative bodies responsible to regional
governments or local authorities or authorities which, in the view of the
competent authorities, exercise the same responsibilities as regional and local
authorities. 27.
The competent authorities may also include
within the concept of regional governments and local authorities, churches and
religious communities constituted in the form of a legal person under public
law, in so far as they raise taxes in accordance with legislation conferring on
them the right to do so. However, in this case the options set out in Part 4
shall not apply. Annex
5 Correlation table This Regulation || Directive 2006/48/EC || Directive 2006/49/EC Article 1 || || Article 2 || || Article 3 || || Article 4(1), (3)-(5), (10), (16)-(22), (24-38), (42), (47), (60), (61), (63), (66), (67), (71), (72) || Article 4 || Art 4(6), (7), (56), (81) || || Article 3 Article 4(2), (9), (11)-(15), (23), (40), (41), (48), (55), (57), (59), (62), (64), (65), (68), (69), (70), (73)-(80), (82)-(86) || || Article 4(50) || Article 77 || Article 4 || || Article 3(1)m Article 4 || || Article 3(1)o Article 4 || || Article 3(1)e Article 4 || Article 4(14) || Article 4 || Article 4(16) || Article 4 || Article 4(4) || Article 3(3)c Article 4 || Article 4(5) || Article 5(1) || Article 68(1) || Article 5(2) || Article 68(2) || Article 5(3) || Article 68(3) || Article 5(4) || || Article 5(5) || || Article 6(1) || Article 69(1) || Article 6(2) || Article 69(2) || Article 6(3) || Article 69(3) || Article 7(1) || || Article 7(2) || || Article 7(3) || || Article 8(1) || Article 70(1) || Article 8(2) || Article 70(2) || Article 8(3) || Article 70(3) || Article 9 || Article 3(1) || Article 10(1) || Article 71(1) || Article 10(2) || Article 71(2) || Article 10(3) || || Article 10(4) || || Article 11 || || Article 12(1) || Article 72(1) || Article 12(2) || Article 72(2) || Article 12(3) || Article 72(3) || Article 12(4) || || Article 13(1) || Article 73(3) || Article 13(2) || || Article 13(3) || || Article 14 || || Article 22(1) Article 15(1) || || Article 23 Article 15(2) || || Article 15(3) || || Article 16(1)-(3) || Article 133(1) || Article 16(4) || Article 133(2) || Article 16(5) || Article 133(3) || Article 16(6) || Article 134(1) || Article 16(7) || || Article 16(8) || Article 134(2) || Article 17(1) || Article 73(1) || Article 17(2) || || Article 17(3) || || Article 18(1) || || Article 18(2) || || Article 18(3) || || Article 18(4) || || Article 18(5) || || Article 18(6) || || Article 18(7) || || Article 19(1) || || Article 19(2) || || Article 19(3) || || Article 19(4) || || Article 20 || Article 73(2) || Article 21 || || Article 3(1) 2. Subparagraph Article 22 || || Article 23 || || Article 24 || || Article 25 || || Article 26 || || Article 27 || || Article 28 || || Article 29 || || Article 30 || || Article 31 || || Article 32 || || Article 33 || || Article 34 || || Article 35 || || Article 36 || || Article 37 || || Article 38 || || Article 39 || || Article 40 || || Article 41 || || Article 42 || || Article 43 || || Article 44 || || Article 45 || || Article 46 || || Article 47 || || Article 48 || || Article 49 || || Article 50 || || Article 51 || || Article 52 || || Article 53 || || Article 54 || || Article 55 || || Article 56 || || Article 57 || || Article 58 || || Article 59 || || Article 60 || || Article 61 || || Article 62 || || Article 63 || || Article 64 || || Article 65 || || Article 66 || || Article 67 || || Article 68 || || Article 69 || || Article 70 || || Article 71 || || Article 72 || || Article 73 || || Article 74 || || Article 75 || || Article 76 || || Article 77 || || Article 78 || || Article 79 || || Article 80 || || Article 81 || || Article 82 || || Article 83 || || Article 84(1) and (2) || Article 120 || Article 84(3) || || Article 84(4) || || Article 85 || || Article 86 || || Article 87 || || Article 88(1)-(4) || Article 10(1)-(4) || Article 88(5) || || Article 89 || || Article 18(2)-(4) Article 90 || || Article 91 || || Article 92 || || Article 93 || || Article 24 Article 94 || Article 74(1) || Article 95(1) || Article 74(2) || Article 95(2) || || Article 96(1) || || Article 96(2) || || Article 96(3) || || Article 97(1) || || Article 11(1) Article 97(2) || || Article 11(3) Article 97(3) || || Article 11(4) Article 97(4) || || Annex VII, Part C, point 1 Article 98 || || Annex VII, Part A, point 1 Article 99(1) || || Annex VII, Part D, point 1 Article 99(2) || || Annex VII, Part D, point 2 Article 100(1) || || Article 33(1) Article 100(2)-(10) || || Annex VII, Part B, points 1-9 Article 100(11)-(13) || || Annex VII, Part B, points 11-13 Article 101 || || Annex VII, Part C, points 1-3 Article 102 || Article 76 || Article 103(1) || Article 91 || Article 103(2) || || Article 104 || Article 94 || Article 105 || || Article 106 || Article 78(1)-(3) || Article 107 || Article 79(1) || Article 108(1) || Article 80(1) || Article 108(2) || Article 80(2) || Article 108(3) || Article 80(4) || Article 108(4) || Article 80(5) || Article 108(5) || Article 80(6) || Article 108(6) || Article 80(7) || Article 108(7) || Article 80(8) || Article 108(8) || || Article 109 || Annex VI, Part I, points 1-5 || Article 110(1) || || Article 110(2)-(5) || Annex VI, Part I, points 8-11 || Article 111(1) || || Article 111(2) || || Article 111(3) || || Article 111(4) || || Article 111(5) || Annex VI, Part I, point 15 || Article 111(6) || Annex VI, Part I, point 17 || Article 112(1) || Annex VI, Part I, point 18 and 19 || Article 112(2) || Annex VI, Part I, point 20 || Article 112(3) || Annex VI, Part I, point 21 || Article 113 || Annex VI, Part I, point 22 || Article 114(1) || || Article 114(2) || Annex VI, Part I, points 37 and 38 || Article 114(3) || Annex VI, Part I, point 40 || Article 114(4) || || Article 114(5) || || Article 115(1) || Annex VI, Part I, point 29 || Article 115(2) || Annex VI, Part I, point 31 || Article 115(3) || Annex VI, Part I, points 33-36 || Article 116(1) || Annex VI, Part I, point 26 || Article 116(2) || Annex VI, Part I, point 25 || Article 116(3) || Annex VI, Part I, point 27 || Article 117 || Annex VI, Part I, points 41 and 42 || Article 118 || Article 79(2), 79(3) and Annex VI, Part I, point 43 || Article 119(1) || Annex VI, Part I, point 44 || Article 119(2) || || Article 119(3) || || Article 120(1)-(3) || Annex VI, Part I, points 45-49 || Article 120(4) || || Article 121(1) and (2) || Annex VI, Part I, points 51-55 || Article 121(3) and (4) || Annex VI, Part I, points 58 and 59 || Article 122(1) and (2) || Annex VI, Part I, points 61 and 62 || Article 122(3) and (4) || Annex VI, Part I, points 64 and 65 || Article 123(1) || Annex VI, Part I, points 66 and 76 || Article 123(2) || Annex VI, Part I, point 66 || Article 123(3) || || Article 124(1) || Annex VI, Part I, point 68, paragraphs 1 and 2 || Article 124(2) || Annex VI, Part I, point 69 || Article 124(3) || Annex VI, Part I, point 71 || Article 124(4) || Annex VI, Part I, point 70 || Article 124(5) || || Article 125 || Annex VI, Part I, point 72 || Article 126 || Annex VI, Part I, point 73 || Article 127(1) || Annex VI, Part I, point 74 || Article 127(2) || Annex VI, Part I, point 75 || Article 127(3) || Annex VI, Part I, points 77 and 78 || Article 127(4) || Annex VI, Part I, point 79 || Article 127(5) || Annex VI, Part I, point 80 and point 81 || Article 128(1) || Annex VI, Part I, point 86 || Article 128(2) || || Article 128(3) || || Article 129(1)-(3) || Annex VI, Part I, points 82-84 || Article 129(4)-(7) || Annex VI, Part I, points 87-90 || Article 130 || Article 81(1), (2) and (4) || Article 131(1) || Article 82(1) || Article 131(2) || Annex VI, Part 2, points 12-16 || Article 131(3) || Article 150(3) || Article 132(1) || Annex VI, Part I, point 6 || Article 132(2) || Annex VI, Part I, point 7 || Article 132(3) || || Article 133 || Annex VI, Part III, points 1-7 || Article 134 || Annex VI, Part III, points 8-17 || Article 135(1) || || Article 135(2) || || Article 136 || || Article 137(1) || || Article 137(2) || || Article 138(1) || Article 84 (1) and Annex VII, Part 4, point 1 || Article 138(1) || Article 84(2) || Article 138(1) || Article 84(3) || Article 138(1) || Article 84(4) || Article 138(1) || || Article 139 || || Article 140 || || Article 141 || || Article 142(1) || Article 86(9) || Article 142(2)-(9) || Article 86(1)-(8) || Article 143(1) || Article 85(1) || Article 143(2) || Article 85(2) || Article 143(3) || || Article 143(4) || Article 85(3) || Article 143(5) || || Article 143(1) || || Article 144 || Article 85(4) and (5) || Article 145(1) || Article 89(1) || Article 145(2) || Article 89(2) || Article 145(3) || || Article 145(4) || || Article 146 || Article 87(1)-(10) || Article 147(1) and (2) || Article 87(11) || Article 147(3) and (4) || Article 87(12) || Article 147(5) || || Article 148(1) || Annex VII, Part I, point 3 || Article 148(2) || || Article 148(3)-(8) || Annex VII, Part I, points 4-9 || Article 148(9) || || Article 149 || Annex VII, Part I, points 10-16 || Article 150(1) || Annex VII, Part I, points 17 and 18 || Article 150(2) || Annex VII, Part I, points 19 to 21 || Article 150(3) || Annex VII, Part I, points 22 to 24 || Article 150(4) || Annex VII, Part I, points 25 to 26 || Article 151 || || Article 152 || Annex VII, Part I, point 27 || Article 153(1) || Annex VII, Part I, point 28 || Article 153(2)-(5) || || Article 154(1) || Article 88(2) || Article 154(2) || Article 88(3) || Article 154(3) || Article 88(4) || Article 154(4) || Article 88(6) || Article 154(5) || Annex VII, Part I, point 30 || Article 154(6) || Annex VII, Part I, point 31 || Article 154(7) || Annex VII, Part I, point 32 || Article 154(8) || Annex VII, Part I, point 33 || Article 154(9) || Annex VII, Part I, point 34 || Article 154(10) || Annex VII, Part I, point 35 || Article 154(11) || || Article 155 || Annex VII, Part I, point 36 || Article 156(1) || Annex VII, Part II, point 2 || Article 156(2) || Annex VII, Part II, point 3 || Article 156(3) || Annex VII, Part II, point 4 || Article 156(4) || Annex VII, Part II, point 5 || Article 156(5) || Annex VII, Part II, point 6 || Article 156 (6) || Annex VII, Part II, point 7 || Article 156(7) || Annex VII, Part II, point 7 || Article 157(1) || Annex VII, Part II, point 8 || Article 157(2) || Annex VII, Part II, point 9 || Article 157(3) || Annex VII, Part II, point 10 || Article 157(4) || Annex VII, Part II, point 11 || Article 158(1) || Annex VII, Part II, point 12 || Article 158(2) || Annex VII, Part II, point 13 || Article 158(3) || Annex VII, Part II, point 14 || Article 158(4) || Annex VII, Part II, point 15 || Article 158(5) || Annex VII, Part II, point 16 || Article 159(1) || Annex VII, Part II, point 17 || Article 159(2) || Annex VII, Part II, point 18 || Article 159(3) || Annex VII, Part II, point 19 || Article 159(4) || Annex VII, Part II, point 20 || Article 160(1) || Annex VII, Part II, point 21 || Article 160(2) || Annex VII, Part II, point 22 || Article 160(3) || Annex VII, Part II, point 23 || Article 160(4) || || Article 161(1) || Annex VII, Part II, point 24 || Article 161(2) || Annex VII, Part II, point 25 and 26 || Article 161(3) || Annex VII, Part II, point 27 || Article 162(1) || Annex VII, Part III, point 1 || Article 162(2) || Annex VII, Part III, point 2 || Article 162(3) || Annex VII, Part III, point 3 || Article 162(4) || Annex VII, Part III, point 4 || Article 162(5) || Annex VII, Part III, point 5 || Article 162(6) || Annex VII, Part III, point 6 || Article 162(7) || Annex VII, Part III, point 7 || Article 162(8) || Annex VII, Part III, point 9 || Article 162(9) || Annex VII, Part III, point 10 || Article 162(10) || Annex VII, Part III, point 11 || Article 163(1) || Annex VII, Part III, point 12 || Article 163(2) || || Article 164 || Annex VII, Part III, point 13 || Article 165(1) || Annex VII, Part IV, point 1 || Article 165(2) || Annex VII, Part IV, point 2 || Article 165(3) || Annex VII, Part IV, point 3 || Article 166(1) || Annex VII, Part IV, point 5- || Article 166(2) || Annex VII, Part IV, point 12 || Article 166(3) || Annex VII, Part IV, points 13-15 || Article 166(4) || Annex VII, Part IV, point 16 || Article 167(1) || Annex VII, Part IV, point 17 || Article 167(2) || Annex VII, Part IV, point 18 || Article 168(1) || Annex VII, Part IV, point 19-23 || Article 168(2) || Annex VII, Part IV, point 24 || Article 168(3) || Annex VII, Part IV, point 25 || Article 169(1) || Annex VII, Part IV, points26-28 || Article 169(2) || Annex VII, Part IV, point 29 || Article 169(3) || || Article 170 || Annex VII, Part IV, point 30 || Article 171(1) || Annex VII, Part IV, point 31 || Article 171(2) || Annex VII, Part IV, point 32 || Article 171(3) || Annex VII, Part IV, point 33 || Article 171(4) || Annex VII, Part IV, point 34 || Article 171(5) || Annex VII, Part IV, point 35 || Article 172(1) || Annex VII, Part IV, point 36 || Article 172(2) || Annex VII, Part IV, point 37 1st subparagraph || Article 172(3) || Annex VII, Part IV, point 37 2nd subparagraph || Article 172(4) || Annex VII, Part IV, point 38 || Article 172(5) || Annex VII, Part IV, point 39 || Article 173(1) || Annex VII, Part IV, point 40 || Article 173(2) || Annex VII, Part IV, point 41 || Article 173(3) || Annex VII, Part IV, point 42 || Article 174(1) || Annex VII, Part IV, point 44 || Article 174(2) || Annex VII, Part IV, point 45 || Article 174(3) || Annex VII, Part IV, point 46 || Article 174(4) || Annex VII, Part IV, point 47 || Article 174(5) || || Article 174(6) || || Article 175(1) || Annex VII, Part IV, points 43 and 49-56 || Article 175(2) || Annex VII, Part IV, point 57 || Article 176(1) || Annex VII, Part IV, points 59-66 || Article 176(2) || Annex VII, Part IV, points 67-72 || Article 176(3) || || Article 177(1) || Annex VII, Part IV, points 73-81 || Article 177(2) || Annex VII, Part IV, point 82 || Article 177(3) || Annex VII, Part IV, points 83-86 || Article 178(1) || Annex VII, Part IV, points 87-92 || Article 178(2) || Annex VII, Part IV, point 93 || Article 178(3) || Annex VII, Part IV, points 94 and 95 || Article 178(4) || || Article 179(1) || Annex VII, Part IV, points 98-100 || Article 179(2) || Annex VII, Part IV, points 101 and 102 || Article 179(3) || Annex VII, Part IV, point 103 and point 104 || Article 179(4) || Annex VII, Part IV, point 96 || Article 179(5) || Annex VII, Part IV, point 97 || Article 179(6) || || Article 180(1) || || Article 180(2) || Annex VII, Part IV, point 105 || Article 180(3) || Annex VII, Part IV, point 106 || Article 180(4) || Annex VII, Part IV, point 107 || Article 180(5) || Annex VII, Part IV, point 108 || Article 180(6) || Annex VII, Part IV, point 109 || Article 181 || Annex VII, Part IV, points 110-114 || Article 182 || Annex VII, Part IV, point 115 || Article 183 || Annex VII, Part IV, point 116 || Article 184 || Annex VII, Part IV, points 117-123 || Article 185(1) || Annex VII, Part IV, point 124 || Article 185(2) || Annex VII, Part IV, points 125 and 126 || Article 185(3) || Annex VII, Part IV, point 127 || Article 185(4) || || Article 186(1) || Annex VII, Part IV, point 128 || Article 186(2) || Annex VII, Part IV, point 129 || Article 187 || Annex VII, Part IV, point 131 || Article 188 || Article 90 and Annex VIII, Part 1, point 2 || Article 189(1) || Article 93 (2) || Article 189(2) || Article 93 (3) || Article 189(3) || Annex VIII, Part III, point 1 || Article 189(4) || Annex VIII, Part III, point 2 || Article 189(5) || Annex VIII, Part V, point 1 and point 2 || Article 189(6) || || Article 190(1) || Article 92(1) || Article 190(2) || Article 92(2) || Article 190(3) || Article 92(3) || Article 190(4) || Article 92(4) || Article 190(5) || Article 92(5) || Article 190(6) || Article 92(6) || Article 190(7) || Annex VIII, Part II, point 1 || Article 190(8) || Annex VIII, Part II, point 2 || Article 190(9) || || Article 190(10) || || Article 191 || Annex VIII, Part I, points 3 and 4 || Article 192 || Annex VIII, Part I, point 5 || Article 193(1) || Annex VIII, Part I, point 7 || Article 193(2) || Annex VIII, Part I, point 8 || Article 193(3) || Annex VIII, Part I, point 9 || Article 193(4) || Annex VIII, Part I, point 10 || Article 193(5)-(9) || || Article 194(1) || Annex VIII, Part I, point 11 || Article 194(2) || || Article 195(1) || Annex VIII, Part I, point 12 || Article 195(2) || Annex VIII, Part I, points13 to 17 || Article 195(3) || Annex VIII, Part I, point 20 || Article 195(4) || Annex VIII, Part I, point 21 || Article 195(5) || Annex VIII, Part I, point 22 || Article 195(6)-(10) || || Article 196 || Annex VIII, Part I, points 23-25 || Article 197(1) || Annex VIII, Part I, point 26 || Article 197(2) || Annex VIII, Part I, point 27 || Article 198 || Annex VIII, Part I, point 29 || Article 199(1) || Annex VIII, Part I, point 30 and point 31 || Article 199(2) || Annex VIII, Part I, point 32 || Article 200 || Annex VIII, Part II, point 3 || Article 201 || Annex VIII, Part II, points 4 to 5 || Article 202(1) || Annex VIII, Part II, point 6 || Article 202(2) || Annex VIII, Part II, point 6a || Article 202(3) || Annex VIII, Part II, point 6b || Article 202(4) || Annex VIII, Part II, point 6c || Article 202(5) || Annex VIII, Part II, point 7 || Article 203(1) || Annex VIII, Part II, point 8 || Article 203(2) || Annex VIII, Part II, point 8(a) || Article 203(3) || Annex VIII, Part II, point 8(b) || Article 203(4) || Annex VIII, Part II, point 8(c ) || Article 203(5) || Annex VIII, Part II, point 8(d) || Article 204(1) || || Article 204(2) || Annex VIII, Part II, point 9(a) || Article 204(3) || Annex VIII, Part II, point 9(b) || Article 205 || Annex VIII, Part II, point 10 || Article 206 || Annex VIII, Part II, point 11 || Article 207(1) || Annex VIII, Part II, point 12 || Article 207(2) || Annex VIII, Part II, point 13 || Article 208 (1) || Annex VIII, Part II, point 14 || Article 208(2) || Annex VIII, Part II, point 15 || Article 208(3) || || Article 209(1) || Annex VIII, Part II, point 16 || Article 209(2) || Annex VIII, Part II, point 17 || Article 209(3) || || Article 210(1) || Annex VIII, Part II, point 18 || Article 210(2) || Annex VIII, Part II, point 19 || Article 211(1) || Annex VIII, Part II, point 20 || Article 211(2) || Annex VIII, Part II, point 21 || Article 212(1) || Annex VIII, Part II, point 22 || Article 212(2) || || Article 212(3) || || Article 213 || Annex VIII, Part III, point 3 || Article 214 || Annex VIII, Part III, point 4 || Article 215(1) || Annex VIII, Part III, point 5 || Article 215(2) || Annex VIII, Part III, points 6-10 || Article 215(3) || Annex VIII, Part III, point 11 || Article 215(4) || Annex VIII, Part III, points 22 and 23 || Article 215(5) || || Article 216(1) || Annex VIII, Part III, point 12-15 || Article 216(2) || Annex VIII, Part III, point 16 || Article 216(3) || Annex VIII, Part III, point 17 || Article 216(4) || Annex VIII, Part III, points 18 and 19 || Article 216(5) || Annex VIII, Part III, points 20 and 21 || Article 216(6) || Annex VIII, Part III, points 22 and 23 || Article 216(7)-(9) || || Article 217(1) || Annex VIII, Part III, point 24 || Article 217(2) || Annex VIII, Part III, point 25 || Article 217(3) || Annex VIII, Part III, point 26 || Article 217(4) || Annex VIII, Part III, point 27 || Article 217(5) || Annex VIII, Part III, point 28 || Article 217(6) || Annex VIII, Part III, point 29 || Article 217(7) || || Article 218(1) || Annex VIII, Part III, points 30-32 || Article 218(2) || Annex VIII, Part III, point 33 || Article 218(3) || Annex VIII, Part III, point 34-35 || Article 218(4)-(7) || || Article 219(1) || Annex VIII, Part III, point 36 || Article 219(2) || Annex VIII, Part III, points 37-40 || Article 219(3)-(6) || || Article 220(1) || Annex VIII, Part III, points 42-46 || Article 220(2) || Annex VIII, Part III, points 47-52 || Article 220(3) || Annex VIII, Part III, points 53-56 || Article 221 || Annex VIII, Part III, point 57 || Article 222(1) || Annex VIII, Part III, point 58 || Article 222(2) || || Article 222(3) || || Article 223(1) || Annex VIII, Part III, point 60 || Article 223(2) || Annex VIII, Part III, point 61 || Article 224(1) || Annex VIII, Part III, points 62-65 || Article 224(2) || Annex VIII, Part III, point 66 || Article 224(3) || Annex VIII, Part III, point 67 || Article 225(1) || Annex VIII, Part III, points 68-71 || Article 225(2) || Annex VIII, Part III, point 72 || Article 225(3) || Annex VIII, Part III, points 73 and 74 || Article 226(1) || Annex VIII, Part III, point 76 || Article 226(2) || Annex VIII, Part III, point 77 || Article 226(3) || Annex VIII, Part III, point 78 || Article 227(1) || Annex VIII, Part III, point 79 || Article 227(2) || Annex VIII, Part III, point 80 || Article 227(3) || Annex VIII, Part III, point 80a || Article 227(4) || Annex VIII, Part III, points 81-82 || Article 228(1) || Annex VIII, Part III, point 83 || Article 228(2) || Annex VIII, Part III, point 83 || Article 228(3) || Annex VIII, Part III, point 84 || Article 228(4) || Annex VIII, Part III, point 85 || Article 229 || Annex VIII, Part III, point 86 || Article 230(1) || Annex VIII, Part III, point 87 || Article 230(2) || Annex VIII, Part III, point 88 || Article 230(3) || Annex VIII, Part III, point 89 || Article 231(1) || Annex VIII, Part III, point 90 || Article 231(2) || Annex VIII, Part III, point 91 || Article 231(3) || Annex VIII, Part III, point 92 || Article 232(1) || Annex VIII, Part IV, point 1 || Article 232(2) || Annex VIII, Part IV, point 2 || Article 233(1) || Annex VIII, Part IV, point 3 || Article 233(2) || Annex VIII, Part IV, point 4 || Article 233(3) || Annex VIII, Part IV, point 5 || Article 234(1) || Annex VIII, Part IV, point 6 || Article 234(2) || Annex VIII, Part IV, point 7 || Article 234(3) || Annex VIII, Part IV, point 8 || Article 235 || Annex VIII, Part VI, point 1 || Article 236 || Annex VIII, Part VI, point 2 || Article 237(1) to (9) || Annex IX, Part I, point 1 || Article 237(10) || Article 4 point 37 || Article 237(11) || Article 4 point 38 || Article 237(12) || Article 4 point 41 || Article 237(13) || || Article 237(14) || || Article 238(1) || Annex IX, Part II, point 1 || Article 238(2) || Annex IX, Part II, point 1a || Article 238(3) || Annex IX, Part II, point 1b || Article 238(4) || Annex IX, Part II, point 1c || Article 238(5) || Annex IX, Part II, point 1d || Article 238(6) || || Article 239(1) || Annex IX, Part II, point 2 || Article 239(2) || Annex IX, Part II, point 2a || Article 239(3) || Annex IX, Part II, point 2b || Article 239(4) || Annex IX, Part II, point 2c || Article 239(5) || Annex IX, Part II, point 2d || Article 239(6) || || Article 240(1) || Article 95 (1) || Article 240(2) || Article 95 (2) || Article 240(3) || Article 96 (2) || Article 240(4) || Article 96 (3) || Article 240(5) || Article 96 (4) || Article 240(6) || || Article 241(1) || Annex IX, Part IV, points 2 and 3 || Article 241(2) || Annex IX, Part IV, point 5 || Article 241(3) || Annex IX, Part IV, point 5 || Article 242(1) || Annex IX, Part IV, point 60 || Article 242(2) || Annex IX, Part IV, point 61 || Article 242(3) || || Article 242(4) || || Article 243(1) || Article 101(1) || Article 243(2) || Article 101 (2) || Article 243(3) || || Article 244 || Annex IX, Part II, points 3 and 4 || Article 245 || Annex IX, Part II, points 5-7 || Article 246 || Annex IX, Part IV, point 6-7 || Article 247 || Annex IX, Part IV, point 8 || Article 248(1) || Annex IX, Part IV, point 9-10 || Article 248(2) || Annex IX, Part IV, point 10 (change) || Article 249 || Annex IX, Part IV, point 11-12 || Article 250(1) || Annex IX, Part IV, point 13 || Article 250(2) || Annex IX, Part IV, point 15 || Article 251(1) || Article 100 || Article 251(2) || Annex IX, Part IV, point 17-20 || Article 251(3) || Annex IX, Part IV, point 21 || Article 251(4) || Annex IX, Part IV, points 22-23 || Article 251(5) || Annex IX, Part IV, point 24-25 || Article 251(6) || Annex IX, Part IV, point 26-29 || Article 251(7) || Annex IX, Part IV, point 30 || Article 251(8) || Annex IX, Part IV, point 32 || Article 251(9) || Annex IX, Part IV, point 33 || Article 252 || Annex IX, Part IV, point 34 || Article 253 || Annex IX, Part IV, point 35-36 || Article 254(1) || Annex IX, Part IV, points 38, 39 and 41 || Article 254(2) || Annex IX, Part IV, point 42 || Article 254(3) || Annex IX, Part IV, point 43 || Article 254(4) || Annex IX, Part IV, point 44 || Article 254(5) || || Article 255 || Annex IX, Part IV, point 45 || Article 256(1) || Annex IX, Part IV, point 46-47, 49 || Article 256(2) || Annex IX, Part IV, point 51 || Article 257(1) || Annex IX, Part IV, point 52 || Article 257(2) || Annex IX, Part IV, point 53 || Article 257(3) || Annex IX, Part IV, point 54 || Article 257(4) || || Article 258(1) || Annex IX, Part IV, point 55, 57 || Article 258(2) || Annex IX, Part IV, point 58 || Article 258(3) || Annex IX, Part IV, point 59 || Article 259(1) || Annex IX, Part IV, point 62 || Article 259(2) || Annex IX, Part IV, points63-65 || Article 259(3) || Annex IX, Part IV, points 66 and 67 || Article 259(4) || || Article 260(1) || Annex IX, Part IV, point 68 || Article 260(2) || Annex IX, Part IV, point 70 || Article 260(3) || Annex IX, Part IV, point 71 (change) || Article 261(1) || Annex IX, Part IV, point 72 || Article 261(2) || Annex IX, Part IV, point 73 || Article 261(3) || Annex IX, Part IV, point 74-75 || Article 261(4) || Annex IX, Part IV, point 76 || Article 262(1) || Article 97(1) || Article 262(2) || Article 97(2) || Article 262(3) || Article 97(3) || Article 263 || Annex IX, Part III, point 1 || Article 264 || Annex IX, Part III, point 2-7 || Article 265 || Article 98 (1) and Annex IX, Part III, points 8 and 9 || Article 266(1) || || CAD Annex II, point 5 Article 266(2) || || Article 267(1) || Annex III, Part I, point 2 || Article 267(2) || Annex III, Part I, point 3 || Article 267(3) || Annex III, Part I, point 4 || Article 267(4) || Annex III, Part I, point 5 || Article 267(5) || Annex III, Part I, point 6 || Article 267(6) || Annex III, Part I, point 7 || Article 267(7) || Annex III, Part I, point 8 || Article 267(8) || Annex III, Part I, point 9 || Article 267(9) || Annex III, Part I, point 10 || Article 267(10) || Annex III, Part I, point 11 || Article 267(11) || Annex III, Part I, point 12 || Article 267(12) || Annex III, Part I, point 13 || Article 267(13) || Annex III, Part I, point 14 || Article 267(14) || Annex III, Part I, point 15 || Article 267(15) || Annex III, Part I, point 16 || Article 267(16) || Annex III, Part I, point 17 || Article 267(17) || Annex III, Part I, point 18 || Article 267(18) || Annex III, Part I, point 19 || Article 267(19) || Annex III, Part I, point 20 || Article 267(20) || Annex III, Part I, point 21 || Article 267(21) || Annex III, Part I, point 22 || Article 267(22) || Annex III, Part I, point 23 || Article 267(23) || Annex III, Part I, point 26 || Article 267(24) || Annex III, Part I, point 27 || Article 267(25) || Annex III, Part I, point 28 || Article 267(26) || Annex III; Part VII, a || Article 267(27) || Annex III; Part VII, a || Article 267(28)-(31) || || Article 268(1) || Annex III, Part II, point 1 || Article 268(2) || Annex III, Part II, point 2 || Article 268(3) || Annex III, Part II, point 3 1st and 2nd sub-paragraph || Article 268(4) || Annex III, Part II, point 3 3rd sub-paragraph || Article 268(5) || Annex III, Part II, point 4 || Article 268(6) || Annex III, Part II, point 5 || Article 268(7) || Annex III, Part II, point 7 || Article 268(8) || Annex III, Part II, point 8 || Article 269(1) || Annex III, Part III || Article 269(2) || Annex III, Part III || Article 269(3) || Annex III, Part III || Article 270(1) || Annex III, Part IV || Article 270(2) || Annex III, Part IV, footnote 4 || Article 271(1) || Annex III, Part V, point 1 || Article 271(2) || Annex III, Part V, point 2 || Article 272(1) || Annex III, Part V, point 3-4 || Article 272(2) || Annex III, Part V, point 5 || Article 272(3) || || Article 272(4) || || Article 273(1) || || Article 273(2) || Annex III, Part V, point 6 || Article 273(3) || Annex III, Part V, point 7 || Article 273(4) || Annex III, Part V, point 8 || Article 274(1) || Annex III, Part V, point 11 || Article 274(2) || Annex III, Part V, point 12 || Article 275(1) || || Article 275(2) || Annex III, Part V, point 13 || Article 275(3) || Annex III, Part V, point 14 || Article 276(1) || || Article 276(2) || Annex III, Part V, point 15 || Article 276(3) || Annex III, Part V, point 16 || Article 276(4) || Annex III, Part V, point 17 || Article 276(5) || Annex III, Part V, point 18 || Article 276(6) || Annex III, Part V, point 19 || Article 276(7) || Annex III, Part V, point 20 || Article 276(8) || Annex III, Part V, point 21 || Article 277(1) || Annex III, Part VI, point 1 || Article 277(2) || Annex III, Part VI, point 2 || Article 277(3) || Annex III, Part VI, point 3 || Article 277(4) || Annex III, Part VI, point 4 || Article 277(5) || || Article 277(6) || || Article 278(1) || Annex III, Part VI, point 5 || Article 278(2) || Annex III, Part VI, point 6 || Article 278(3) || Annex III, Part VI, point 6 || Article 278(4) || Annex III, Part VI, point 7 || Article 278(5) || Annex III, Part VI, point 8 || Article 278(6) || Annex III, Part VI, point 9 || Article 278(7) || Annex III, Part VI, point 10 || Article 278(8) || Annex III, Part VI, point 11 (change) || Article 278(9) || Annex III, Part VI, point 12 || Article 278(10) || Annex III, Part VI, point 13 || Article 278(11) || Annex III, Part VI, point 14 || Article 278(12) || Annex III, Part VI, point 15 || Article 278(13) || || Article 279(1) || Annex III, Part VI, point 16 || Article 279(2)-(7) || || Article 280(1) || Annex III, Part VI, point 18 and 25 || Article 280(2) || Annex III, Part VI, point 19 || Article 280(3) || || Article 280(4) || Annex III, Part VI, point 20 || Article 280(5) || Annex III, Part VI, point 21 || Article 280(6) || Annex III, Part VI, point 22 || Article 280(7) || Annex III, Part VI, point 23 || Article 280(8) || Annex III, Part VI, point 24 || Article 281(1) || Annex III, Part VI, point 17 || Article 281(2) || || Article 281(3) || || Article 281(4) || || Article 282 || Annex III, Part VI, point 26 || Article 283(1) || Annex III, Part VI, point 27 || Article 283(2) || Annex III, Part VI, point 28 || Article 283(3) || || Article 283(4) || Annex III, Part VI, point 29 || Article 283(5) || Annex III, Part VI, point 30 || Article 283(6) || Annex III, Part VI, point 31 || Article 284(1) || Annex III, Part VI, point 32 || Article 284(2) || Annex III, Part VI, point 33 || Article 284(3)-(10) || || Article 285(1) || Annex III, Part VI, point 34 || Article 285(2) || Annex III, Part VI, point 35 || Article 285(3) || || Article 285(4) || || Article 285(5) || || Article 285(6) || || Article 286(1) || Annex III, Part VI, point 36 || Article 286(2) || || Article 286(3) || Annex III, Part VI, point 38 || Article 286(4) || Annex III, Part VI, point 39 || Article 286(5) || Annex III, Part VI, point 40 || Article 286(6) || Annex III, Part VI, point 41 || Article 286(7) || || Article 286(8) || || Article 286(9) || || Article 286(10) || || Article 287(1) || Annex III, Part VI, point 42 || Article 287(2)-(5) || || Article 287(6) || Annex III, Part VI, point 42 || Article 288(1) || || Article 288(2) || || Article 288(3) || || Article 289 || Annex III, Part VII, point a || Article 290(1) || || Article 290(2) || Annex III, Part VII, point b 5 || Article 290(3) || || Article 291(1) || Annex III, Part VII, point b (iii) || Article 291(2) || Annex III, Part VII, point b (iv) || Article 291(3) || Annex III, Part VII, point b (v) || Article 291(4) || Annex III, Part VII, point b 5th sub-paragraph (c)-(d) || Article 292(1) || Annex III, Part VII, point c) || Article 292(2) || Annex III, Part VII, point c) || Article 292(3) || Annex III, Part VII, point c) || Article 292(4) || || Article 293(1) || || Article 293(2) || || Annex II, points 7-11 Article 294(1) || || Article 295 || || Article 296 || || Article 297 || || Article 298 || || Article 299 || || Article 300 || || Article 301(1) || Article 104(6) || Article 301(2) || Article 105(1) and 105(2) || Article 301(3) || || Article 302(1) || Article 102(2) and 102(3) || Article 302(2) || || Article 303(3) || Article 102(4) || Article 303(3) || Annex X, Part IV, point 1 || Article 303(3) || Annex X, Part IV, point 2 || Article 303(4) || || Article 303(5) || || Article 304(1) || Annex X, Part I, point 1 || Article 305(2) || Annex X, Part I, points 2-4 || Article 305(3) || Annex X, Part I, points 5-6 || Article 305(3) || || Article 306(1) || Article 104 (1) || Article 306(2) || Annex X, Part II, point 1, first sentence || Article 306(3) || Annex X, Part II, point 1, second sentence || Article 306(4) || Annex X, Part II, point 2 || Article 307(1) || Annex X, Part II, point 4 || Article 307(2) || || Article 307(3) || || Article 308(1) || Annex X, Part II, points 5-7 || Article 308(2) || Annex X, Part II, points 10 and 11 || Article 309 || Annex X, Part II, point 12 || Article 310 || Annex X, Part III, points 1-7 || Article 311(1) || Annex X, Part III, point 1 || Article 311(2) || Annex X, Part III, points 8-12 || Article 311(3) || Annex X, Part III, points 13-18 || Article 311(4) || Annex X, Part III, point 19 || Article 311(5) || Annex X, Part III, point 20 || Article 311(6) || Annex X, Part III, points 21-24 || Article 311(7) || || Article 312(1) || Annex X, Part III, point 25 || Article 312(2) || Annex X, Part III, point 26 || Article 312(3) || Annex X, Part III, point 27 || Article 312(4) || Annex X, Part III, point 28 || Article 312(5) || Annex X, Part III, point 29 || Article 313 || Annex X, Part V || Article 314(1) || || Article 26 Article 314(2) || || Article 26 Article 314(3) || || Article 315 || || Article 316(1) || || Annex I point 1 Article 316(2) || || Annex I point 2 Article 316(3) || || Annex I point 3 Article 317(1) || || Annex I point 4 Article 317(2) || || Article 318(1) || || Annex I point 5 Article 318(2) || || Article 319 || || Annex I point 7 Article 320(1) || || Annex I point 9 Article 320(2) || || Annex I point 10 Article 321(1) || || Annex I point 8 Article 321(2) || || Annex I point 8 Article 322 || || Annex I point 11 Article 323 || || Annex I point 13 Article 324 || || Annex I point 14 Article 325(1) || || Annex I point 14 Article 325(2) || || Annex I point 14 Article 325(3) || || Annex I point 14 Article 325(4) || || Article 19(1) Article 326(1) || || Annex I point 16a Article 326(2) || || Annex I point 16a Article 326(3) || || Annex I point 16a Article 326(4) || || Annex I point 16a Article 326(4) || || Annex I point 16a Article 327(1) || || Annex I point 14a Article 327(2) || || Annex I point 14b Article 327(3) || || Annex I point 14c Article 327(4) || || Annex I point 14a Article 328(1) || || Annex I point 17 Article 328(2) || || Annex I point 18 Article 328(3) || || Annex I point 19 Article 328(4) || || Annex I point 20 Article 328(5) || || Annex I point 21 Article 328(6) || || Annex I point 22 Article 328(7) || || Annex I point 23 Article 328(8) || || Annex I point 24 Article 328(9) || || Annex I point 25 Article 329(1) || || Annex I point 26 Article 329(2) || || Annex I point 27 Article 329(3) || || Annex I point 28 Article 329(4) || || Annex I point 29 Article 329(5) || || Annex I point 30 Article 329(6) || || Annex I point 31 Article 329(7) || || Annex I point 32 Article 330(1) || || Annex I point 33 Article 330(2) || || Annex I point 33 Article 330(3) || || Article 331 || || Annex I point 34 Article 332 || || Annex I point 36 Article 333(1) || || Article 333(2) || || Annex I point 37 Article 333(3) || || Annex I point 38 Article 334(1) || || Annex I point 41 Article 334(2) || || Annex I point 41 Article 335(1) || || Annex I point 42 Article 335(2) || || Article 335(3) || || Annex I point 43 Article 335(4) || || Annex I point 44 Article 335(5) || || Annex I point 45 Article 335(6) || || Annex I point 46 Article 336 || || Annex I point 8 Article 337(1) || || Annex I points 48-49 Article 337(2) || || Annex I point 50 Article 338 || || Annex I point 51 Article 339(1) || || Annex I point 53 Article 339(2) || || Annex I point 54 Article 339(3) || || Annex I point 55 Article 339(4) || || Annex I point 56 Article 340 || || Annex III point 1 Article 341(1) || || Annex III point 2 and point 2(4) Article 341(2) || || Annex III point 2(2) Article 341(3) || || Annex III point 2(1) Article 341(4) || || Annex III point 2(2) Article 341(5) || || Article 342(1) || || Annex III point 2(1) Article 342(2) || || Annex III point 2(1) Article 342(3) || || Annex III point 2(1) Article 343(1) || || Annex III point 3(1) Article 343(2) || || Annex III point 3(2) Article 343(3) || || Annex III point 3(2) Article 343(4) || || Article 344 || || Article 345 || || Article 346(1) || || Annex IV point 1 Article 346(2) || || Annex IV point 2 Article 346(3) || || Annex IV point 3 Article 346(4) || || Annex IV point 4 Article 346(5) || || Annex IV point 6 Article 347(1) || || Annex IV point 8 Article 347(2) || || Annex IV point 9 Article 347(3) || || Annex IV point 10 Article 347(4) || || Annex IV point 12 Article 348(1) || || Annex IV point 13 Article 348(2) || || Annex IV point 14 Article 348(3) || || Annex IV point 15 Article 348(4) || || Annex IV point 16 Article 348(5) || || Annex IV point 17 Article 348(6) || || Annex IV point 18 Article 349(1) || || Annex IV point 19 Article 349(2) || || Annex IV point 20 Article 350 || || Annex IV point 21 Article 351 || || Article 352(1) || || Annex V point 1 Article 352(2) || || Article 352(3) || || Article 353(1) || || Annex V point 10b Article 353(2) || || Article 353(3) || || Article 354(1) || || Annex V point 10 Article 354(2) || || Annex V point 10a Article 355(1) || || Annex V point 7 Article 355(2) || || Annex V point 8 Article 355(3) || || Annex V point 9 Article 355(4) || || Annex V point 10 Article 355(5) || || Annex V point 8 Article 356(1) || || Annex V point 11 Article 356(2) || || Annex V point 12 Article 356(3) || || Annex V point 12 Article 357(1) || || Annex V point 2 Article 357(2) || || Annex V point 2 Article 357(3) || || Annex V point 5 Article 357(4) || || Article 358(1) || || Annex V point 3 Article 358(2) || || Article 359(1) || || Annex V point 5 Article 360(1) || || Annex V point 5 Article 360(2) || || Article 361 || || Annex V point 5a Article 362 || || Annex V point 5b Article 363(1) || || Annex V point 5c Article 363(2) || || Annex V point 5d Article 363(3) || || Annex V point 5d Article 363(4) || || Annex V point 5d Article 363(5) || || Annex V point 5d Article 363(6) || || Annex V point 5d Article 363(7) || || Article 364(1) || || Annex V point 5a Article 364(2) || || Annex V point 5e Article 365(1) || || Annex V point 5f Article 365(2) || || Annex V point 5g Article 365(3) || || Annex V point 5h Article 365(4) || || Annex V point 5h Article 365(5) || || Annex V point 5i Article 365(6) || || Annex V point 5 Article 366 || || Annex V point 5j Article 367 || || Article 367(4) || || Annex V point 5l Article 367(5) || || Annex V point 5l Article 367(6) || || Annex V point 5l Article 368 || || Annex II point 1 Article 369(1) || || Annex II point 2 Article 369(2) || || Annex II point 3 Article 369(3) || || Article 370 || || Annex II point 4 Article 371 || || Article 372 || || Article 373 || || Article 374 || || Article 375 || || Article 376 || || Article 28(1) Article 377 || || Article 378 || || Article 379(1) || Article 106(1) || Article 379(2) || Article 106(1) || Article 379(3) || || Article 29(1) Article 379(4) || || Article 30(1) Article 379(5) || || Article 29(2) Article 379(6) || Article 106(2) || Article 379(7) || Article 106(3) || Article 379(8) || || Article 380 || Article 107 || Article 381 || Article 108 || Article 382 || Article 109 || Article 383(1) || Article 110(1) || Article 383(2) || Article 110(2) || Article 384(1) || Article 111(1) || Article 384(2) || Article 111(4) || Article 384(3) || Article 30(4) || Article 384(4) || || Article 31 Article 385 || || Article 386(1) || || Annex VI, point 1 Article 386(2) || || Annex VI, point 2 Article 386(3) || || Annex VI, point 3 Article 387 || || Article 32(1) Article 388(1) || Article 112(1) || Article 388(2) || Article 112(2) || Article 388(3) || Article 112(3) || Article 388(4) || || Article 389(1) || Article 113(3) || Article 389(2) || Article 113(4) || Article 390(1) || Article 114(1) || Article 390(2) || Article 114(2) || Article 390(3) || Article 114(3) || Article 391(1) || Article 115(1) || Article 391(2) || Article 115(2) || Article 392(1) || Article 117(1) || Article 392(2) || Article 117(2) || Article 393 || || Article 394(1) || Article 122a(1) || Article 394(2) || Article 122a(2) || Article 394(3) || Article 122a(3) || Article 394(4) || Article 122a(4) || Article 395 || || Article 396 || || Article 397 || || Article 398 || || Article 399 || || Article 400 || || Article 401 || || Article 402 || || Article 403 || || Article 404 || || Article 405 || || Article 406 || || Article 407 || || Article 408 || || Article 409 || || Article 410 || || Article 411 || || Article 412 || || Article 413 || || Article 414 || || Article 415 || || Article 416 || || Article 417 || || Article 418(1) || Article 145(1) || Article 418(2) || Article 145(2) || Article 418(3) || Article 145(3) || Article 418(4) || Article 145(4) || Article 419(1) || Annex XII, Part I, point 1 and Article 146(1) || Article 419(2) || Article 146(2) and Annex XII, Part I, points 2 and 3 || Article 419(3) || Article 146(3) || Article 420 || Article 147 and Annex XII, Part I, point 4 || Article 421(1) || Article 148 || Article 421(2) || || Article 422(1) || Annex XII, Part II, point 1 || Article 422(2) || || Article 423 || Annex XII, Part II, point 2 || Article 424 || || Article 425 || Annex XII, Part II, points 4, 8 || Article 426 || Annex XII, Part II, point 5 || Article 427 || || Article 428 || Annex XII, Part II, point 6 || Article 429 || Annex XII, Part II, point 7 || Article 430 || Annex XII, Part II, point 9 || Article 431 || Annex XII, Part II, point 11 || Article 432 || Annex XII, Part II, point 12 || Article 433 || Annex XII, Part II, point 13 || Article 434 || Annex XII, Part II, point 14 || Article 435(1) || Annex XII, Part II, point 15 || Article 435(2) || || Article 436 || || Article 437 || Annex XII, Part III, point 1 || Article 438 || Annex XII, Part III, point 2 || Article 439 || Annex XII, Part III, point 3 || Article 440 || || Article 441, subparagraph 1 || Article 150(1) || Article 41 Article 441, subparagraph 2 || || Article 442 || || Article 443 || || Article 444 || || Article 445(1) || Article 151a || Article 445(2) || Article 151a || Article 445(3) || Article 151a || Article 445(4) || || Article 445(5) || || Article 446 || || Article 447 || || Article 448 || || Article 459 || || Article 450 || || Article 451 || || Article 452 || || Article 453 || || Article 454 || || Article 455 || || Article 456 || || Article 457 || || Article 458 || || Article 459 || || Article 460 || || Article 461 || || Article 462 || || Article 463 || || Article 464 || || Article 465 || || Article 466 || || Article 467 || || Article 468 || || Article 469 || || Article 470 || || Article 471 || || Article 472 || || Article 473 || || Article 474 || || Article 475 || || Article 476 || Article 152(5) || Article 477 || || Article 478 || || Article 479 || || Article 480 || || Article 481 || || Article 482 || || Article 483 || || Article 484 || || Article 485 || || Article 486 || || Article 487 || || Article 488 || || Annex I || Annex II || Annex II || Annex IV || Annex III || || Annex IV, Part 1 || Article 152(5) and Article 1 points 14 to 19 of Directive 2000/12/EC || Annex IV, Part 2 || Article 152(5) and Article 42 of Directive 2000/12/EC || Annex IV, Part 3 || Article 152(5) and Article 43 of Directive 2000/12/EC || Annex IV, Part 4 || Article 152(5) and Article 44 of Directive 2000/12/EC || Annex IV, Part 5 || Article 152(5) and Article 45 of Directive 2000/12/EC || Annex IV, Part 6 || Article 152(5) and Article 46 of Directive 2000/12/EC || LEGISLATIVE FINANCIAL STATEMENT
FOR PROPOSALS 1. FRAMEWORK OF THE PROPOSAL/INITIATIVE 1.1. Title of the proposal/initiative 1.2. Policy
area(s) concerned in the ABM/ABB structure 1.3. Nature
of the proposal/initiative 1.4. Objective(s)
1.5. Grounds
for the proposal/initiative 1.6. Duration
and financial impact 1.7. Management
method(s) envisaged 2. MANAGEMENT MEASURES 2.1. Monitoring
and reporting rules 2.2. Management
and control system 2.3. Measures
to prevent fraud and irregularities 3. ESTIMATED FINANCIAL IMPACT OF THE
PROPOSAL/INITIATIVE 3.1. Heading(s)
of the multiannual financial framework and expenditure budget line(s) affected 3.2. Estimated
impact on expenditure 3.2.1. Summary of
estimated impact on expenditure 3.2.2. Estimated impact
on operational appropriations 3.2.3. Estimated impact
on appropriations of an administrative nature 3.2.4. Compatibility
with the current multiannual financial framework 3.2.5. Third-party
participation in financing 3.3. Estimated impact on revenue LEGISLATIVE FINANCIAL STATEMENT FOR PROPOSALS
1.
FRAMEWORK OF THE PROPOSAL/INITIATIVE
1.1.
Title of the proposal/initiative
Proposal for a Regulation of the European Parliament and of the
Council on prudential requirements for credit institutions and investment firms
1.2.
Policy area(s) concerned in the ABM/ABB
structure[1]
Internal Market – financial markets Internal Market – financial institutions
1.3.
Nature of the proposal/initiative
ý The
proposal/initiative relates to a new action ¨ The
proposal/initiative relates to a new action following a pilot project/preparatory
action[2]
¨ The proposal/initiative relates to the
extension of an existing action ¨ The
proposal/initiative relates to an action redirected towards a new action
1.4.
Objectives
1.4.1.
The Commission's multiannual strategic
objective(s) targeted by the proposal/initiative
First and foremost, this initiative is linked to the strategic
objective of improving the regulation and supervision of financial markets. The
unprecedented level of fiscal support to banks needs to be matched with a
robust reform addressing the regulatory shortcomings exposed during the
financial crisis. This reform of EU bank regulation reflects the outcome of
internationally coordinated work on the Basel III bank capital and liquidity
framework and is aligned with another strategic objective of setting global
standards through cooperation and agreement with international partners.
1.4.2.
Specific objective(s) and ABM/ABB activity(ies)
concerned
Specific objective No.1. (Internal
Market – financial institutions) Improve the capital requirements regime of the banking, insurance
and pension sectors Specific objective No.1. (Internal
Market – financial markets) Promote stability and integrity in financial markets through
adequate supervision, robust market infrastructures and a high level of
transparency In addition to the above two specific objectives identified in the
MARKT management plan for 2011, the initiative is geared towards contributing
to the following specific objectives which have been identified in the impact
assessments accompanying the proposals: - enhancing bank risk management; - preventing regulatory arbitrage opportunities; - enhancing legal clarity; - reducing compliance burden; - enhancing level playing field; - enhancing supervisory cooperation and convergence; - reducing the cyclicality of bank lending; ABM/ABB activity(ies) concerned Financial markets, financial institutions
1.4.3.
Expected result(s) and impact
Specify the effects
which the proposal/initiative should have on the beneficiaries/groups targeted. The proposals should lead to enhanced capitalisation and improved
liquidity risk management of the EU banking sector. In turn, this should lead
to the lower frequency of systemic banking crises in the future. The enhanced
financial stability is expected to yield concomitant net economic benefits of
annual increase in the EU GDP in the range of 0.3%-2%. These benefits will
accrue to a wide range of stakeholders, including individual, SME and large
corporate bank borrowers and creditors, governments, and the EU citizens in
general. The European Banking Authority (EBA) will play an important role in
order to achieve these results, as the proposals ask it to develop some 50+
binding technical standards (BTS) on various policy issues. BTS – which would
eventually be endorsed by the Commission – will be key to ensure that
provisions of highly technical nature are implemented uniformly across the EU
and that the proposed policies work as intended. EBA's work, therefore, should
contribute to the effective attainment of the relevant strategic and specific
objectives outlined in sections 1.4.1 and 1.4.2.
1.4.4.
Indicators of results and impact
Specify the
indicators for monitoring implementation of the proposal/initiative. 1. Expected results: - enhanced financial stability via improved regulation and
supervision of banks; - improved EU bank capitalisation and enhanced liquidity risk
management. Indicators: - dynamics of the cost of protection against default of financial
institutions; - percentage of banks successfully passing EU stress tests; - capital ratios and capital buffers above the capital requirement,
held by the EU banks. 2. Expected result: - enhanced effectiveness of the EU bank regulation and supervision Indicator: - number of binding technical standards developed by EBA on time
1.5.
Grounds for the proposal/initiative
1.5.1.
Requirement(s) to be met in the short or long
term
Based on the two proposals, some 60% of the BTS that EBA is asked to
prepare will be due in 2013 which requires an increase in its FTE count in
order for it to handle the workload. The increase in the FTEs will need to be
sustained in the subsequent years to amend the already developed BTS and to
prepare the remaining 40% of the BTS. Also, in the long run, additional BTS
development-related work will come from future legislative proposals in the
area of EU banking regulation.
1.5.2.
Added value of EU involvement
There are several major justifications for the added value of EU
involvement through this initiative. They include: - a need to enhance the integration of the EU internal banking
market; - address several market and regulatory failures that were brought
to light by the financial crisis; - correct for regulatory arbitrage opportunities which are made
possible by the current legislation; and - ensure a consistent EU approach for tackling various issues
covered by the scope of the initiative, which would do away with the need for
Member States to pursue individual approaches that risk fragmenting the
Internal Market. Most importantly, only a common EU-level approach could be expected
to effectively provide for financial stability and tame excessive financial
pro-cyclicality, as currently policies that are directed toward these key
systemic aspects are either geared to national needs or are absent altogether.
1.5.3.
Lessons learned from similar experiences in the
past
As regards BTS, 2011 is a first year of operation of EBA. Therefore,
first sets of BTS that are linked to the existing legislative framework are yet
to be delivered to the Commission.
1.5.4.
Coherence and possible synergy with other
relevant instruments
The proposal is coherent with regulation with the Regulation (EU) No
1093/2010 of the European Parliament and of the Council of 24 November 2010
establishing a European Supervisory Authority (European Banking Authority)
1.6.
Duration and financial impact
¨ Proposal/initiative of limited
duration –
¨ Proposal/initiative in effect from [DD/MM]YYYY to [DD/MM]YYYY –
¨ Financial impact from YYYY to YYYY ý Proposal/initiative of unlimited
duration –
Implementation with a start-up period from YYYY
to YYYY, –
followed by full-scale operation.
1.7.
Management mode(s) envisaged[3]
¨ Centralised direct management by the Commission ¨ Centralised indirect management with the delegation of implementation tasks to: –
¨ executive agencies –
ý bodies set up by the Communities[4]
–
¨ national public-sector bodies/bodies with public-service mission –
¨ persons entrusted with the implementation of specific actions
pursuant to Title V of the Treaty on European Union and identified in the
relevant basic act within the meaning of Article 49 of the Financial Regulation
¨ Shared management with the Member States ¨ Decentralised management with third countries ¨ Joint management with international organisations (to be specified) If more than one
management mode is indicated, please provide details in the
"Comments" section. Comments
2.
MANAGEMENT MEASURES
2.1.
Monitoring and reporting rules
Specify frequency
and conditions. According to Article 81 of the Regulation (EU) No 1093/2010, by 2
January 2014, and every three years thereafter, the Commission shall publish a
general report on the experience acquired as a result of the operation of EBA
and the procedures laid down in the Regulation. That report shall evaluate,
inter alia, the degree of convergence in supervisory practices reached by
national supervisors and whether resources of EBA are adequate to carry out its
responsibilities. The report would be forwarded to the European Parliament and
to the Council.
2.2.
Management and control system
2.2.1.
Risk(s) identified
Three impact assessments have been conducted concerning the two
proposals, identifying costs and benefits of different policy options to
address the identified problems. With respect to the responsibilities of EBA, there is a risk that
effectiveness of the proposed rules is undermined by its inability – due to the
lack of human resources - to deliver the BTS of high quality and in line with
the dates set out in the Commission's proposal.
2.2.2.
Control method(s) envisaged
Management and control systems of EBA are outlined in Chapter III of
the Regulation (EU) No 1093/2010 Also, as mentioned under section 2.1, under Article 81 of this
regulation, the Commission will be expected to publish every three years a
report on the experience acquired as a result of the operation of EBA and the
procedures laid down in the Regulation.
2.3.
Measures to prevent fraud and irregularities
Specify existing or
envisaged prevention and protection measures. According to Article 66 of the Regulation (EU) No 1093/2010, for the
purposes of combating fraud, corruption and any other illegal activity,
Regulation (EC) No 1073/1999 shall apply to EBA without any restriction. EBA
shall accede to the Inter-institutional Agreement concerning internal
investigations by OLAF and shall immediately adopt appropriate provisions for
all staff of EBA. The funding decisions and the agreements and the implementing
instruments resulting from them shall explicitly stipulate that the Court of
Auditors and OLAF may, if need be, carry out on-the-spot checks on the
beneficiaries of monies disbursed by the EBA as well as on the staff
responsible for allocating these monies.
3.
ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE
3.1.
Heading(s) of the multiannual financial
framework and expenditure budget line(s) affected
· Existing expenditure budget lines In order of
multiannual financial framework headings and budget lines. Heading of multiannual financial framework || Budget line || Type of expenditure || Contribution Number 1A Competitiveness for Growth and Employment || DA/NDA ([5]) || from EFTA[6] countries || from candidate countries[7] || from third countries || within the meaning of Article 18(1)(aa) of the Financial Regulation || 12.04.02.01 EBA subsidy under Titles 1 and 2 (Staff and administrative expenditure) || DA || YES || NO || NO || NO · New budget lines requested In order of multiannual financial framework
headings and budget lines. Heading of multiannual financial framework || Budget line || Type of expenditure || Contribution Number [Heading……………………………………..] || Diff./non-diff. || from EFTA countries || from candidate countries || from third countries || within the meaning of Article 18(1)(aa) of the Financial Regulation || [XX.YY.YY.YY] || || YES/NO || YES/NO || YES/NO || YES/NO
3.2.
Estimated impact on expenditure
3.2.1.
Summary of estimated impact on expenditure
EUR million (to 3 decimal places) Heading of multiannual financial framework: || Number 1A || Competitiveness for Growth and Employment DG: MARKT || || || Year 2013[8] || Year 2014 || Year 2015 || TOTAL Operational appropriations || || || || 12.04.02.01 || Commitments || (1) || 0,690 || 0,590 || 0,590 || 1,870 Payments || (2) || 0,690 || 0,590 || 0,590 || 1,870 Appropriations of an administrative nature financed from the envelop of specific programs[9] || || || || Number of budget line || || (3) || || || || TOTAL appropriations for DG MARKT || Commitments || =1+1a +3 || 0,690 || 0,590 || 0,590 || 1,870 Payments || =2+2a +3 || 0,690 || 0,590 || 0,590 || 1,870 TOTAL operational appropriations || Commitments || (4) || 0,690 || 0,590 || 0,590 || 1,870 Payments || (5) || 0,690 || 0,590 || 0,590 || 1,870 TOTAL appropriations of an administrative nature financed from the envelop of specific programs || (6) || || || || TOTAL appropriations under HEADING <1A> of the multiannual financial framework || Commitments || =4+ 6 || 0,690 || 0,590 || 0,590 || 1,870 Payments || =5+ 6 || 0,690 || 0,590 || 0,590 || 1,870 If more than one heading is affected by the proposal /
initiative: TOTAL operational appropriations || Commitments || (4) || || || || Payments || (5) || || || || TOTAL appropriations of an administrative nature financed from the envelop of specific programs || (6) || || || || TOTAL appropriations under HEADINGS 1 to 4 of the multiannual financial framework (Reference amount) || Commitments || =4+ 6 || || || || Payments || =5+ 6 || || || || Heading of multiannual financial framework: || 5 || " Administrative expenditure " EUR million (to 3 decimal places) || || || Year N || Year N+1 || Year N+2 || Year N+3 || … enter as many years as necessary to show the duration of the impact (see point 1.6) || TOTAL DG: <…….> || Human resources || || || || || || || || Other administrative expenditure || || || || || || || || TOTAL DG <…….> || Appropriations || || || || || || || || TOTAL appropriations under HEADING 5 of the multiannual financial framework || (Total commitments = Total payments) || || || || || || || || EUR million (to 3 decimal places) || || || Year 2013[10] || Year 2014 || Year 2015 || TOTAL TOTAL appropriations under HEADINGS 1 to 5 of the multiannual financial framework || Commitments || 0,690 || 0,590 || 0,590 || 1,870 Payments || 0,690 || 0,590 || 0,590 || 1,870
3.2.2.
Estimated impact on operational appropriations
–
¨ The proposal/initiative does not require the use of operational
appropriations –
ý The proposal/initiative requires the use of operational
appropriations, as explained below: The specific objectives of the proposal are outlined under section
1.4.2. The main type of output that EBA is expected to produce using the
requested resources is binding technical standards (BTS). The proposals require EBA to develop some 55 BTS with 60% of
them due in 2013. However, due to the nature of the initiative the below
table cannot be filled out as it is not possible to attribute BTS to a single
specific objective, since - as a rule - one BTS contributes to the achievement
of multiple specific objectives simultaneously. For instance, a BTS on
consistent application of deductions from the regulatory capital would
contribute to i) enhancing bank risk management; ii) preventing regulatory
arbitrage opportunities; iii) enhancing legal clarity; iv) enhancing level
playing field; and v) enhancing supervisory cooperation and convergence. Commitment appropriations in EUR million (to 3 decimal
places) Indicate objectives and outputs ò || || || Year N || Year N+1 || Year N+2 || Year N+3 || … enter as many years as necessary to show the duration of the impact (see point 1.6) || TOTAL OUTPUTS Type of output[11] || Average cost of the ouput || Number of ouputs || Cost || Number of ouputs || Cost || Number of ouputs || Cost || Number of ouputs || Cost || Number of ouputs || Cost || Number of ouputs || Cost || Number of ouputs || Cost || Total number of ouputs || Total cost SPECIFIC OBJECTIVE No 1[12]… || || || || || || || || || || || || || || || || - Output || || || || || || || || || || || || || || || || || || - Output || || || || || || || || || || || || || || || || || || - Output || || || || || || || || || || || || || || || || || || Sub-total for specific objective N°1 || || || || || || || || || || || || || || || || SPECIFIC OBJECTIVE No 2… || || || || || || || || || || || || || || || || - Output || || || || || || || || || || || || || || || || || || Sub-total for specific objective N°2 || || || || || || || || || || || || || || || || TOTAL COST || || || || || || || || || || || || || || || ||
3.2.3.
Estimated impact on appropriations of an
administrative nature - Not Applicable
3.2.3.1.
Summary
–
¨ The proposal/initiative does not require the use of administrative
appropriations –
¨ The proposal/initiative requires the use of administrative
appropriations, as explained below: EUR million (to 3
decimal places) || Year N [13] || Year N+1 || Year N+2 || Year N+3 || … enter as many years as necessary to show the duration of the impact (see point 1.6) || TOTAL HEADING 5 of the multiannual financial framework || || || || || || || || Human resources || || || || || || || || Other administrative expenditure || || || || || || || || Subtotal HEADING 5 of the multiannual financial framework || || || || || || || || Outside HEADING 5[14] of the multiannual financial framework || || || || || || || || Human resources || || || || || || || || Other expenditure of an administrative nature || || || || || || || || Subtotal outside HEADING 5 of the multiannual financial framework || || || || || || || || TOTAL || || || || || || || ||
3.2.3.2.
Estimated requirements of human resources
–
¨ The proposal/initiative does not require the use of human
resources –
¨ The proposal/initiative requires the use of human resources, as
explained below: Estimate to be expressed in full amounts
(or at most to one decimal place) || || Year N || Year N+1 || Year N+2 || Year N+3 || … enter as many years as necessary to show the duration of the impact (see point 1.6) Establishment plan posts (officials and temporary agents) || || XX 01 01 01 (Headquarters and Commission’s Representation Offices) || || || || || || || || XX 01 01 02 (Delegations) || || || || || || || || XX 01 05 01 (Indirect research) || || || || || || || || 10 01 05 01 (Direct research) || || || || || || || || External personnel (in Full Time Equivalent unit: FTE)[15] || || XX 01 02 01 (CA, INT, SNE from the "global envelope") || || || || || || || || XX 01 02 02 (CA, INT, JED, LA and SNE in the delegations) || || || || || || || || XX 01 04 yy [16] || - at Headquarters[17] || || || || || || || || - in delegations || || || || || || || || XX 01 05 02 (CA, INT, SNE - Indirect research) || || || || || || || || 10 01 05 02 (CA, INT, SNE - Direct research) || || || || || || || || Other budget lines (specify) || || || || || || || || TOTAL || || || || || || || XX is the
policy area or budget title concerned. The human resources required
will be met by staff from the DG who are already assigned to management of the action
and/or have been redeployed within the DG, together if necessary with any
additional allocation which may be granted to the managing DG under the annual
allocation procedure and in the light of budgetary constraints. Description of
tasks to be carried out: Officials and temporary agents || External personnel ||
3.2.4.
Compatibility with the current multiannual
financial framework
–
¨ Proposal/initiative is compatible the current multiannual
financial framework. –
ý Proposal/initiative will entail reprogramming of the relevant
heading in the multiannual financial framework. Explain what reprogramming is required,
specifying the budget lines concerned and the corresponding amounts. New initiative of the Commission –
¨ Proposal/initiative requires application of the flexibility
instrument or revision of the multiannual financial framework[18]. Explain what is required, specifying the
headings and budget lines concerned and the corresponding amounts.
3.2.5.
Third-party contributions
–
The proposal/initiative provides for the
co-financing estimated below: Appropriations in EUR million (to 3 decimal places) || Year 2013 || Year 2014 || Year 2015 || Total Specify the co-financing body || 60% of total needs by Member States via EBA TOTAL appropriations cofinanced || 1,035 || 0,885 || 0,885 || 2,805
3.3.
Estimated impact on revenue
–
ý Proposal/initiative has no financial impact on revenue. –
¨ Proposal/initiative has the following financial impact: ¨ on own resources ¨ on miscellaneous revenue EUR million (to 3 decimal places) Budget revenue line: || Appropriations available for the ongoing budget exercise || Impact of the proposal/initiative[19] Year N || Year N+1 || Year N+2 || Year N+3 || … insert as many columns as necessary in order to reflect the duration of the impact (see point 1.6) Article …………. || || || || || || || || For miscellaneous
assigned revenue, specify the budget expenditure line(s) affected. Specify the method for
calculating the impact on revenue. Annex to Legislative Financial Statement
for proposal for regulation on prudential requirements for credit institutions
and investment firms and for proposal for directive on the taking up and
pursuit of the business of credit institutions and the prudential supervision
of credit institutions and investment firms Applied methodology and main underlying
assumptions The costs related to tasks to be carried
out by EBA stemming from the two proposals have been estimated for staff
expenditure (Title 1), in conformity with the cost classification in the EBA
draft budget for 2012 submitted to the Commission. The two proposals of the Commission include
provisions for EBA to develop some 55 sets of new binding technical standards
(BTS) that should ensure that provisions of highly technical nature are
consistently implemented across the EU.[20]
According to the proposals, EBA is expected to deliver some 60% of the new BTS
in 2013. To meet this goal, increase in staffing level is required already
starting with 2013. As regards the nature of positions, the successful and
timely delivery of new BTS will require, in particular, additional policy,
legal and impact assessment officers. Based on the estimates of the Commission
services and EBA, the following assumptions were applied to assess the impact
on number of FTEs required to develop BTS related to the two proposals: –
One policy officer drafts 2 BTS of average
complexity per year; this implies that 17 policy officers are needed for 2013; –
One impact assessment officer is needed for 8
BTS processes; this implies that 4 impact assessment officers are needed for
2013; –
One legal officer is needed to draft 5 BTS; this
implies that 7 legal officers are needed for 2013; –
Two additional support FTEs are needed to
provide support to the above positions on a daily basis. Hence,
delivery of BTS that are falling due in 2013 requires 30 FTEs. According to
EBA, by the end of 2011, there will be 14 experts working on BTS. In
anticipation of the increase in BTS-related workload, in its draft budget for
2012 submitted to the Commission, EBA already requested additional 22 FTEs, of
which 7 are earmarked for the work on BTS.[21]
In its submission of draft budget for 2012, EBA did not include a request for
the remaining 9 FTEs needed because it was not aware of the number of BTS that
it would be asked to develop by the two proposals. These positions, however,
will be included in the forthcoming annual budget requests of EBA. Other assumptions: −
based on the distribution of FTEs in 2012 draft
budget, additional 9 FTEs are assumed to be comprised of 7 temporary agents
(79%), 1 seconded national expert (14%) and 1 contractual agent (7%); −
average annual salary costs for different
categories of personnel are based on DG BUDG guidance; −
salary weighting coefficient for London of 1.344; −
training costs assumed at €1,000 per FTE per
year; −
mission costs of €9,700, estimated based on 2012
draft budget for missions per average FTE; −
recruiting-related costs (travel, hotel, medical
examinations, installation and other allowances, removal costs, etc) of €27,700,
estimated based on 2012 draft budget for recruiting per position to be filled
in. It was assumed that the workload behind the
above increase in FTEs will be maintained in 2014 onwards, and is linked, in
part, to amending the already developed BTS and, in part, to preparing the
remaining 40% of BTS under the two legislative proposals and under other
forthcoming legislative proposals in the area of banking regulation. The method of calculating the increase in
the required budget for the next three years is presented in more detail in
table below. The calculation reflects the fact that that the Community budget
funds 40% of the costs. The following table presents the proposed
establishment plan for the seven temporary agent positions: [1] ABM: Activity-Based Management – ABB: Activity-Based
Budgeting. [2] As referred to in Article 49(6)(a) or (b) of the
Financial Regulation. [3] Details of management modes and references to the
Financial Regulation may be found on the BudgWeb site: http://www.cc.cec/budg/man/budgmanag/budgmanag_en.html [4] As referred to in Article 185 of the Financial
Regulation. [5] DA= Differentiated appropriations / DNA=
Non-Differentiated Appropriations [6] EFTA: European Free Trade Association. [7] Candidate countries and, where applicable, potential
candidate countries from the Western Balkans. [8] Year N is the year in which implementation of the
proposal/initiative starts. [9] Technical and/or administrative assistance and
expenditure in support of the implementation of EU programmes and/or actions
(former "BA" lines), indirect research, direct research. [10] Year N is the year in which implementation of the
proposal/initiative starts. [11] Outputs are products and services to be supplied (e.g.:
number of student exchanges financed, number of km of roads built, etc.). [12] As described in Section 1.4.2. "Specific
objective(s)…" [13] Year N is the year in which implementation of the
proposal/initiative starts. [14] Technical and/or administrative assistance and
expenditure in support of the implementation of EU programmes and/or actions
(former "BA" lines), indirect research, direct research. [15] CA= Contract Agent; INT= agency staff ("Intérimaire");
JED= "Jeune Expert en Délégation" (Young Experts in
Delegations); LA= Local Agent; SNE= Seconded National Expert; [16] Under
the ceiling for external personnel from operational
appropriations (former "BA" lines). [17] Essentially for Structural Funds, European Agricultural
Fund for Rural Development (EAFRD) and European Fisheries Fund (EFF). [18] See points 19 and 24 of the Interinstitutional
Agreement. [19] As regards traditional own resources (customs duties,
sugar levies), the amounts indicated must be net amounts, i.e. gross amounts
after deduction of 25% for collection costs. [20] Since EBA is a body with highly specialised expertise, it was
empowered to develop BTS in response to a need to introduce an effective
instrument to establish harmonised regulatory technical standards in EU banking
legislation to ensure, also through a single rulebook, a level playing field
and adequate protection of depositors, investors and consumers across the
Union. To this end, EBA prepares draft regulatory technical standards in areas
defined by Union law, which do not involve policy choices, and which the
Commission later endorses by means of delegated acts pursuant to Article 290
TFEU in order to give them binding legal effect. Before submitting draft BTS to
the Commission, EBA has to conduct extensive preparatory work which includes
consulting on draft BTS with interested parties and providing such parties with
a reasonable opportunity to comment on proposed measures; carrying out regulatory
impact assessments; legal drafting and other tasks. [21] Other positions requested by EBA in the draft budget for 2012 are
attributed to the expected increase in the workload of its oversight and
operations departments. The request for an increase in other positions is
linked to the evidence on resource utilisation emerging in the course of the
first year of operation of EBA, and is geared towards ensuring the effective
execution of EBA's tasks with respect to breaches of law, presence in colleges
of supervisors, consumer dimension, international dimension and other areas.