Article 325w

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Capital Requirements Regulation (CRR) > PART THREE > TITLE IV > CHAPTER 1a > Section 5 > Subsection 1 > Article 325w
Title:
Article 325w
Description: 
Gross jump-to-default amounts
Main content: 

1. Institutions shall calculate the gross JTD amounts for each long exposure to debt instruments as follows:

JTDlong = max {}{LGD Vnotional + P&Llong + Adjustmentlong; 0}}

where:

JTDlong=the gross JTD amount for the long exposure;
Vnotional=the notional amount of the instrument;
P&Llong=a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the long exposure; gains shall enter the formula with a positive sign and losses with a negative; and
Adjustmentlong=the amount by which, due to the structure of the derivative instrument, the institution's loss in the event of default would be increased or reduced relative to the full loss on the underlying instrument; increases shall enter the Adjustmentlong term with a positive sign and decreases with a negative sign.

 

2. Institutions shall calculate the gross JTD amounts for each short exposure to debt instruments as follows:

JTDshort = min {}{LGD Vnotional + P&Lshort + Adjustmentshort; 0}}

where:

JTDshort=the gross JTD amount for the short exposure;
Vnotional=the notional amount of the instrument that shall enter into the formula with a negative sign;
P&Lshort=a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the short exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign; and
Adjustmentshort=the amount by which, due to the structure of the derivative instrument, the institution's gain in the event of default would be increased or reduced relative to the full loss on the underlying instrument; decreases shall enter the Adjustmentshort term with a positive sign and increases shall enter the Adjustmentshort term with a negative sign.


3. For the purposes of the calculation set out in paragraphs 1 and 2, the LGD for debt instruments to be applied by institutions shall be the following:

(a) exposures to non-senior debt instruments shall be assigned an LGD of 100 %;

(b) exposures to senior debt instruments shall be assigned an LGD of 75 %;

(c) exposures to covered bonds, as referred to in Article 129, shall be assigned an LGD of 25 %.

4. For the purposes of the calculations set out in paragraphs 1 and 2, notional amounts shall be determined as follows:

(a) in the case of debt instruments, the notional amount is the face value of the debt instrument;

(b) in the case of derivative instruments with debt security underlyings, the notional amount is the notional amount of the derivative instrument.

5. For exposures to equity instruments, institutions shall calculate the gross JTD amounts as follows, instead of using the formulas referred to in paragraphs 1 and 2:

JTDlong = max {}{LGD · V + P&Llong + Adjustmentlong; 0}}
JTDshort = min {}{LGD · V + P&Lshort + Adjustmentshort; 0}}

where:

JTDlong=the gross JTD amount for the long exposure;
JTDshort=the gross JTD amount for the short exposure; and
V=the fair value of the equity or, in the case of derivative instruments with equity underlyings, the fair value of the equity underlying.


6. Institutions shall assign an LGD of 100 % to equity instruments for the purposes of the calculation set out in paragraph 5.

7. In the case of exposures to default risk arising from derivative instruments whose pay-offs in the event of default of the obligor are not related to the notional amount of a specific instrument issued by that obligor or to the LGD of the obligor or an instrument issued by that obligor, institutions shall use alternative methodologies to estimate the gross JTD amounts.

8. EBA shall develop draft regulatory technical standards to specify:

(a) how institutions are to calculate JTD amounts for different types of instruments in accordance with this Article;

(b) which alternative methodologies institutions are to use for the purposes of the estimation of gross JTD amounts referred to in paragraph 7.

(c) the notional amounts of instruments other than the ones referred to in points (a) and (b) of paragraph 4.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.