List of Q&As

Internal Model Method for counterparty credit risk: Determination of the effective expected exposure when the model captures the effect of margining (Article 285(1)(c))

Article 285(1)(c) states that '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 284(5).'Does the adverb 'directly' mean that institutions have to calculate their Effective Expected Exposure (EEE) as1.) EffectiveEEtk = max{EffectiveEEtk-1 , EEtkmargined}, i.e. just insert margined EEs in the equation in Art. 284 (5) or2.) EffectiveEEtk = EEtkmargined, i.e. substitute the monotony operator by the margined EEs?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2014_819 | Topic: Market risk | Date of submission: 07/02/2014 | Date of publication: 11/07/2014

Calculation of the threshold deductions (from CET1) during the transitional period

In calculating the threshold deductions from Common Equity Tier 1 during the transitional period [Article 470] should the following items be fully or partially deducted from Common Equity Tier 1 according to the national discretion phase-in and/or filter? (i.e. should the “transitional period threshold” be exactly equal to the “full application threshold” or the former should be determined considering the national discretions phase-in/filter effects). More specifically: - Unrealized losses measured at fair value: in countries where national discretion rules provide [Article 467(2)] for a filter to not include in any element of own funds unrealised gains or losses on exposures to central governments classified in the “Available for Sale” category of EU-endorsed IAS 39, the Common Equity Tier 1 considered for the calculation of the threshold deductions during transitional period should be determined with or without those specific unrealized losses measured at fair value? - Loss carry forward: in countries where national discretion rules provide for a phasing-in of loss carry forward deductions (deferred tax assets that rely on future profitability and do not arise from temporary differences) [Article 469 (1)], the Common Equity Tier 1 considered for the calculation of the threshold deductions during transitional period should be determined by subtracting all the loss carry forward or just the applicable percentage determined by the national authority? - Shortfall of expected losses to provision: in countries where national discretion rules provide for a phasing-in of shortfall of expected losses to provision deductions (negative amounts resulting from the calculation of expected loss amounts for IRB institutions) [Article 469 (1)], the Common Equity Tier 1 considered for the calculation of the threshold deductions during transitional period should be determined by subtracting all the shortfall of expected losses to provision or just the applicable percentage determined by the national authority?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2014_842 | Topic: Own funds | Date of submission: 12/02/2014 | Date of publication: 11/07/2014

Inflows

Article 425(8) of Regulation (EU) 575/2013 states that "institutions shall not report inflows from any new obligations entered into". Is it the case that all forward starting transactions should be excluded from the LCR, including those which produce an outflow? For instance, a bank may enter into a forward starting reverse repo trade which begins in two days time, with a maturity one month from the settlement date. In the buffer, cash will be reported, however in two days time that cash will have been lent out and a lower quality asset may have been received; the trade is in affect a downgrade which has not yet been accounted for.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2014_784 | Topic: Liquidity risk | Date of submission: 28/01/2014 | Date of publication: 11/07/2014

Securities borrowing transactions within the LCR - inflows

How should to treat potential inflows regarding an unsecured securities borrowing transaction as they are not mentioned within Article 425 (2) of Regulation (EU) No 575/2013 (CRR) be treated.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2014_792 | Topic: Liquidity risk | Date of submission: 29/01/2014 | Date of publication: 11/07/2014

Large exposure reporting – reporting of central government and natural or legal persons controlled by the central government or interconnected with it

As large exposure reporting is based on a client data – how should an institution report exposure to the central government for large exposure purposes? Should it report the total exposure to the central government (and treat it as a single entity) or should it report exposures to all the entities which form the central government? What about in the case of group of connected clients which includes the central government and entities controlled/otherwise interconnected with it? As defined in Article 4(39) of Regulation (EU) No 575/2013 (CRR), central government can be included in "n" groups of connected clients. What is the correct reporting in such a case?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_681 | Topic: Large exposures | Date of submission: 19/12/2013 | Date of publication: 11/07/2014

Supervisory reporting of bonds issued by promotional banks

In its instructions on the EBA LCR Monitoring Exercise for the end-June 2013 and end-September 2013 data collection the EBA gives examples of promotional banks whose bonds can be reported in row 10 of the ‘LCR EU Only’ tab, if they are not already reported in section A of that exercise. In this context we would like to raise two questions: 1. Is the list of promotional banks given in the instructions exhaustive and also applicable for the reporting of these assets in Row 180 of the Liquid Assets template of COREP (C 51.00)? 2. Do bonds issued by promotional banks always have to be reported in row 180 of the respective template?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_628 | Topic: Supervisory reporting - Liquidity (LCR, NSFR, AMM) | Date of submission: 09/12/2013 | Date of publication: 04/07/2014

Residual maturity of exposures with an undefined maturity

Do exposures with an undefined maturity, such as deposits or time deposits which can be called by the depositor and must then be reimbursed with a delay shorter than three months, quality as such?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2014_883 | Topic: Credit risk | Date of submission: 26/02/2014 | Date of publication: 04/07/2014

Effect on the capital requirement of a guarantee where the right to call is linked to default versus another where it is linked to realised loss

Let’s take a portfolio level guarantee that is callable once losses from the exposures covered have been realised (and NOT when exposures DEFAULT); realised losses decrease the notional of the guarantee. As it can take years till losses get realised after the default event, while losses are still unrealised (but defaults have happened) the full notional is used to cover the whole portfolio. Our question is whether such a guarantee is eligible to be taken into account as unfunded credit protection and thus decrease the capital requirement of the sub-portfolio it cover?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2014_803 | Topic: Credit risk | Date of submission: 03/02/2014 | Date of publication: 04/07/2014

Own funds - Prudential Filters

Regarding the calculation of the prudential filters defined in Article 32 and 33 of Regulation (EU) No. 575/2013 (CRR) it is not clear if such filters shall be considered net or gross of the related tax effects. It seems reasonable to consider the filters net of tax effects. This will be consistent with the aim of such filters to exclude from Common Equity Tier 1 any increase in the institution's equity due to securitised assets and changes in its own credit risk, which are registered in the accounting framework net of tax effects.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2014_720 | Topic: Own funds | Date of submission: 12/01/2014 | Date of publication: 04/07/2014

Treatment of SME-supporting factor in the case of secured exposures.

I. How should the SME-supporting factor be treated relating to secured exposures? a) Including all collaterals, i.e. also for guarantees. Thus risk weighted assets of inflow in asset class sovereigns or institutes will also be reduced? b) Only for those collaterals which cause no risk transfer (meaning which are intered directly in the RWA formula)? c) Only for the non-secured part of the exposure?II. General question when the SMR supporting factor can be used: a) To our understanding a risk transfer is only allowed in the case that the risk transfer is leading to a reduction of the RWA. Taking this into account it should always be compared “the total SME exposure with the supporting factor and without a risk transfer” to “the exposure with the SME supporting factor (only for the non-secured part) and the risk transfer without the supporting factor”. b) To consider the above mentioned point under II. a) it seems that banks under the IRB-A approach are by tendency favored as there is no risk transfer (e.g.in cases of a guarantee by a government) but the effect of the collateral is considered in the total LGD of the exposure.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_565 | Topic: Credit risk | Date of submission: 27/11/2013 | Date of publication: 04/07/2014

Tier 2 instruments

In question 2013_31 the EBA clarified that non-step-up legacy Tier 1 instruments could be eligible, for the amounts exceeding the grandfathering limits, as fully eligible Tier 2 instruments with no time limit and independently of the frequency of calls, if conditions set in Article 63 are met. Article 63 (j) states that such Tier 2 instruments may be called where conditions in article 77 are met. Could the EBA confirm that article 77 would apply to such legacy non step Tier 1 bonds potentially fully eligible as Tier 2 and would effectively impose a constraint on the bank, so that the bank does not need to have a contractual call provision in the non-step-up legacy Tier 1 bond that states that the call can only be exercised with the approval of the regulatory authority to get this bond approved as Tier 2 ?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_544 | Topic: Own funds | Date of submission: 19/11/2013 | Date of publication: 04/07/2014

Eligibility of capital instruments for classification as Common Equity Tier 1 instruments when the instruments are supplemented by a contractual obligation of the majority-holder of those instruments to pay compensation to the minority shareholders even in loss years

Paragraph 1 (I) (ii) of Article 28 Regulation (EU) No. 575/2013 (CRR) states that “the instruments are not secured, or subject to a guarantee that enhances the seniority of the claim by the parent undertaking of the institution”. The question is, whether a contractual obligation of the majority shareholder of a credit institution to pay a compensation to the minority shareholders even in loss years (by reason that the majority shareholder and the credit institution have entered into a profit and loss transfer agreement) is permissible according to paragraph 1 (I) (ii) of Article 28 CRR? In more general terms, what is the meaning of the word “claim” in paragraph 1 (I) of Article 28 CRR (claim only to the substance/equity of the credit institution, or also to a dividend or to a compensation payment or all)?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_543 | Topic: Own funds | Date of submission: 19/11/2013 | Date of publication: 04/07/2014

Exemption from deduction of Equity Holdings in an insurance company from CET1

Pursuant to Article 471(1)(d) of Regulation (EU) No 575/2013 (CRR), in order not to deduct the equity investment in an insurance company, should “the amount of the equity holding which is “not deducted” not exceed (i) the “amount of shares” (13% share of the insurance company’s capital) or (ii) the “book value” (EUR 2 billion), held in the Common Equity Tier 1 instruments in the Insurance company as of December 31, 2012?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_502 | Topic: Own funds | Date of submission: 04/11/2013 | Date of publication: 04/07/2014

Minimum reserve requirement

What is the requirement to maintain the minimum reserve requirement within the LCR period, i.e. does the LCR have to be met for each of the 30 days in the stress horizon?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_293 | Topic: Liquidity risk | Date of submission: 30/09/2013 | Date of publication: 04/07/2014

Collateral Swaps Scope

C54 of the LCR covers the collateral swaps. Should this template should only include transactions undertaken by the liquidity management function that are reported in the assets template.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2014_717 | Topic: Supervisory reporting - Liquidity (LCR, NSFR, AMM) | Date of submission: 08/01/2014 | Date of publication: 27/06/2014

Reporting on own funds and own funds requirements - Exposure value calculation

What is the correct calculation of the exposure value of non-trading book, non-derivative and non- repostyle exposures for the purposes of STA (Art 111) and large exposures (Art 389)? More specifically, are Additional Value Adjustments (AVA) according to Art 34 deducted?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_694 | Topic: Supervisory reporting - COREP (incl. IP Losses) | Date of submission: 27/12/2013 | Date of publication: 27/06/2014

Netting of DTAs and DTLs

1. For the purposes of netting DTAs and DTLs, Art. 38 (5) Regulation (EU) No 575/2013 (CRR) requires a pro rata allocation of DTLs between DTAs which are below the 10%-threshold mentioned in Art. 48 (1) (a) CRR and all other DTAs, which rely on future profitability. With this requirement, it seems that institutions are not permitted to net DTAs and DTLs before they enter into the threshold treatment (as the pro rata relation for the allocation of DTLs has to be fixed already based on those which are below the threshold), which seems to be different from the rules as set out in the Basel III framework. Could the EBA or the EU Commission confirm that Art. 38 (5) CRR indeed requires a different procedure for allocating DTLs to DTAs which rely on future profitability than the one set out in the Basel III text? 2. If the above understanding of the CRR text is confirmed, could the EBA or the EU Commission clarify whether the 10% basket mentioned in Art. 48 (1) CRR may only be filled with gross DTAs or whether an iterative calculation is permissible under the CRR? 3. If the suggested iterative calculation is permissible, we also seek clarification on how and at which point the proportion between the DTLs that may be allocated to DTAs related to temporary differences and those that may be allocated to other DTAs relying on future profitability is established. 3. If the suggested iterative calculation is permissi-ble, we also seek clarification on how and at which point the proportion between the DTLs that may be allocated to DTAs related to temporary differences and those that may be allocated to other DTAs relying on future profitability is established.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2014_980 | Topic: Own funds | Date of submission: 21/03/2014 | Date of publication: 27/06/2014

Allocation of loans and advances secured by more than one type of collateral in F 05.00 Breakdown of loans and advances by product

In FINREP table F5. “Breakdown of loans and advances by product” the carrying amount of mortgage loans and other collateralized loans shall be reported in row 090 and row 100. If loans and advances are simultaneously secured by more than one type of collateral, for example secured by immovable property and other collateral, then how they shall be reported?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_685 | Topic: Supervisory reporting - FINREP (incl. FB&NPE) | Date of submission: 20/12/2013 | Date of publication: 27/06/2014

Template 5 - Missing Validation Rule

German Question (Deutsche Frage): Während die nun verbal formulierte Zuordnung der “balances receivable on demand classified as cash balances at central banks“ zu Tabelle 5 (alt 9) in den alten Validation Rules ausdrücklich als Formelbezug angegeben war (F 09.00, r010, c010 = F 01.01, r030, c010), ist diese Verbindung in den aktuellen Validation Rules nicht mehr angegeben. Wie ist dies zu interpretieren? English Question: Whereas the now verbally formulated assignment of the ‘balances receivable on demand classified as cash balances at central banks’ to table 5 (prev. 9) was given expressly as a formula in the old validation rules (F 09.00, r010, c010 = F 01.01, r030, c010), this connection is no longer given in the current validation rules. How should this be interpreted?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_607 | Topic: Supervisory reporting - FINREP (incl. FB&NPE) | Date of submission: 02/12/2013 | Date of publication: 27/06/2014

Supervisory Reporting (FINREP templates), 40.1 Group structure: “entity-by-entity”

There are two columns Accounting treatment (Accounting Group) and Accounting treatment (CRR Group) with three possibilities to note something. Accounting Group (full consolidation, proportional consolidation, equity method); CRR Group (full integration, proportional integration, equity method). How should institutions deal with the situation that the respective entity is not in both scopes of consolidation => What should note in this case?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_574 | Topic: Supervisory reporting - FINREP (incl. FB&NPE) | Date of submission: 27/11/2013 | Date of publication: 27/06/2014