This question is about the valuation of qualifying holdings outside the financial sector in order to determine whether the 15 % cap under Article 89 of Regulation (EU) No 575/2013 (CRR) is exceeded or not. It is also in relation with the phase out of unrealized gains measured at fair value under Article 468.

Unrealised gains can lead to a breach of the 15% cap in Article 89 - qualifying holdings outside the financial sector - and require a risk weighting of 1250% (equivalent to a deduction from capital) that can be much higher than the maximum potential economic loss e.g. the acquisition value of the holding. When applying Article 89 for the purpose of calculating the amount in excess of the 15% cap on the fair value amount of the holding, this would have a penalising effect on the capital ratios and the penalising effect would further increase with the appreciation of the market value and thus produce a counter-intuitive outcome.

In order to determine whether the 15% threshold under Article 89 of Regulation (EU) No 575/2013 (CRR) is exceeded, the valuation of qualifying holdings outside the financial sector should take into consideration the application of the prudential filter on unrealised gains in Article 468. This means that the accounting value of the qualifying holding, as well as the amount of eligible capital on which the 15% threshold is calculated, will need to be adjusted by the amount of the corresponding unrealised gains which have been derecognised. For instance, if 100% of the unrealised gains are derecognised from own funds, the entire unrealised gain should also not be included in the value of the qualifying holding and the amount of eligible capital for the purposes of this assessment.

DISCLAIMER:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Financial Stability, Financial services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.

Update 26.03.2021: This Q&A has not yet been reviewed by the European Commission in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).