Question ID:
2015_1849
Legal Act:
Directive 2013/36/EU (CRD)
Topic:
Other issues
Article:
160
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
Not applicable
Disclose name of institution / entity:
Yes
Name of institution / submitter:
European Systemic Risk Board Secretariat
Country of incorporation / residence:
Germany
Type of submitter:
Other
Subject Matter:
Implementation of the provisions on the shorter transitional period for a countercyclical capital buffer, as provided under Article 160 of the Directive 2013/36/EU
Question:

What is the correct interpretation of Article 160 (6) and (7) of the Directive 2013/36/EU (CRD)?

Background on the question:

According to Article 162(2) CRD, the rules on the (countercyclical capital buffer) CCB in general, including on CCB rates, are applicable from 1 January 2016. In line with this, Article 160(1)-(4) CRD envisages phasing-in periods with respect to the maximum institution-specific CCB that institutions shall maintain from 1 January 2016 to 31 December 2018. Nonetheless, Article 160(6) CRD allows Member States to bring forward the CCB already from 31 December 2013, by imposing a shorter transitional period. This is, for instance, the case of the seven EU countries which have already currently set up the CCB. Article 160 (6) also explains what should happen in terms of recognition in this case. How are the transitional caps applied before and during the transitional period? How does this interact with reciprocity? Even though Article 160 (1)-(4) refers to the institution-specific buffer, when read in conjunction with Article 160(6) and (7), it is unclear what the CCB which would be frontloaded is. There are at least two possibilities: either the CCB rate or the institution-specific buffer. The article is ambiguous. As explained above, the ambiguity refers in particular to the interpretation of the reciprocity agreements in the so-called “shorter transitional period”, like for instance in 2015. However, it needs also to be clarified what will happen afterwards, in 2016 and until end of 2018, i.e. during the transitional period as such, without any frontloading. A provision about automatic mutual recognition under 2.5% will enter into force in 2016 according to CRD Article 162(2). However, it is also not clear whether such automatic reciprocation, when read in conjunction with Article 160(6) and (7), would be capped (0.625%; 1.25%; 1.875%) or not during the transition.

Date of submission:
23/02/2015
Published as Final Q&A:
30/04/2015
EBA Answer:

1. Imposition of a shorter transitional period by a Member State

Article 160(6) sentence 1 of Directive 2013/36/EU (CRD) allows Member States to impose a shorter transitional period than that specified in Article 160(1) to (4) CRD and thereby implement the countercyclical capital buffer from 31 December 2013. The provision has to be read in conjunction with Article 160(2) to (4) CRD which provides for a phasing-in of the institution-specific countercyclical capital buffer from 1 January 2016 to 31 December 2018. During this timeframe, the institution-specific countercyclical capital buffer shall not exceed certain caps, which increase annually (2016: 0.625%; 2017: 1.25%; 2018: 1.875%).

Hence, Article 160(6) sentence 1 CRD allows Member States to implement the institution-specific countercyclical capital buffer in their national transposing legislation already before 1 January 2016. The caps specified in Article 160(2) to (4) CRD do not apply in case of such early implementation, since Article 160(6) sentence 1 CRD provides full discretion as regards the duration of the shorter transitional period.

Example: Member State A imposes a shorter transitional period and its designated authority sets a countercyclical buffer rate of 1% applicable in 2015.

Institutions authorised in Member State A have to apply a buffer rate of 1% to their exposures towards clients located in this Member State.

2. "Recognition of a shorter transitional period" by other Member States

Article 160(6) sentence 3 CRD provides that such a shorter transitional period may be recognised by other Member States.

In the context of the institution-specific countercyclical capital buffer, the concept of "recognition" refers to the recognition of buffer rates. In case of recognition, institutions authorised in the recognising jurisdiction have to apply the recognised buffer rate to exposures towards clients located in the Member State setting the rate when calculating their institution-specific countercyclical capital buffer rate. The recognition regime for countercyclical buffer rates pursuant to Article 137 et seq. CRD encompasses automatic mutual recognition of rates up to 2.5% set by designated authorities of Member States and a possible voluntary recognition for countercyclical buffer rates exceeding 2.5%.

Against this background, Article 160(6) sentence 3 CRD empowers Member States to voluntarily recognise the buffer rate set in another Member State which has accelerated the implementation of the institution-specific countercyclical capital buffer. It is clarified by Article 160(7) CRD that in case of early implementation, the concept of automatic mutual recognition (see Article 140(1) CRD) does not apply.

As set out above, the caps pursuant to Article 160(2) to (4) CRD are not applicable to the Member State making use of accelerated implementation.

Example: Member State A imposes a shorter transitional period and its designated authority sets a countercyclical buffer rate of 1% applicable in 2015

Member State B recognises the "shorter transitional period" imposed by Member State A. Institutions authorised in Member State B have to apply the buffer rate of 1% to exposures towards clients located in Member State A when calculating their institution-specific countercyclical capital buffer rate.

Member State C does not recognise the "shorter transitional period" of Member State A in 2015. Institutions authorised in Member State C do not have to apply the rate set by Member State A.

3. Recognition from 1 January 2016 until 31 December 2018

While Article 160(6) CRD explicitly addresses recognition in the case of implementation before 1 January 2016 (see above), there is no specific provision as regards how recognition of buffer rates applies from 1 January 2016 until 31 December 2018.

The provisions on the institution-specific countercyclical capital buffer, including the rules on recognition, generally apply from 1 January 2016 (Article 162(2) CRD). However, they are modified pursuant to Article 160(2) to (4) CRD in the sense that from 1 January 2016 until 31 December 2018, automatic mutual recognition only applies within the limits of Article 160(2) to (4) CRD. Unless a Member State has voluntarily recognised a buffer rate exceeding the applicable cap, institutions authorised in its jurisdiction are only obliged to apply buffer rates within the limits of Article 160(2) to (4) CRD to exposures towards clients located in other Member States.

This may be derived from Article 160 (1) to (4) CRD in conjunction with Article 160 (6) and (7). Due to the possibility of early implementation pursuant to Article 160(6) CRD, Article 160(2) to (4) provides in essence a transitional scheme for automatic mutual recognition with a view to only gradually allowing Member States to "impose" buffer rates on banks authorised in other Member States (cf. Article 160(7) CRD).

Examples:

The designated authority in Member State A sets a countercyclical buffer rate of 1% applicable in 2016

Member State B voluntarily recognises the buffer rate. Institutions authorised in Member State B have to apply the buffer rate of 1% to exposures towards clients located in Member State A when calculating their institution-specific countercyclical capital buffer rate.

Member State C does not recognise the buffer rate. In 2016, institutions authorised in Member State C have to apply a buffer rate of 0.625% to exposures towards clients located in Member State A when calculating their institution-specific countercyclical capital buffer rate (as the applicable cap in 2016 is 0.625% pursuant to Article 160(2) CRD). If the buffer rate set in Member State A stays the same in 2017, the institutions authorised in Member State C are obliged to apply a buffer rate of 1% to exposures towards clients located in Member State A (as the applicable cap in 2017 is 1.25% pursuant to Art 160(3) CRD).

The designated authority in Member State A increases the countercyclical buffer rate from 1% to 2% for 2017

Member State B may continue to voluntarily recognise the buffer rate. In this case, institutions authorised in Member State B have to apply the buffer rate of 2% to exposures towards clients located in Member State A in 2017. If Member State B, however, does not recognise the new buffer rate, the institutions are only obliged to apply a buffer rate of 1.25% to their exposures towards clients located in Member State A (as the applicable cap in 2017 is 1.25% pursuant to Art 160(3) CRD).

Member State C does not recognise the buffer rate. Institutions authorised in Member State C are obliged to apply a buffer rate of 1.25% to exposures towards clients located in Member State A when calculating their institution-specific countercyclical capital buffer rate (as the applicable cap in 2017 is 1.25% pursuant to Art 160(3) CRD). If the buffer rate set in Member State A remains 2% in 2018, the institutions authorised in Member State C are obliged to apply a buffer rate of 1.875% to exposures towards clients located in Member State A (as the applicable cap in 2018 is 1.875% pursuant to Art 160(4) CRD).

Please see Table in attachment.

DISCLAIMER

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General 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.

Status:
Final Q&A
Answer prepared by:
Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Note to Q&A:

Update 26.03.2021: This Q&A has not yet been reviewed by the European Commission in the light of the changes introduced to Directive 2013/36/EU (CRD).

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