2015_2309 Capital buffer for other systemically important institutions

Question ID:

2015_2309

Legal Act:

Directive 2013/36/EU (CRD)

Topic:

Other issues

Article:

131

Paragraph:

COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:

Not applicable

Article/Paragraph:

n.a.

Disclose name of institution / entity:

Yes

Name of institution / submitter:

Central Bank of Malta

Country of incorporation / residence:

Malta

Type of submitter:

Competent authority

Subject Matter:

Capital buffer for other systemically important institutions

Question:

If an other systemically important institution (O-SII) is the subsidiary of either a global systemically important bank (G-SII) or of an O-SII which are established in another Country and the latter is subject to an O-SII capital buffer on a consolidated basis, can a national authority set a capital buffer for the O-SIIs at subsidiary level exceed 1% provided it remains below the rate of the capital buffer at group level and the 2% cap of Article 131(5)? Also, does Article 131(8)(a) CRD refer to 1% of the total risk exposure amount (TREA) of the subsidiary or of the group at consolidated level?

Background on the question:

According to Article131(5) CRD the competent authority may require each O-SII, on a consolidated or sub-consolidated or individual basis, to maintain an O-SII buffer of up to 2 % of the total risk exposure amount (TREA) calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013. Article 131(8) CRD further states that, without prejudice to Article 133 and Article 131(5), where an O-SII is a subsidiary of either a G-SII or an O- SII which is an EU parent institution and subject to an O-SII buffer on a consolidated basis, the buffer that applies at individual or sub-consolidated level for the O-SII shall not exceed the higher of: (a) 1% of the total risk exposure amount calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013; and (b) the G-SII or O-SII buffer rate applicable to the group at consolidated level. It is unclear whether a subsidiary O-SII can be subject to an O-SII buffer that is higher than 1%. Furthermore, it is also unclear whether Article 131(8)(a) CRD refers to 1% of the TREA of either the subsidiary or the group, on a consolidated level.

Date of submission:

22/09/2015

Published as Final Q&A:

01/04/2016

Final Answer:

In accordance with Article 131(8) of Directive EU 2013/36/EU (CRD) a national authority may set a capital buffer for an O-SII at subsidiary level that shall not exceed the lower of:

the sum of the higher of the G-SII or the O-SII buffer rate applicable to the group on a consolidated basis and 1 % of its total risk exposure amount (TREA) calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013 (CRR); and
3% of the TREA amount calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013 (CRR) or the rate the Commission has authorised to be applied to the group on a consolidated basis in accordance with paragraph 5a of Article 131 CRD.

Article 131(8) CRD also clarifies that the above levels of the buffer rates refer to the TREA that applies on an individual or sub-consolidated basis.

~~1% of its total risk exposure amount (TREA), provided it does not exceed the rate of the G-SII or O-SII capital buffer at group level. In detail, two different scenarios can be distinguished:~~

1) the group in Country A is subject to the requirements of a G-SII or O-SII buffer of 1% or lower and its O-SII subsidiary in Country B has also been designated as O-SII on a solo (or sub-consolidated) level. In this case the O-SII buffer requirement in Country B cannot be set higher than 1% of the TREA of the subsidiary in Country B, according to the conditions of Article 131(8);

2) the group in Country A is subject to the requirements of G-SII or O-SII buffer higher than 1% and its subsidiary in Country B has also been designated as O-SII on a solo (or sub-consolidated) level. In this case the O-SII buffer requirement in Country B can be set up to the buffer rate of the group at consolidated level, according conditions of Article 131(8)(a).
Article 131(8)(a) CRD refers to 1% of the TREA of the subsidiary in country B while Article 131(8)(b) applies the buffer rate at consolidated level of the group in country A to the TREA of the subsidiary in country B.

Status:

Final Q&A

Answer prepared by:

Answer prepared by the EBA.

Note to Q&A:

Update 26.03.2021: This Q&A has been updated in the light of the changes introduced to Directive 2013/36/EU (CRD).