1) What is the definition of the term “exposure” in Article 133 (3) CRD IV? What is the base for the calculation of systemic risk buffer requirement? In case systemic risk buffer applies to all exposures regardless the location of the exposure, is it total risk weighted exposure according to Article 92 (3) CRR? How should the systemic risk buffer be computed by the institution, since there is no further guidance? What is the definition for „exposures located in the Member State that sets that buffer“?
Is the term „exposure“ referring to:
- (credit) exposures according Article 111 of Regulation 575/2013
- (credit) risk weighted exposures according to Article 113 of Regulation 575/2013
- the subset of aforementioned, for example relevant credit exposures according to Article 140(4)
- total risk exposure according to Article 92 (3) of Regulation 575/2013
- or otherwise?
2) What is the definition of term „located in the Member State“. Can the guidance introduced in DR No 1152/2014 be applied also for systemic risk buffer, although it is issued primarily for countercyclical capital buffer?
And in case the systemic risk buffer applies to all exposures located in the Member State that sets systemic risk buffer, but does not apply to exposures outside the Member State, how the systemic risk buffer requirement should be calculated? Does the term “exposures located in the Member State” include only credit exposures located in the Member state following CCyB treatment in article 140 (4) CRD? Or under the term “exposures” shall be included also exposures to other risks (e.g. operational risk)?
With regard to the part of Article 133(3) CRD according to which “institutions may be required to maintain, in addition to the Common Equity Tier 1 capital maintained to meet the own funds requirement imposed by Article 92 of Regulation (EU) No 575/2013, a systemic risk buffer of Common Equity Tier 1 capital of at least 1 % based on the exposures to which the systemic risk buffer applies”, we seek closer guidance for the case where systemic risk buffer is applied, in comparison with the calculation of countercyclical buffer in article 140 CRD IV.
Our competent authority decided to introduce a systemic risk buffer. This buffer has been applied only to domestic exposures (according the first part of Article 133(8): „The systemic risk buffer may apply to exposures located in the Member State that sets that buffer“).
Example: Systemic risk buffer is set as 1%, and is applied only to domestic exposures. total risk weighted assets of the institution =1200, of which: operational risk weighted assets = 100 and credit risk weighted assets = 1100, of which credit risk weighted assets allocated in home country = 800 (following methodology in DR No. 1152/2014) According to us, the requirement for the systemic risk buffer is: systemic risk buffer rate * (credit risk weighted assets allocated in home country / credit risk weighted assets) * total risk weighted assets of the institution = 1% * (800 / 1100) * 1200 = 8,73
Art 133(3) CRD IV stipulates that the exposures to which the Systemic Risk Buffer (SRB) may apply are those identified in the institution's calculation of the own funds requirement imposed by Article 92 of Regulation (EU) No 575/2013 (CRR). This is clear from the text provision as the SRB is to be applied "in addition" to this own funds requirement and is to be "at least 1%" of the exposures to which the SRB applies. Moreover, Articles 133(3) and 133 (8) refer to "exposures", without indicating the type of risk giving rise to such exposures. The SRB is not envisaged by the legislator to be applied beyond the geographical scope set out in Article 133(8) CRD IV (the SRB may be applied by a Member State either to all domestic exposures, or to all exposures in another Member State or to all exposures in a third country, or any combination of them).
The basis for the calculation of the exposures to which the SRB is applied should be the total risk exposure amount according to Article 92(3) CRR (which is based on risk weighted exposure amounts).
When it is referred to SRB being applied only to "exposures" located in the Member State that sets the buffer, it should be clarified that the basis for the SRB calculation is the total risk exposure amount related to that Member State. Institutions shall assess their risk weighted exposure amount according to the risk categories in Article 92(3) CRR and allocate it to the relevant geographic location. The criteria set forth by DR No 1152/2014 should not be used in order to assess risks other than credit risk. However, they may be used only as guidance when allocating credit risk exposures.
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 Directive 2013/36/EU (CRD).