For the purpose of Article 5(3) of Commission Delegated Regulation (EU) 2015/63 the valuation of derivative contracts should be done in accordance with the methodology specified in Article 429(6) and (7) of Regulation (EU) No 575/2013 (CRR) [as amended by Commission Delegated Regulation (EU) 2015/62]. How should this methodology be applied when adjusting the liability side, i.e. derivative contracts with a negative market value?

When using mark-to-market method (Article 274 in CRR) for determining the exposure value, the institution sums up the current replacement cost and potential future credit exposure. When estimating the leverage ratio, the market value of the derivative contracts with a positive value equals the current replacement cost. Then the potential future exposure is added, which is the notional amount multiplied with a given percentage. There has been some uncertainty about the treatment of contracts with negative replacement costs when calculating the potential future exposure, but Single Rulebook Q&A Question ID 2013_611 states that “the add-on for the potential future credit exposure defined in Article 274(2) of the CRR has to be calculated for all contracts regardless of the current market value”. We would be certain that the calculation of the exposure value (current replacement cost + potential future credit exposure) is symmetrical when the method is applied to reevaluate the derivative contracts on the liability side (derivative adjustment of the basic annual contribution for the resolution fund).

The exposure value under the Mark-to market Method referred to in Article 274 of Regulation (EU) No 575/2013 (CRR) is "[t]he sum of current replacement cost and the potential future credit exposure..." (Article 274(4) CRR). For determining current replacement costs, institutions only consider contracts with a positive market value (Article 274(1) CRR) thus considering only the market value attached to derivatives, notwithstanding derivatives are assets or liabilities under applicable accounting GAAPs. Replacement costs for contracts with a negative market value are floored at zero.

In contrast, the add-on for the potential future credit exposure defined in Article 274(2) CRR has to be calculated for all contracts regardless of the current market value.

There is also no symmetrical treatment of derivatives on the asset and liabilities sides as asset and liabilities sides for accounting purpose is not considered for the Mark-to- Market method referred to in Article 274 CRR.