In the application of Article 127 CRR, should the credit risk adjustments embedded in the fair value be considered in the calculation of the percentage of the unsecured part of the exposure value represented by credit risk adjustments?
Article 1 of Commission Delegated Regulation 183/2014 indicates that the amounts required to be included in the calculation of general and specific credit risk adjustments should be equal to all amounts by which Common Equity Tier 1 capital has been reduced in order to reflect losses exclusively related to credit risk according to the applicable accounting framework and recognized as such in the profit or loss account, irrespective of whether they result from impairments, value adjustments or provisions for off-balance sheet items.
In this context, it is unclear whether value adjustments recorded according to the accounting framework for the valuation at fair value are recognized in the profit and loss account and consequently reduced the Common Equity Tier 1 capital.
With specific regard to exposures in default included in the standard portfolio, for the calculation of risk weights in accordance with Article 127 CRR, it would be worth clarifying whether the percentage of the unsecured part of the exposure value represented by credit risk adjustments would be calculated considering the credit risk adjustments included in the fair value calculation.
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