Due to specificities of the business model of some institutions, exclusions according to Article 5(1) of the Delegated Regulation (EU) 2015/63 may result in negative amount of total liabilities (excluding own funds) less covered deposits (contribution base according to Article 103(2) BRRD).
Could you confirm that the approach in which the contribution base is floored to zero is correct in such cases?
The problem of negative value of total liabilities occurs with regards to contributions of institutions with high amount of exclusions (provided for in Article 5(1-2) of the DR 2015/63) in proportion to their balance sheets.
According to Article 5(2) of the DR 2015/63 certain intragroup liabilities (Article 5(1)(a)) and liabilities stemming from transactions between members of the institutional protection schemes (Article 5(1)(b)) should be evenly deducted by all parties of the transactions. According to EBA Q&A 2015_1893 the deductions are applicable to all parties of a transaction, also to parties which book such transaction as an asset.
As a result, especially in case of institutions which benefit from deductions mostly due to transactions recorded on the asset side of the balance sheet, total liabilities less own funds less covered deposits less exclusions provided for in Article 5(1) of the DR 2015/63 may be lower than zero (negative value).
This issue is relevant in particular for small cooperative banks that are members of institutional protection schemes.
Due to the fact that the DR 2015/63 does not set limitations to the use of exclusions described in Article 5(1), we currently apply these exclusions to all institutions that meet the criteria stipulated in Article 5(1) of the DR 2015/63 to the calculation of contributions to resolution financing arrangement of banks and investment firms. If, as a result, the contribution base calculated according to Article 5 of the DR 2015/63 is lower than zero (negative value), we apply a “zero” floor. Institutions with “zero” contribution base do not pay the contribution in relevant contribution period.
Since the DR 2015/63 does not set limitations to the use of exclusions described in Article 5(1), negative contribution base may indeed be lower than zero. In such cases “zero” floor should be applied automatically. This would mean that institutions with negative contribution base should be treated as having “zero” contribution base.