Question ID
2013_670
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Supervisory reporting - COREP (incl. IP Losses)
Article
99
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
Annexes I and II
Type of submitter
Credit institution
Subject matter
Material holdings and deferred tax below the deduction threshold
Question

Under article 48 CRR, material holdings and deferred tax assets that are below the 10% / 17.65% CET1 thresholds should be risk weighted at 250% (thus increasing capital requirements rather than being deducted from capital resources). However, there is nowhere on template CA2 to report these items, so where should we report them in order to increase our capital requirements accordingly? CA4 asks for the thresholds to be reported but there is nothing on that template that applies the risk weights or increases requirements.

Background on the question

Under article 48 CRR, material holdings and deferred tax assets that are below the 10% / 17.65% CET1 thresholds should be risk weighted at 250% (thus increasing capital requirements rather than being deducted from capital resources). However, there is nowhere on template CA2 to report these items, so where should we report them in order to increase our capital requirements accordingly? CA4 asks for the thresholds to be reported but there is nothing on that template that applies the risk weights or increases requirements.

Submission date
Final publishing date
Final answer

Under Article 48(4) of Regulation (EU) No. 575/2013 (CRR), the part of CET1 instruments of financial sector entities where the institution has a significant investment and of deductible deferred tax assets that rely on future profitability and arise from temporary differences, which is not deducted from CET1 pursuant to Article 48(1) of CRR shall be risk weighted at 250%. For reporting purposes, the amounts to be risk weighted at 250% are assigned to the relevant exposure classes and reported accordingly in the templates, taking into account the approach applied (SA, IRB).

CET1 instruments of financial sector entities where the institution has a significant investment that are risk weighted at 250% are direct, indirect and synthetic holdings of CET1 own funds instruments. As regards the standardised approach, Article 133(2) of CRR mentions equity exposures which a 250% risk weight is assigned to in accordance with Article 48(4) CRR. Consequently, CET1 instruments of financial sector entities where the institution has a significant investment that are risk weighted at 250% shall be reported in template C 07.00 (CR SA) of Annex I of Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) in the equity exposure class (and in the total exposure class).

Concerning the IRB approach, Article 155(1) CRR excludes equity exposures under Article 48(4) CRR from the approaches set out in Article 155 for equity exposures (simple risk weight, PD/LGD, internal models). However, paragraph 90 of Annex II of the ITS on Supervisory Reporting states that equity exposures attracting a fixed risk weight treatment – without however being explicitly treated according to the Simple Risk Weight approach or the (temporary or permanent) partial use of the credit risk standardised approach – shall also be reported in template C 10.01 of Annex I (CR EQU IRB). This refers to, among others, the equity exposures risk weighted at 250% under Article 48(4) of CRR. These shall be reported in row 110 “Equity exposures subject to risk weights”.

The reporting of deductible deferred tax assets that rely on future profitability and arise from temporary differences that are risk weighted at 250% is explained in Q&A 2013_390.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.

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