Question ID
2014_819
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
284, 285
Paragraph
5, 1
Subparagraph
c
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
285
Name of institution / submitter
BaFin /Deutsche Bundesbank
Country of incorporation / residence
Germany
Type of submitter
Competent authority
Subject matter
Internal Model Method for counterparty credit risk: Determination of the effective expected exposure when the model captures the effect of margining (Article 285(1)(c))
Question

Article 285(1)(c) states that 'if the model captures the effects of margining when estimating EE, the institution may, subject to the permission of the competent authority, use the model's EE measure directly in the equation in Article 284(5).'

Does the adverb 'directly' mean that institutions have to calculate their Effective Expected Exposure (EEE) as

1.) EffectiveEEtk = max{EffectiveEEtk-1 , EEtkmargined}, i.e. just insert margined EEs in the equation in Art. 284 (5) or

2.) EffectiveEEtk = EEtkmargined, i.e. substitute the monotony operator by the margined EEs?

Background on the question

None

Submission date
Final publishing date
Final answer

If the model captures the effects of margining when estimating expected exposure (EE), the institution may, subject to the permission of the competent authority, calculate the Effective EE according to Article 284(5) of Regulation (EU) No 575/2013 (CRR) in the same way as if the netting sets were not subject to a margin agreement.

The word 'directly' in Article 285(1) of the CRR hence has to be read as set out in variant 1 of the question.

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

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.