Question ID
2016_3055
Legal act
Directive 2013/36/EU (CRD)
Topic
Other issues
Article
130, 140
Paragraph
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Type of submitter
Credit institution
Subject matter
Basis of risk exposures to take in consderation for calculation of the countercyclical buffer (CcyB)
Question

Should the risk exposure basis to take in consideration for calculation of CCyB be limited to the "relevant exposures" (as defined in Article 140(4) of Directive 2013/36/EU (CRD)) which are considered for assessment of the institution-specific CCyB rate?

Background on the question

Any other interpretation - ie including also the "non relevant exposures" in the calculation basis- would lead to requiring CCyB also on those non relevant exposures. As an illustration, take the extreme example of a bank having only 2 risk weighted assets (RWA) : a) EUR 100.000.000 on a Belgian bank (non relevant exposure, in addition on a country with 0% CCyb rate) ; b) EUR 100 on a Norwegian retail client (relevant exposure, on country with CCyB rate 1.5%) -> the institution-specific CCyB rate is in this case 1.5% (ie 1.5%*100/100) -> the CCyB required to cover the exposure on the Norwegian retail client should be EUR 100*1.5% = EUR 1.5 -> however , if applied to total RWA, CCyB would be EUR 100.000.100*1.5% = EUR 1.500.001.5 -> hence, the bank's capital requirement in respect of its (non relevant + on country with CCyB rate 0%) Belgian interbank exposure would be increased by EUR 1.5mio, due to presence of the tiny and completely uncorrelated other exposure on a Norwegian retail client!? Such calculation would appear completely inconsistent and beyond the scope of CCyB, which as we understand is to require extra capital cover on -and only on- specific relevant exposures of countries having opted for non 0% CCyb rate (Sweden and Norway at this point).

Submission date
Final publishing date
Final answer

Following Article 130(1) of Directive 2013/36/EU (CRD) the institution-specific countercyclical capital buffer is calculated by multiplying the total risk exposure amount (TREA) with the weighted average of the countercyclical buffer rates (i.e., the institution specific CCyB rate) as calculated in accordance with Article 140 CRD on an individual and on a consolidated basis, as applicable in accordance with Title II, Part One of Regulation (EU) No 575/2013 (CRR).

The TREA is defined by Article 92(3) of Regulation (EU) No 575/2013 (CRR) and is not limited to the relevant exposures in the sense of Article 140(4) CRD.The weighted average of the countercyclical buffer rate is calculated in accordance with Article 140(1) subparagraph 2 CRD. The institution-specific countercyclical capital buffer should consist of Common Equity Tier 1 capital.

The weighted average of the countercyclical buffer rate is calculated in accordance with Article 140(1) subparagraph 2 CRD. It is calculated by multiplying the each applicable country specific countercyclical buffer rate with to the ratio between the total own funds requirements that relate to the  for credit risk relating to the ‘relevant credit exposures’ (Article 140(4) CRD) in the country of question and  the total own funds requirements that relate to all relevant credit exposures relevant for the calculation of the countercyclical buffer as referred to in for the territory in question divided by of the total own funds requirements for credit risk relating to all relevant credit exposure’ (Article 140(4) CRD).

Example: Institution has relevant exposure in three countries

BE: TREA 500, CCyB = 0%, total own fund capital requirement for relevant exposures = 40
NO: TREA 750, CCyB = 1.5%, total own fund capital requirement for relevant exposures = 60
SE: TREA 1000, CCyB = 0.5%, total own fund capital requirement for relevant exposures = 80
(TREA in BE, NO and SE consist only of relevant exposures)
and a total TREA = 5000 (Article 92(3) of Regulation (EU) No 575/2013 (CRR)

1. TREA ‘to all of its relevant exposure’ (Article 140(1) CRD) => 500+750+1000 = 2250.
Thus total own funds requirement for credit risk that relates to all of its relevant credit risk exposures = 40 + 60 + 80 = 180

2. ‘Weighted average’ (Article 140(1) CRD)=> ((40*0)+(60*0.015)+(80*0.005)) / (40+60+80) = 0.72%

3. CCyB => 0.72%*5000 = 36 (Article 130(1) CRD)

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 updated in the light of the changes introduced to Directive 2013/36/EU (CRD).

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.