- Question ID
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2018_4364
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Market risk
- Article
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309
- Paragraph
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2
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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Not applicable
- Type of submitter
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Credit institution
- Subject matter
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Exposure amount for unfunded default fund contribution (UDFC)
- Question
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How should the exposure value of UDFC from an own fund requirement and from a leverage ratio perspective be calculated?
- Background on the question
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Article 309(2) CRR defines “unfunded contribution” as “contributions that an institution acting as a clearing member has contractually committed to provide to a CCP after the CCP has depleted its default fund to cover the losses it incurred following the default of one or more of its clearing members.”
The treatment of unfunded default fund contribution (UDFC) from the risk weight perspective is clearly described in Articles 307-310 CRR. The calculation of the exposure amount arising from the unfunded contributions to the default fund is however not detailed in CRR.
In practice the majority of the CCPs require to apply a multiplier on the pre-funded DFC to get the nominal amount of the UDFC.
At the same time, the UDFC is an off balance sheet item and thus a credit conversion factor (CCF) should apply on this nominal amount.
The counterparty credit risk chapter (Chapter 6 of Title II of Part Three) of CRR does not define such a CCF.
Chapter 2 of Title II of Part Three (standardized approach) and Chapter 3 of Title II of Part Three (internal rating based approach) of the CRR are not applicable with regard to the default fund contribution.
The question is also relevant from the Leverage ratio perspective.
EBA Q&A 3014 gives guidance in general on default fund contribution (without distinction of the pre-funded and unfunded parts) that it needs to be taken into account in the Leverage ratio framework.
However Article 429 CRR disregards the description of the exposure calculation of the UDFC. Its classification into the Full/Medium/Low risk items in Annex I of the CRR is also not detailed.
- Submission date
- Rejected publishing date
-
- Rationale for rejection
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Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.
If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.
For further information please refer to the press release and the updated Q&A page.
- Status
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Rejected question