According to Art. 4 (1) No. 71 lit. b) of Regulation (EU) No. 575/2013 (CRR) eligible capital for the purposes of Part Four of the CRR is defined as the sum of Tier 1 capital according to Art. 25 of the CRR and Tier 2 capital as referred to in Art. 71 of the CRR that is equal to or less than one third of Tier 1 capital as calculated above. Consequently, an institution’s eligible capital for the purposes of Part Four of the CRR cannot exceed 4/3 of its Tier 1 capital.
Validation rule v6405_m states that an institution’s eligible capital for the purposes of large exposures which is reported in {C04.00; r226; c010} shall be equal to the minimum of 4/3 of an institution’s Tier 1 capital which is reported in {C01.00; r015; c010} or its total own funds reported in {C01.00; r010; c010}. If an institution does not have any Tier 2 capital, its total own funds equal the institution’s Tier 1 capital. Validation rule v6405_m states that in this case the eligible capital for the purposes of large exposures equals the total own funds rather than 4/3 of its Tier 1 capital because there is no Tier 2 capital which can be used to fulfill the capital requirements of Part Four of the CRR. In case an institution has some Tier 2 capital but less than 1/3 of its Tier 1 capital, validation rule v6405_m again states that the eligible capital for the purposes of large exposures equals the total own funds of the institution. Only in case an institution’s Tier 2 capital exceeds 1/3 of its Tier 1 capital the validation rule requires an institution to report only 4/3 of its Tier 1 capital as eligible for the purposes of large exposures. This is in line with the requirements as laid out in Art. 4 (1) No. 71 lit. b) of the CRR. Thus, the validation rule v6405_m is correct.