Skip to main content
European Banking Authority logo
  • Extranet
  • Log in
  • About us
    Back

    About us

    The EBA is an independent EU Authority.  We play a key role in safeguarding the integrity and robustness of the EU banking sector to support financial stability in the EU.

    Learn more
      • Mission, values and tasks
      • Organisation and governance
        • Governance structure and decision making
        • EBA within the EU institutional framework
        • Internal organisation
        • Accountability
      • Legal and policy framework
        • EBA regulation and institutional framework
        • Compliance with EBA regulatory products
      • Sustainable EBA
      • Diversity and inclusion
      • Careers
        • Vacancies
        • Meet our team
      • Budget
      • Procurement
    Close menu panel
  • Activities
    Back

    Activities

    To contribute to the stability and effectiveness of the European financial system, the EBA develops harmonised rules for financial institutions, promotes convergence of supervisory practices, monitors, and advises on the impact of financial innovation and the transition to sustainable finance.

    Start here
      • Single Rulebook
      • Implementing Basel III in Europe
      • Supervisory convergence
        • Supervisory convergence
        • Supervisory disclosure
        • Peer Reviews
        • Mediation
        • Breach of Union Law
        • Colleges
        • Training
      • Direct supervision and oversight
        • Markets in Crypto-assets
        • Digital operational resilience Act
      • Information for consumers
        • National competent authorities for consumer protection
        • How to complain
        • Personal finance at the EU level
        • Warnings
        • Financial education
        • National registers and national authorities responsible for handling complaints related to credit servicers
        • Frauds and scams
      • Research Workshops
      • Ad hoc activities
        • Our response to Covid-19
        • Brexit
    Close menu panel
  • Risk and data analysis
    Back

    Risk and data analysis

    To ensure the orderly functioning and stability of the financial system in the European Union, we monitor and analyse risks and vulnerabilities relevant for the regulation of banks and investment firms. We also facilitate information sharing among authorities and institutions through supervisory reporting and data disclosure.

    Learn more
      • Risk analysis
        • 2024 EU wide transparency exercise
        • EU-wide stress testing
        • Risk monitoring
        • Thematic analysis
      • Remuneration and diversity analysis
      • Reporting frameworks
        • Reporting Time Traveller
        • DPM data dictionary
      • Data
        • Registers and other list of institutions
        • Guides on data
        • Aggregate statistical data
        • Secondary reporting: data from Competent Authorities to the EBA
        • Data analytics tools
    Close menu panel
  • Publications and media
    Back

    Publications and media

    Communicating to all our audiences in the most effective way and using the most appropriate channels is crucial for us. Through our publications, announcements, and participation in external events, we are committed to reaching out to all our stakeholders to report about our policies, activities, and initiatives.

    Learn more
      • Publications
        • Guidelines
        • Regulatory Technical Standards
        • Implementing Technical Standards
        • Reports
        • Consultation papers
        • Opinions
        • Decisions
        • Staff papers
        • Annual reports
      • Press releases
      • Speeches
      • Interviews
      • Events
      • Media centre
        • Media gallery
        • Media resources
    Close menu panel

Breadcrumb

  1. Home
  2. Single Rulebook Q&A
  3. 2020_5074 Treatment of unfunded default fund contributions.
Question ID
2020_5074
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Leverage ratio
Article
Articel 429
Paragraph
10
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Delegated Regulation (EU) 2015/62 - DR with regard to the leverage ratio
Article/Paragraph
-
Name of institution / submitter
German Banking Industry Committee
Country of incorporation / residence
Germany
Type of submitter
Industry association
Subject matter
Treatment of unfunded default fund contributions.
Question
How should unfunded default fund contributions facing Qualifying and Non-qualifying CCPs be treated for leverage purposes?
Background on the question
Unfunded default fund contributions denote contributions that an institution acting as a clearing member has contractually committed to provide to a CCP after the CCP has depleted its funded default funds to cover losses the CCP incurs following the default of one or more of its clearing members. Treatment of unfunded default fund contributions facing Qualifying CCPs: Unfunded default funds facing Qualifying CCPs are not captured for RWA purposes. For Qualifying CCPs only pre-funded default funds are considered as risk positions in Articles 308 and 310. Also the fact that the definition of unfunded default funds is included in Article 309 that only applies for Non-qualifying CCPs demonstrates that unfunded default funds are not considered as a risk position with respect to Qualifying CCPs. In order to be recognised as off-balance sheet risk position, an item would need to be assigned to one of the risk categories in Annex 1. In the context of unfunded default funds facing Qualifying CCPs, neither the CRR nor the respective Basel papers refer to off-balance sheet risk positions. Also the fact that the CRR requirements of Articles 300 to 311 “Own funds requirements for exposures to a central counterparty” are included in Part 3 Title II Chapter 6 “Counterparty credit risk” implies that these exposures should not be recognised as off-balance sheet risk positions. For leverage purposes the EBA Q&A 2016_3014 provides that default funds that are recorded as an asset on the balance sheet should be reported as “other assets” and that for default funds that are considered as off-balance sheet items per the solvency framework the amount determined based on the solvency framework should be reported as an off-balance sheet item. As unfunded default funds facing Qualifying CCPs are not classified as off-balance sheet risk positions in the solvency framework and no amount is determined, they are not included in the leverage exposure. This treatment is also consistent with our understanding of the regulatory intention. In order to promote central clearing the regulatory framework on both the international level as well as the CRR define various explicit beneficial treatments for Qualifying CCPs such as the exclusion of trade exposures from the CVA risk capital charge or the exclusion of trade and default fund exposures from the large exposure limit. If unfunded default contributions facing Qualifying CCPs would be included in the leverage exposure, clearing brokers would be forced to include the charge for the implied cost of leverage usage in their clearing fees to the customers. This would run counter to the regulatory objective of promoting clearing via Qualifying CCPs and reducing the cost of clearing. Treatment of unfunded default fund contributions facing Non-qualifying CCPs: The situation is different for unfunded default funds facing Non-qualifying CCPs. Unfunded default funds are defined in Article 309, i.e. specifically for Non-qualifying CCPs. In addition unfunded default funds facing Non-qualifying CCPs are explicitly captured for RWA purposes. RWA is determined as the product of 1.2, 1,250% and the notional of the unfunded default fund. Accordingly unfunded default funds facing Non-qualifying CCPs – although not explicitly referred to as off-balance sheet risk positions in the CRR – are treated analogously to off-balance sheet risk positions for RWA purposes and should consequently be captured also in the leverage exposure to provide for consistency of regulatory guidance in regards to capital items (i.e., RWA and leverage ratio). This treatment is also consistent with EBA Q&A 2016_3014 as unfunded default funds facing Non-qualifying CCPs are for RWA purposes treated analogously to off-balance sheet risk positions subject to a conversion factor of 100%.
Submission date
06/01/2020
Status
Question under review
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.

Footer

EUROPEAN BANKING AUTHORITY

Our mission is to contribute to the stability and effectiveness of the European financial system through simple, consistent, transparent, fair regulation and supervision that benefits all EU citizens.


UE logoAn agency of the EU

EU Agencies Network logoEU Agencies Network

EMAS logoSustainable EBA

Contact us

  • Contacts
  • Ask a general question
  • Send a press query
  • Ask a regulatory question
  • File a complaint
  • Whistleblower reports

Stay up to date with our work

  • Subscribe to our email alerts
  • News & press RSS feed

Follow us on Social media

  • Bluesky
  • LinkedIn
  • X
  • YouTube

Find out about us

  • The EBA at a glance
  • Vacancies
  • Privacy policy
  • Legal notice
  • Cookies policy
  • Frauds and scams

Explore related sites

  • EIOPA
  • ESMA
  • ESRB
  • CEBS archive