Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Supervisory reporting - Asset Encumbrance
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Annex XVI and XVII
Disclose name of institution / entity:
Type of submitter:
Competent authority
Subject Matter:
Reporting of ceded assets, that are part of a cover pool, in asset encumbrance.

Shall cell F32.04, r100, c040 be opened?

Background on the question:

We propose to open cell F32.04, row 100 (Covered bonds), column 40 (Collateral received reused) in the Asset Encumbrance framework, as the following business case seems to be common among credit institutions:
Bank A, that is e.g. a subsidiary of bank B, extends a loan (loan_1). Bank A leaves the loan to bank B (e.g. by a cession). Note that this is not a true sale. Then, bank B issues a covered bond; loan_1 is part of the cover pool of the covered bond.
Thus, from bank B’s perspective, the transferred asset loan_1 is collateral received that is encumbered; source of encumbrance is the covered bond issued. Therefore, it should be reported in F32.04, row 100, column 40 in the individual reporting of bank B. Also, loan_1 shall be reported as part of the cover pool of the covered bond issued in template F35.00, even though it is no asset of the reporting institution.
In the consolidated reporting of bank B, loan_1 is reported as an asset instead of collateral received (assuming that the subsidiary bank A is fully consolidated).

Date of submission:
Published as Final Q&A:
Final Answer:

As stated in point 2.4.3 of annex XVII to the regulation 680/2014, column 40 of template F32.04 refers to the fair value of the collateral received that are re-used/encumbered as a result of the different type of transactions specified in the row s, as for instance, covered bonds issued (row 100).

As regards the business case, although Bank B obtained temporary legal title over Bank A’s securities, these securities remained recognised in Bank A’s balance
sheet since the accounting criteria for derecognition w ere not met and, for Bank B, such collateral represents a collateral received. Bank B could now obtain financing
from a third party (Bank C) by re-posting the collateral received from Bank A or issuing covered bonds (being loan_1 a part of its cover pool). Bank B would still
have to return equivalent assets w hen the original transaction w ith Bank A matures.

The re-use of collateral by Bank B w ould result in encumbrance of off-balance sheet collateral for Bank B. Therefore, r100, c040 from template F32.04, should
be opened.

Final Q&A
Answer prepared by:
Answer prepared by the EBA.