Question ID
2023_6739
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
430
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
.
Type of submitter
Credit institution
Subject matter
Display of provision during substitution approaches
Question

Due to the future application of the CRR3, the used of the IRB model will be limited.

As example, some expositions (Corporates SME especially) considered with IRB method (and so displayed in C08A – CR IRBA form in COREP), are currently guaranteed by an institution or a sovereign which are also today considered with the IRB method. With CRR3, the debtor will probably stay with the IRB method (so still displayed in CR IRBA form in COREP), but there will be an outflow to the CR SA because the Basel method of the guarantor will be standard model. There will be an inflow in CR SA to display the metrics of the expositions after taking into account the characteristics of the guarantor (CRM).

Around September 2021, we asked to your team, some precision about the “display of the provision during the substitution approach” under the reference 2021_6220.

Our question result from the Q&A 2017_3335 which confirm the possibility to apply the substitution approach when the exposure and the guarantor are treated by the institution under different basel methods.

Our Q&A has been rejected considering that the issue it deals with is already explained in section 3.1.1 of Annex II to Regulation (EU) No 2021/451 (ITS on Supervisory Reporting).

Without mistake of our part and conversely of your affirmation, we are still considering the display of the provision non taking into account by the Q&A 2017_3335.

For reminder, the display of the provision in COREP forms is different according to the Basel method applied:

  • The value is displayed in column 0020 of C07 - CR SA uses the Basel method of the debtor
  • Inversely for the C08 - CR IRB, the value is displayed in column 0290 (as memorandum item) uses the Basel method of the guarantor (if there is any)
Background on the question

    By this was, resulting to the substitution approach with a guarantor using a Basel method different of the one of the debtor, the provision is not displayed in some case, or displayed twice in others.

    There is here a resume of our issue:

    Substitution Approach

    Before CRM -> After CRM

    Display of provision according to his Approach

    Debtor IRB ->  Guarantor Standard

    • Not displayed in C08 - CR IRB
    • Not displayed in C07 - CR SA

    The provision is NOT displayed

    Debtor Standard  -> Guarantor IRB

    • Display in C07 - CR SA
    • Display in C08 - CR IRB

    The provision is displayed twice, i.e one in each report SA/IRB.

    May impact the computation of the report C04 in the computation of the IRB shortfall (line 0145)

    With CRR3, these cases will happened a lot more often, and not displaying (or displaying twice) the provisions doesn’t seems acceptable for us.

    Submission date
    Rejected publishing date
    Rationale for rejection

    This question has been rejected because it does not fulfil the formal criteria for submission. It was necessary to interpret the intention of the request, since the problem is not identified clearly. Also it does not include any question. 

    For further information on the purpose of this tool and on how to submit questions, please see 'Additional background and guidance for asking questions'.

    Status
    Rejected question