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Inclusion of additional value adjustments in the IRB treatment of expected loss

In CRR article 159 we read the following: "Institutions shall subtract the expected loss amounts calculated in accordance with Article 158 (5), (6) and (10) from the general and specific credit risk adjustments and additional value adjustments in accordance with Articles 34 and 110 and other own funds reductions related to these exposures." Due to the wording and the grammatical structure of the above sentence we are having doubts as to which amounts should actually be used in the IRB treatment of expected losses.

Application transitional provisions: Deduction half from Tier 1 and half from Tier 2

The residual amount of specific items (e.g. point (d) of Article 36(1) CRR) shall be deducted half from Tier 1 items and half from Tier 2 items during transitional provisions (see for example 472 (6) and (11) CRR). Please specify the calculation logic to be considered by CRR users.

Calculation of the threshold deductions (from CET1) during the transitional period

In calculating the threshold deductions from Common Equity Tier 1 during the transitional period [Article 470] should the following items be fully or partially deducted from Common Equity Tier 1 according to the national discretion phase-in and/or filter? (i.e. should the “transitional period threshold” be exactly equal to the “full application threshold” or the former should be determined considering the national discretions phase-in/filter effects). More specifically: - Unrealized losses measured at fair value: in countries where national discretion rules provide [Article 467(2)] for a filter to not include in any element of own funds unrealised gains or losses on exposures to central governments classified in the “Available for Sale” category of EU-endorsed IAS 39, the Common Equity Tier 1 considered for the calculation of the threshold deductions during transitional period should be determined with or without those specific unrealized losses measured at fair value? - Loss carry forward: in countries where national discretion rules provide for a phasing-in of loss carry forward deductions (deferred tax assets that rely on future profitability and do not arise from temporary differences) [Article 469 (1)], the Common Equity Tier 1 considered for the calculation of the threshold deductions during transitional period should be determined by subtracting all the loss carry forward or just the applicable percentage determined by the national authority? - Shortfall of expected losses to provision: in countries where national discretion rules provide for a phasing-in of shortfall of expected losses to provision deductions (negative amounts resulting from the calculation of expected loss amounts for IRB institutions) [Article 469 (1)], the Common Equity Tier 1 considered for the calculation of the threshold deductions during transitional period should be determined by subtracting all the shortfall of expected losses to provision or just the applicable percentage determined by the national authority?

Securities borrowing transactions within the LCR - inflows

How should to treat potential inflows regarding an unsecured securities borrowing transaction as they are not mentioned within Article 425 (2) of Regulation (EU) No 575/2013 (CRR) be treated.

Supervisory reporting of bonds issued by promotional banks

In its instructions on the EBA LCR Monitoring Exercise for the end-June 2013 and end-September 2013 data collection the EBA gives examples of promotional banks whose bonds can be reported in row 10 of the ‘LCR EU Only’ tab, if they are not already reported in section A of that exercise. In this context we would like to raise two questions: 1. Is the list of promotional banks given in the instructions exhaustive and also applicable for the reporting of these assets in Row 180 of the Liquid Assets template of COREP (C 51.00)? 2. Do bonds issued by promotional banks always have to be reported in row 180 of the respective template?

Effect on the capital requirement of a guarantee where the right to call is linked to default versus another where it is linked to realised loss

Let’s take a portfolio level guarantee that is callable once losses from the exposures covered have been realised (and NOT when exposures DEFAULT); realised losses decrease the notional of the guarantee. As it can take years till losses get realised after the default event, while losses are still unrealised (but defaults have happened) the full notional is used to cover the whole portfolio. Our question is whether such a guarantee is eligible to be taken into account as unfunded credit protection and thus decrease the capital requirement of the sub-portfolio it cover?

Treatment of SME-supporting factor in the case of secured exposures.

I. How should the SME-supporting factor be treated relating to secured exposures? a) Including all collaterals, i.e. also for guarantees. Thus risk weighted assets of inflow in asset class sovereigns or institutes will also be reduced? b) Only for those collaterals which cause no risk transfer (meaning which are intered directly in the RWA formula)? c) Only for the non-secured part of the exposure?II. General question when the SMR supporting factor can be used: a) To our understanding a risk transfer is only allowed in the case that the risk transfer is leading to a reduction of the RWA. Taking this into account it should always be compared “the total SME exposure with the supporting factor and without a risk transfer” to “the exposure with the SME supporting factor (only for the non-secured part) and the risk transfer without the supporting factor”. b) To consider the above mentioned point under II. a) it seems that banks under the IRB-A approach are by tendency favored as there is no risk transfer (e.g.in cases of a guarantee by a government) but the effect of the collateral is considered in the total LGD of the exposure.

Eligibility of capital instruments for classification as Common Equity Tier 1 instruments when the instruments are supplemented by a contractual obligation of the majority-holder of those instruments to pay compensation to the minority shareholders even in loss years

Paragraph 1 (I) (ii) of Article 28 Regulation (EU) No. 575/2013 (CRR) states that “the instruments are not secured, or subject to a guarantee that enhances the seniority of the claim by the parent undertaking of the institution”. The question is, whether a contractual obligation of the majority shareholder of a credit institution to pay a compensation to the minority shareholders even in loss years (by reason that the majority shareholder and the credit institution have entered into a profit and loss transfer agreement) is permissible according to paragraph 1 (I) (ii) of Article 28 CRR? In more general terms, what is the meaning of the word “claim” in paragraph 1 (I) of Article 28 CRR (claim only to the substance/equity of the credit institution, or also to a dividend or to a compensation payment or all)?

Minimum reserve requirement

What is the requirement to maintain the minimum reserve requirement within the LCR period, i.e. does the LCR have to be met for each of the 30 days in the stress horizon?