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Inclusion of year-end profit in Common Equity Tier1 Capital as of the end of first quarter of the following year.

Can the year-end profit (reduced by the expected burdens and dividends), after verification by persons independent of the institution that are responsible for the auditing of the accounts of that institution, be included in Common Equity Tier1 Capital of the institution as of the end of first quarter of the following year without the prior permission of the competent authority in the situation in which the General Meeting of Shareholders approves the financial statements with the year-end profit (and approves the dividend in the amount reducing the year-end profit in the calculation) before the issuing date of the first quarter financial statements, but after the date of first quarter reporting period?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_208 | Topic: Own funds | Date of submission: 03/09/2013

Possibility to remove a Tier 1's call options to make the securities Tier 2 compliant

Based on the answer to question 2013_16, if a step-up Tier 1 bond’s terms were changed (which had a call date in, say, 2016) so that all call options were removed, this could not prolong its grandfathering as Tier 1, if that were the sole rationale for removing the calls. However, if a removal of calls is to make the Tier 1 bonds count as eligible Tier 2 (as there is no call feature), then could they be reclassified as Tier 2?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_49 | Topic: Own funds | Date of submission: 08/07/2013

Uncollateralised stock borrowing (unsecured) Transactions

How should uncollateralised (unsecured) stock borrowing due with 30 days be reported? Such transactions will have an impact on the liquidity position of the institution: 1) If the securities borrowed qualify under Article 416(1) as liquid assets 2) If the securities borrowed do not qualify under Article 416 but have been re-pledged and used to raise funding for the institution with a maturity beyond 30 days 3) If the securities borrowed have been used to cover institution shorts.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_159 | Topic: Liquidity risk | Date of submission: 14/08/2013

IRB Approach

Regarding the IRB approach for the calculation of capital requirements for preventing credit risk, where should the weighting formula be applied? Is it contract by contract, or is it a weighted average of the probability of default (PD) and loss given default (LGD) for each pool and then apply the risk weight formula to this mean?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_144 | Topic: Credit risk | Date of submission: 09/08/2013

Transfer Restrictions

There is no definition within the Regulation of 'Transfer Restrictions' referred to in article 417(b) with regards to excess liquid assets in third countries

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_136 | Topic: Liquidity risk | Date of submission: 07/08/2013

Cash in CIUs and its impact on CIUs being treated as liquid assets

According to Article 416(65) of Regulation (EU) No 575/2013 (CRR) CIUs may be treated as liquid assets provided that, among other things, they only invest in liquid assets as referred to in Article 416(1). Typically CIUs hold cash to a certain extent (e.g. 1-10 %) in order to secure their liquidity. However, would it lead the shares or units in the CIU being ineligible for liquid assets if the CIU deposited the cash at another bank, because credit institutions are not included in Article 416(1)? Alternatively would the CIU have to hold the cash directly at the ECB (or inside a bank safe in cash) for being eligible?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_132 | Topic: Liquidity risk | Date of submission: 07/08/2013

Definition of ‘retail deposit’

How should liabilities to clients who have not been classified to any segment under the Standardised or Advanced IRB (AIRB) approach be treated? Those clients placed only deposits with the bank and therefore the bank does not have sufficient data to assign them to any segment.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_128 | Topic: Liquidity risk | Date of submission: 07/08/2013

SA - Retail Classification - EUR1 million limit

In the definition of the retail exposures it states "...excluding exposures fully and completely secured on residential property collateral that have been assigned to the exposure class laid down in point (i) of Article 112..." of Regulation (EU) No. 575/2013 (CRR). Does this mean that exposures that are in default but fully secured on residential property (meeting all minimum requirements and limits) are not excluded?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_72 | Topic: Credit risk | Date of submission: 23/07/2013

Grandfathering

Article 486(3)(c) of Regulation (EU) No 575/2013 (CRR) states: “the amount of instruments referred to in Article 484(4) which on 31 December 2012 exceeded the limits specified in the national transposition measures for point (a) of Article 66(1) and Article 66(1a) of Directive 2006/48/EC;..” is to be deducted from the amount eligible for inclusion.” This same rule is also applied for Tier 1 grandfathering under CRR. This in effect preserves the current Tier 2 restrictions. Because that amount is at an aggregate level i.e. not by instrument, how then are the individual instruments to be treated under CRR? Each instrument may have different terms including maturity and so how should aggregated restricted amount be spread across instruments?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_60 | Topic: Own funds | Date of submission: 12/07/2013

Old-style Tier 1 requalifying as CRR Tier 2 capital

When an old-style Tier 1 instrument with an incentive to call passes its step-up date and ceases to be recognised as grandfathered Tier 1 capital under Regulation (EU) No 575/2013 (CRR), can it qualify as Tier 2 capital going forward if it were to meet all the requirements of Article 63 of CRR? For many existing instruments, the quarterly calls following the first call date of the Tier 1 instrument would prevent the inclusion in Tier 2 capital under CRR. If an old-style Tier 1 instrument had the Issuer's Call entirely removed from the instrument's documentation by the Issuer or Trustee, could it theoretically requalify as Tier 2 if it met all the other provisions for Tier 2 capital (Article 63 etc) after the removal of the Call provision?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_46 | Topic: Own funds | Date of submission: 08/07/2013

Grandfathering, cascading and phasing out limits

In the case of an issuer whose outstanding Tier 2 instruments as at December 2012 are fully CRR compliant (ie bullet Tier 2 bonds), should Article 486(4) apply? To put it simply: can an issuer still have some disqualfied parts of Tier 1 instruments (for limit reasons) cascaded into Tier 2 even if the issuer has no phased out Tier 2 amount as at December 2012 (and hence no phased out limits for Tier 2) ?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_44 | Topic: Own funds | Date of submission: 08/07/2013

Recognised amount as regulatory capital for an Additional Tier 1 with a write-down mechanism

According to Regulation (EU) No 575/2013 (CRR) Article 54(3): “The amount of Additional Tier 1 instruments recognised in Additional Tier 1 items is limited to the minimum amount Common Equity Tier 1 items that would be generated if the principal amount of the Additional Tier 1 instruments were fully written down or converted into Common Equity Tier 1 instruments”. Given the fact that a write-down may be seen as a profit under local accounting GAAP, and hence taxable (NB: true should the issuer be supposed to pay taxes at this time. However, it is unlikely that the issuer records a profit at a time where a write-down is operated), one can think that the recognized amount as Additional Tier 1 at the issue date is the nominal amount less the foreseeable paid tax amount in case of write-down. What's the final view of EBA? Can the entire nominal issue amount be recognized as Additional Tier 1 at the issue date or only a reduced amount (i.e. the nominal amount - the foreseeable paid tax amount in case of write-down)?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_29 | Topic: Own funds | Date of submission: 05/07/2013

Grandfathering limit

Once applicable percentages in the range are specified by the local regulator, would it be applied: (1) at the beginning of the period; (2) at the end of the period or (3) on a straight-line basis throughout the 12 months period?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_30 | Topic: Own funds | Date of submission: 05/07/2013

Anerkennung der Kapitalrücklage "zugehörig zu" deutschen Vorzugsaktien als Kernkapital - Recognition as Tier 1 equity of share premiums related to German preference shares

Kapitalinstrumente dürfen gem. Art. 28 Abs. 1 Buchstabe h Ziffer i CRR keine Vorzugsbehandlung erfahren. In Ziffer vi wird bestimmt, dass keine Ausschüttungspflicht bestehen darf. Deutsche Vorzugsaktien genügen diesen Anforderungen bislang nicht, da sie einen nachzuzahlenden Vorzug beinhalten. Deswegen sind sie bislang als Ergänzungskapital nach KWG anerkannt. Die Kapitalrücklage "zugehörig zu" den Vorzugsaktien gilt bislang als Kernkapital. Gem. Artikel 26 Abs. 1 Buchstabe b soll nur das mit dem Kapitalinstrument verbundene Agio als Kernkapital gelten, d.h. die Kapitalrücklage die mit dem Ergänzungskapital "verbunden" ist, gehört gem. Art. 62 Buchstabe b mit Inkrafttreten der CRR zum 01.01.2014 zum Ergänzungskapital. Am 28. Juni 2013 hat der Deutsche Bundestag die Aktienrechtsnovelle beschlossen. Der Sechste Unterabschnitt des Aktiengesetzes (Vorzugsaktien ohne Stimmrecht) wird in § 139 dahingehend geändert, dass das Wort "nachzuzahlenden" gestrichen wird, somit also nur noch von "Aktien, die mit einem Vorzug bei der Verteilung des Gewinns ausgestattet sind" die Rede ist. Weiterhin muss die Satzung dahingehend geändert werden, dass der Vorzug nicht nachgezahlt wird. Damit dürften deutsche Vorzugsaktien grundsätzlich kernkapitalfähig sein. Die Reihenfolge der Ausschüttungen wird in Art. 28 Abs. 1 Buchstabe h Ziffer i der CRR ebenfalls ausgeschlossen. Dort steht: "es gibt keine Vorzugsbehandlung in Bezug auf die Reihenfolge der Ausschüttungen, auch nicht im Zusammenhang mit anderen Instrumenten des harten Kernkapitals, und in den für das Instrument geltenden Bestimmungen sind keine Vorzugsrechte für die Auszahlung von Ausschüttungen vorgesehen". Weiterhin steht in § 28 Abs. 4 CRR: Für die Zwecke des Absatzes 1 Buchstabe h Ziffer i dürfen Unterschiede bei der Ausschüttung nur Ausdruck von Unterschieden bei den Stimmrechten sein. Hierbei darf eine höhere Ausschüttung nur für Instrumenten des harten Kernkapitals vorgenommen werden, an die weniger oder keine Stimmrechte geknüpft sind." Zu der Bedeutung des Begriffs „Vozugsausschüttung“ gem. Art. 28 Abs. 5 Buchstabe c CRR soll die EBA einen technischen Regulierungsstandard erarbeiten. Im RTS 2013/01 (Own funds) habe ich diesbezüglich keine Besonderheiten gefunden. Sind deutsche Vorzugsaktien nach der Aktienrechtsnovelle kernkapitalfähig, so dass auch das Agio, das mit dem Instrument "verbunden" ist, im Kernkapital anerkannt werden kann? Translation to EN: Under Article 28(1)(h)(i) of CRR, there must be no preferential distribution treatment regarding the order of distribution payments in respect of Common Equity Tier 1 instruments. Item h(vi) specifies that there must be no obligation to pay distributions. German preference shares do not yet meet these requirements, because they entail a cumulative preferential distribution. For this reason they have hitherto been recognised as supplementary capital under the Banking Act (Kreditwesensgesetz). The capital surplus comprising German preference shares has always counted as Tier 1 equity. Under Article 26(1)(b) of CRR, only the share premium accounts related to the capital instrument are to be regarded as a Common Equity Tier 1 item, which means that, under Article 62(b), capital surplus ‘related to’ supplementary capital will be a Tier 2 item when the CRR enters into force on 1 January 2014. On 28.06.13, the Bundestag adopted a revision of company law. The sixth subsection of the Companies Act (Aktiengesetz), headed ‘Non-voting preference shares’, was amended in Section 139, the word ‘cumulative’ being deleted, leaving only a reference to ‘shares that carry the benefit of a preference right with regard to the distribution of profits’. In addition, the company’s instruments of incorporation must be amended to the effect that preferential distributions are not payable on a cumulative basis. This ought to ensure that German preference shares qualify, in principle, as Tier 1 capital. An order of distribution is also ruled out by Article 28(1)(h)(i) of CRR, which states that ‘there is no preferential distribution treatment regarding the order of distribution payments, including in relation to other Common Equity Tier 1 instruments, and the terms governing the instruments do not provide preferential rights to payment of distributions’. Moreover, Article 28(4) of CRR states that ‘For the purposes of point (h)(i) of paragraph 1, differentiated distributions shall only reflect differentiated voting rights. In this respect, higher distributions shall only apply to Common Equity Tier 1 instruments with fewer or no voting rights.’ Article 28(5)(c) of CRR states that the EBA should develop a draft regulatory technical standard to specify the meaning of preferential distributions. In RTS 2013/01, on institutions’ own funds, I have not found any particularly relevant provisions. Do German preference shares qualify as Tier 1 capital under the amended Companies Act, which would mean that share premium accounts ‘linked to’ the instrument may be recognised as part of Tier 1 capital?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_24 | Topic: Own funds | Date of submission: 05/07/2013

Credit risk approach applicable to exposures to CCPs: standardized approach (SA) or internal rating based approach (IRB)

Is the IRB approach applicable to exposures to CCPs?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_172 | Topic: Credit risk | Date of submission: 20/08/2013

Prudential Consolidation of Financial Institutions

'Financial Institution' means an undertaking other than an institution, the principle activity of which is to acquire holdings or to pursue one or more of the activities listed in points 2 to 12 and point 15 of Annex 1 to Directive 2013/36/EU, including a financial holding company, a mixed financial holding company, a payment institution within the meaning of Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (1), and an asset management company, but excluding insurance holding companies and mixed-activity insurance holding companies as defined in point (g) of Article 212(1) of Directive 2009/138/E. The definition in Article 4(1)(26) Regulation 575/2013 is in line with the definition of financial institution under Article 4(5) of Directive 2006/48/EC in that it encompasses firms whose principle activity is to acquire holdings or to perform the activities under Annex 1 of Directive 2013/36/EU. The EU had issued guidance on its Your Question on Legislation ('YQOL') site that indicated that, for Article 4(5) of 2006/48/EC it was correct to consider holding companies as financial institutions. We understand that t his has been interpreted differently by different regulators in the EU, in particular, where a bank owns shares in a holding company that owns a non-financial group (i.e. a group that does not undertake an Annex 1 activity), certain regulators have taken the view that the holding company as a legal entity should be consolidated for regulatory capital purposes whilst the non-financial subsidiaries are deconsolidated. However, other regulators have considered the nature of the activities of the group (holding company plus non-financial subsidiaries) and determined that the holding company need not be consolidated. Could the EBA please clarify which interpretation is correct?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_310 | Topic: Other issues | Date of submission: 01/10/2013

Treatment of commodity indices

Must exposures to commodity indices be broken down into its underlying constituent commodities or can a commodity index be treated as if it were an individual commodity, just like stock indices (see Article 344 of Regulation (EU) No. 575/2013 (CRR))?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_163 | Topic: Market risk | Date of submission: 14/08/2013

Scope of application of Articles 341 to 344 of Regulation (EU) No. 575/2013 (CRR)

Article 341 starts with "The institution shall separately sum all its net long positions and all its net short positions in accordance with Article 327.". Does "all positions" also include positions in the banking book, or are Articles 341-344 only valid for positions in the trading book?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_157 | Topic: Market risk | Date of submission: 14/08/2013

Scope of application of Articles 339 and 340 of Regulation (EU) No 575/2013 (CRR)

Article 339 of Regulation (EU) No. 575/2013 starts with "In order to calculate own funds requirements against general risk all positions shall be weighted...". Does "all positions" also include positions in the banking book or are Articles 339 and 340 only valid for positions in the trading book?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_155 | Topic: Market risk | Date of submission: 13/08/2013

Scope of calculation of own funds requirements for CVA risk

Can you provide some details on what criteria and/or thresholds are likely to apply in order to determine that securities financing transactions are material in the context of article 382(2)?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_130 | Topic: Market risk | Date of submission: 07/08/2013