Single Rulebook Q&A

Question ID: 2015_2233
Legal act : Regulation (EU) No 575/2013 (CRR)
Topic : Supervisory reporting
Article: 429
Paragraph:
Subparagraph:
Article/Paragraph : Annex XI as amended by Regulation (EU) No 2016/428
COM Delegated or Implementing Acts/EBA RTS/EBA ITS/EBA GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)
Name of institution: Wolters Kluwer Financial Services
Country of incorporation / residence: Belgium
Subject matter : LRCalc – Reporting of SFT Exposures according to Article 429 (5) (d), 429 (8) and 429b (1) CRR
Question:

Please clarify regarding securities included in Repo transactions. As per the guidelines for Row010 in LRCALC table, ‘cash received or security that is provided to a counterparty via the aforesaid mentioned transactions and is retained on the balance sheet...’ are to be reported in other assets in Row190.

From the above, as cash received or security provided on balance are to be reported in Row190, these are not reported in Row 010.

[1] However, for purpose of cash receivable and cash payable netting, cash received which is reported in Row190 is included for the purpose of netting which is reported in Row 010. Is there no contradiction in guidelines?

As an example if an institution has done a repo transaction of own security (on balance sheet) of value 1025 and receives a cash of 1000, in Row190, 2025 is to be reported.

In Row010, for purpose of cash receivable and payable netting, cash received 1000 is included in netting.

Is this not double reporting?

[2] In Row 020, ADD-ON for SFT transactions is to be reported as per Article 429b (1).

As securities which are included in repo transactions and which are on balance sheet, full value of security is reported in Row190 as other asset, whether ADD-ON is to be calculated and reported for such securities?

Background on the question:

[1] Annex XI leverage ratio guidelines state 'Institutions shall not include in this field cash received or any security that is provided to a counterparty via the aforementioned transactions and is retained on the balance sheet (i.e. the accounting criteria for derecognition are not met). Institutions shall instead include those items in {190, 1}.'
For cash receivable and payable netting, cash received which is to be reported in Row010 is also included in netting

[2] Article 429 b (1) institutions shall include in the exposure measure an add-on.

Date of submission: 21/08/2015
Published as Final Q&A: 24/11/2017
EBA answer:

The leverage ratio exposure of Securities Financing Transactions (SFTs) has to be calculated as the sum of both the balance sheet value of the SFTs (Article 429(4), (5), (8), 429b(6)(c) of Regulation (EU) No 575/2013 (CRR), as amended by the Delegated Regulation (EU) 2015/62), and an add-on for counterparty credit risk (Article 429b CRR).

By way of derogation from Article 429(5)(d) CRR, institutions may determine the exposure value of cash receivables and cash payables of SFTs with the same counterparty on a net basis if all the conditions set out in Article 429(8) CRR are met. Furthermore, for transactions with a counterparty that are subject to a master netting agreement that meets the conditions laid down in Article 206 CRR, the add-on for counterparty credit risk shall be determined in accordance with Article 429b(3) CRR.

Article 430(1) CRR requires institutions to report information, including the SFT exposure, on their leverage ratio to their competent authorities. The technical details of the reporting requirements can be found in Article 14, Annex X and Annex XI to Regulation (EU) No 680/2014, (ITS on Supervisory Reporting) as amended by Regulation (EU) 2016/428.

Example:

Initial situation:

Bank A owns cash amounting to 14 and a security with an accounting value of 10 (the fair value shall be 11). Thus, both the leverage ratio exposure value and the balance sheet total of Bank A are 24 (= 14 + 10).

Transactions:

Bank A enters into a repo and a reverse repo with Bank B (it is assumed that all the conditions set out in Article 429(8) CRR are met):

  • Repo:
    The security (accounting value 10, fair value 11) is provided to Bank B. Cash amounting to 8 is received.
  • Reverse Repo:
    Bank A receives a security with a fair value of 10 and provides cash amounting to 12.

Reporting of the transactions:

Bank A has to report 20 in {LRCalc;190;010} which is the sum of the accounting value of the security that has been provided to Bank B and that has been retained on the balance sheet (10) and the net amount of cash (14 + 8 – 12).

Furthermore, the net cash receivable of 4 (cash receivables of 12, cash payables of 8) has to be reported in {LRCalc;010;010} by Bank A.

The add-on for counterparty credit risk would have to be included in {LRCalc;020;010}, unless Bank A uses the method set out in Article 222 CRR to determine the add-on (Article 429b(4) CRR). The add-on is 5 (= 11 + 12 – 8 – 10).

For Bank A, the two aforementioned transactions result in a leverage ratio exposure value of 29 (= 20 + 4 + 5) and a balance sheet total of 32, respectively.

Bank A is not required to double count the aforementioned transaction (Question 1). Furthermore, it is only permitted not to calculate (and thus report) the add-on for counterparty credit risk if Article 429b(6)(b) CRR is applicable (Question 2).

Please note that the example covers the reporting in the LRCalc  template (C 47.00) only.

Status: Final Q&A
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