LegalizeRegulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 Text with EEA relevance
Correlations across buckets for counterparty credit spread risk
The cross-bucket correlations for counterparty credit spread delta risk shall be the following:
| Bucket | 1, 2, 3, 13 and 14 | 4 and 15 | 5 and 16 | 6 and 17 | 7 and 18 | 8 and 19 | 9 and 10 | 11 and 20 | 12 and 21 |
|---|---|---|---|---|---|---|---|---|---|
| 1, 2, 3, 13 and 14 | 100 % | 10 % | 20 % | 25 % | 20 % | 15 % | 10 % | 0 % | 45 % |
| 4 and 15 | 100 % | 5 % | 15 % | 20 % | 5 % | 20 % | 0 % | 45 % | |
| 5 and 16 | 100 % | 20 % | 25 % | 5 % | 5 % | 0 % | 45 % | ||
| 6 and 17 | 100 % | 25 % | 5 % | 15 % | 0 % | 45 % | |||
| 7 and 18 | 100 % | 5 % | 20 % | 0 % | 45 % | ||||
| 8 and 19 | 100 % | 5 % | 0 % | 45 % | |||||
| 9 and 10 | 100 % | 0 % | 45 % | ||||||
| 11 and 20 | 100 % | 0 % | |||||||
| 12 and 21 | 100 % |
Article 383s
Risk weights for reference credit spread risk
The risk weights for the delta sensitivities to reference credit spread risk factors shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) and all reference credit spread exposures within each bucket in Table 1 and shall be the following:
| Bucket number | Credit quality | Sector | Risk weight |
|---|---|---|---|
| 1 | All | Central government, including central banks, of Member States | 0,5 % |
| 2 | Credit quality step 1 to 3 | Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118 | 0,5 % |
| 3 | Regional government or local authority and public sector entities | 1,0 % | |
| 4 | Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders | 5,0 % | |
| 5 | Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying | 3,0 % | |
| 6 | Consumer goods and services, transportation and storage, administrative and support service activities | 3,0 % | |
| 7 | Technology, telecommunications | 2,0 % | |
| 8 | Health care, utilities, professional and technical activities | 1,5 % | |
| 9 | Covered bonds issued by credit institutions established in Member States | 1,0 % | |
| 10 | Credit quality step 1 | Covered bonds issued by credit institutions in third countries | 1,5 % |
| Credit quality steps 2 to 3 | 2,5 % | ||
| 11 | Credit Quality Step 1 to 3 | Qualified indices | 1,5 % |
| 12 | Credit quality step 4 to 6 and unrated | Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118 | 2,0 % |
| 13 | Regional government or local authority and public sector entities | 4,0 % | |
| 14 | Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders | 12,0 % | |
| 15 | Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying | 7,0 % | |
| 16 | Consumer goods and services, transportation and storage, administrative and support service activities | 8,5 % | |
| 17 | Technology, telecommunications | 5,5 % | |
| 18 | Health care, utilities, professional and technical activities | 5,0 % | |
| 19 | Qualified indices | 5,0 % | |
| 20 | Other sector | 12,0 % |
Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6. Otherwise, the risk weights for unrated exposures shall be applied.
Article 383t
Intra-bucket correlations for reference credit spread risk
Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 1 to 10, 12 to 18 and 20 of Article 383s(1), Table 1, the correlation parameter ρkl shall be set as follows:
where:
shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;
shall be equal to 1 where the two names of sensitivities k and l are identical, 90 % if the two names are distinct but legally related, otherwise it shall be equal to 50 %;
shall be equal to 1 where the two names are both in buckets 1 to 10, are both in buckets 12 to 18, or are both in bucket 20, otherwise it shall be equal to 80 %.
Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 11 and 19, the correlation parameter ρkl shall be set as follows:
where:
shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;
shall be equal to 1 where the two names of sensitivities k and l are identical and the two indices are of the same series, 90 % if the two indices are the same but of distinct series, otherwise it shall be equal to 80 %;
shall be equal to 1 where the two names are both in bucket 11 or both in bucket 19, otherwise it shall be equal to 80 %.
Article 383u
Correlations across buckets for reference credit spread risk
The cross-bucket correlations for reference credit spread delta risk and reference credit spread vega risk shall be the following:
| Bucket | 1, 2 and 12 | 3 and 14 | 4 and 15 | 5 and 16 | 6 and 17 | 7 and 18 | 8 and 19 | 9 and 10 | 20 | 11 | 19 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1, 2, and 12 | 100 % | 75 % | 10 % | 20 % | 25 % | 20 % | 15 % | 10 % | 0 % | 45 % | 45 % |
| 3 and 14 | 100 % | 5 % | 15 % | 20 % | 15 % | 10 % | 10 % | 0 % | 45 % | 45 % | |
| 4 and 15 | 100 % | 5 % | 15 % | 20 % | 5 % | 20 % | 0 % | 45 % | 45 % | ||
| 5 and 16 | 100 % | 20 % | 25 % | 5 % | 5 % | 0 % | 45 % | 45 % | |||
| 6 and 17 | 100 % | 25 % | 5 % | 15 % | 0 % | 45 % | 45 % | ||||
| 7 and 18 | 100 % | 5 % | 20 % | 0 % | 45 % | 45 % | |||||
| 8 and 19 | 100 % | 5 % | 0 % | 45 % | 45 % | ||||||
| 9 and 10 | 100 % | 0 % | 45 % | 45 % | |||||||
| 20 | 100 % | 0 % | 0 % | ||||||||
| 11 | 100 % | 75 % | |||||||||
| 19 | 100 % |
Article 383v
Risk weight buckets for equity risk
The risk weights for the delta sensitivities to equity spot price risk factors shall be the same for all equity risk exposures within each bucket in Table 1 and shall be the following:
| Bucket number | Market capitalisation | Economy | Sector | Risk weight for equity spot price |
|---|---|---|---|---|
| 1 | Large | Emerging market economy | Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities | 55 % |
| 2 | Telecommunications, industrials | 60 % | ||
| 3 | Basic materials, energy, agriculture, manufacturing, mining and quarrying | 45 % | ||
| 4 | Financials, including government-backed financials, immovable property activities, technology | 55 % | ||
| 5 | Advanced economy | Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities | 30 % | |
| 6 | Telecommunications, industrials | 35 % | ||
| 7 | Basic materials, energy, agriculture, manufacturing, mining and quarrying | 40 % | ||
| 8 | Financials, including government-backed financials, immovable property activities, technology | 50 % | ||
| 9 | Small | Emerging market economy | All sectors described under bucket numbers 1, 2, 3 and 4 | 70 % |
| 10 | Advanced economy | All sectors described under bucket numbers 5, 6, 7 and 8 | 50 % | |
| 11 | Other sector | 70 % | ||
| 12 | Large | Advanced economy | Qualified indices | 15 % |
| 13 | Other | Qualified indices | 25 % |
Article 383w
Correlations across buckets for equity risk
The cross-bucket correlation parameter for equity delta and vega risk shall be set at:
(a) 15 %, where the two buckets fall within buckets 1 to 10 in Article 383v(1), Table 1;
(b) 75 %, where the two buckets are buckets 12 and 13 in Article 383v(1), Table 1;
(c) 45 %, where one of the buckets is bucket 12 or 13 in Article 383v(1), Table 1, and the other bucket falls within buckets 1 to 10 in Article 383v(1), Table 1;
(d) 0 %, where one of the two buckets is bucket 11 in Article 383v(1), Table 1.
Article 383x
Risk weight buckets for commodity risk
The risk weights for the delta sensitivities to commodity spot price risk factors shall be the same for all commodity risk exposures within each bucket in Table 1 and shall be the following:
| Bucket number | Bucket name | Risk weight for commodity spot price |
|---|---|---|
| 1 | Energy — solid combustibles | 30 % |
| 2 | Energy — liquid combustibles | 35 % |
| 3 | Energy — electricity | 60 % |
| 4 | Energy — EU ETS carbon trading | 40 % |
| 5 | Energy — non-EU ETS carbon trading | 60 % |
| 6 | Freight | 80 % |
| 7 | Metals — non-precious | 40 % |
| 8 | Gaseous combustibles | 45 % |
| 9 | Precious metals, including gold | 20 % |
| 10 | Grains and oilseed | 35 % |
| 11 | Livestock and dairy | 25 % |
| 12 | Softs and other agricultural commodities | 35 % |
| 13 | Other commodity | 50 % |
Article 383z
Correlations across buckets for commodity risk
The cross-bucket correlation parameter for commodity delta risk shall be set at:
(a) 20 %, where the two buckets fall within buckets 1 to 12 in Article 383x(1), Table 1;
(b) 0 %, where one of the two buckets is bucket 13 in Article 383x(1), Table 1.
The cross-bucket correlation parameter for commodity vega risk shall be set at:
(a) 20 %, where the two buckets fall within buckets 1 to 12 in Article 383x(1), Table 1;
(b) 0 %, where one of the two buckets is bucket 13 in Article 383x(1), Table 1.
Article 384
Basic approach
An institution shall calculate the own funds requirements for CVA risk in accordance with paragraph 2 or 3 of this Article, as applicable, for a portfolio of transactions with one or more counterparties by using one of the following formulae, as appropriate:
(a) the formula set out in paragraph 2 of this Article, where the institution includes in the calculation one or more eligible hedges recognised in accordance with Article 386;
(b) the formula set out in paragraph 3 of this Article, where the institution does not include in the calculation any eligible hedges recognised in accordance with Article 386.
The approaches set out in the first subparagraph, points (a) and (b), shall not be used in combination.
An institution that meets the condition referred to in paragraph 1, point (a), shall calculate the own funds requirements for CVA risk as follows:
BACVAtotal = β · BACVAcsr–unhedged + DSCVA · (1 – β) · BACVAcsr–hedged
where:
BACVAtotal = the own funds requirements for CVA risk under the basic approach;
BACVAcsr–unhedged = the own funds requirements for CVA risk under the basic approach as calculated in accordance with paragraph 3 for an institution that meets the condition set out in paragraph 1, point (b);
DSCVA = 0,65 ;
β = 0,25 ;
where:
α = 1,4 ;
ρ = 0,5 ;
c = the index that denotes all counterparties for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article;
NS = the index that denotes all netting sets with a given counterparty for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article;
h = the index that denotes all single-name instruments recognised as eligible hedges in accordance with Article 386 for a given counterparty for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article;
I = the index that denotes all index instruments recognised as eligible hedges in accordance with Article 386 for all counterparties for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article;
RWc = the risk weight applicable to counterparty c; counterparty c shall be mapped to one of the risk weights based on a combination of sector and credit quality and determined in accordance with Table 1.
Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6; otherwise, the risk weights for unrated exposures shall be applied.
= the effective maturity for the netting set NS with counterparty c;
shall be calculated in accordance with Article 162; however, for that calculation, shall not be capped at five years, but at the longest contractual remaining maturity in the netting set;
= the counterparty credit risk exposure value of the netting set NS with counterparty c, including the effect of collateral in accordance with the methods set out in Title II, Chapter 6, Sections 3 to 6, as applicable to the calculation of the own funds requirements for counterparty credit risk referred to in Article 92(4), points (a) and (g);
= the supervisory discount factor for the netting set NS with counterparty c.
For an institution, using the methods set out in Title II, Chapter 6, Section 6, the supervisory discount factor shall be set at 1; in all other cases, the supervisory discount factor shall be calculated as follows:
rhc = the supervisory correlation factor between the credit spread risk of counterparty c and the credit spread risk of a single-name instrument recognised as an eligible hedge h for counterparty c, determined in accordance with Table 2;
= the residual maturity of a single-name instrument recognised as an eligible hedge;
= the notional of a single name instrument recognised as an eligible hedge;
= the supervisory discount factor for a single name instrument recognised as an eligible hedge, calculated as follows:
= the supervisory risk weight of a single-name instrument recognised as an eligible hedge; those risk weights shall be based on a combination of sector and credit quality of the reference credit spread of the hedging instrument and determined in accordance with Table 1;
= the residual maturity of one or more positions in the same index instrument recognised as an eligible hedge; in the case of more than one position in the same index instrument, shall be the notional-weighted maturity of all those positions;
= the full notional of one or more positions in the same index instrument recognised as an eligible hedge;
= the supervisory discount factor for one or more positions in the same index instrument recognised as an eligible hedge, calculated as follows:
= the supervisory risk weight of an index instrument recognised as an eligible hedge; shall be based on a combination of sector and credit quality of all index constituents, calculated as follows:
| Sector of counterparty | Credit quality | |
|---|---|---|
| Credit quality step 1 to 3 | Credit quality step 4 to 6 and not rated | |
| Central government, including central banks, multilateral development banks and international organisations referred to in Article 117(2) or Article 118 | 0,5 % | 2,0 % |
| Regional government or local authority and public sector entities | 1,0 % | 4,0 % |
| Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders | 5,0 % | 12,0 % |
| Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying | 3,0 % | 7,0 % |
| Consumer goods and services, transportation and storage, administrative and support service activities | 3,0 % | 8,5 % |
| Technology, telecommunications | 2,0 % | 5,5 % |
| Health care, utilities, professional and technical activities | 1,5 % | 5,0 % |
| Other sector | 5,0 % | 12,0 % |
| Correlations between credit spread of counterparty and single-name hedge | ||
| --- | --- | |
| Single-name hedge h of counterparty i | Value of rhc | |
| Counterparties referred to in Article 386(3), point (a)(i) | 100 % | |
| Counterparties referred to in Article 386(3), point (a)(ii) | 80 % | |
| Counterparties referred to in Article 386(3), point (a)(iii) | 50 % |
An institution that meets the condition referred to in paragraph 1, point (b), shall calculate the own funds requirements for CVA risk as follows:
where all of the terms are the ones set out in paragraph 2.
Article 385
Simplified approach
For the purposes of the calculation referred to in paragraph 1, the following requirements shall apply:
(a) only transactions subject to the own funds requirements for CVA risk laid down in Article 382 are subject to that calculation;
(b) credit derivatives that are recognised as internal hedges against counterparty risk exposures are not included in that calculation.
Article 386
Eligible hedges
Positions in hedging instruments shall be recognised as eligible hedges for the calculation of the own funds requirements for CVA risk in accordance with Articles 383 and 384 where those positions meet all of the following requirements:
(a) they are used for the purpose of mitigating CVA risk and are managed as such;
(b) they can be entered into with third parties or with the institution’s trading book as an internal hedge, in which case they are to comply with Article 106(7);
(c) only positions in hedging instruments as referred to in paragraphs 2 and 3 of this Article can be recognised as eligible hedges for the calculation of the own funds requirements for CVA risk in accordance with Articles 383 and 384, respectively.
For the purpose of calculating the own funds requirements for CVA risk in accordance with Article 383, positions in hedging instruments shall be recognised as eligible hedges where, in addition to the conditions set out in points (a) to (c) of this paragraph, such hedging instruments form a single position in an eligible hedge and are not split into more than one position in more than one eligible hedge.
For the calculation of the own funds requirements for CVA risk in accordance with Article 383, only positions in the following hedging instruments shall be recognised as eligible hedges:
(a) instruments that hedge variability of the counterparty credit spread, with the exception of instruments referred to in Article 325(5);
(b) instruments that hedge variability of the exposure component of CVA risk, with the exception of the instruments referred to in Article 325(5).
For the calculation of the own funds requirements for CVA risk in accordance with Article 384, only positions in the following hedging instruments shall be recognised as eligible hedges:
(a) single-name credit default swaps and single-name contingent-credit default swaps, referencing: (i) the counterparty directly; (ii) an entity legally related to the counterparty, where legally related refers to cases where the reference name and the counterparty are either a parent undertaking and its subsidiary or two subsidiaries of a common parent; (iii) an entity that belongs to the same sector and region as the counterparty;
(b) index credit default swaps.
PART FOUR
LARGE EXPOSURES
Article 387
Subject matter
Institutions shall monitor and control their large exposures in accordance with this Part.
Article 389
Definition
For the purposes of this Part, ‘exposures’, means any asset or off-balance sheet item referred to in Part Three, Title II, Chapter 2, without applying the risk weights or degrees of risk.
Article 390
Calculation of the exposure value
For exposures in the trading book, institutions may:
(a) offset their long positions and short positions in the same financial instruments issued by a given client, with the net position in each of the different instruments being calculated in accordance with the methods laid down in Chapter 2 of Title IV of Part Three;
(b) offset their long positions and short positions in different financial instruments issued by a given client, but only where the financial instrument underlying the short position is junior to the financial instrument underlying the long position or where the underlying instruments are of the same seniority.
For the purposes of points (a) and (b), financial instruments may be allocated into buckets on the basis of different degrees of seniority in order to determine the relative seniority of positions.
When calculating the exposure value for the contracts referred to in the first subparagraph, where those contracts are allocated to the trading book, institutions shall also comply with the principles set out in Article 299.
By way of derogation from the first subparagraph, institutions with permission to use the methods referred to in Section 4 of Chapter 4 of Title II of Part Three and Section 6 of Chapter 6 of Title II of Part Three may use those methods for calculating the exposure value for securities financing transactions.
Exposures shall not include any of the following:
(a) in the case of foreign exchange transactions, exposures incurred in the ordinary course of settlement during the two business days following payment;
(b) in the case of transactions for the purchase or sale of securities, exposures incurred in the ordinary course of settlement during the five business days following payment or delivery of the securities, whichever is the earlier;
(c) in the case of the provision of money transmission including the execution of payment services, clearing and settlement in any currency and correspondent banking or financial instruments clearing, settlement and custody services to clients, delayed receipts in funding and other exposures arising from client activity which do not last longer than the following business day;
(d) in the case of the provision of money transmission including the execution of payment services, clearing and settlement in any currency and correspondent banking, intra-day exposures to institutions providing those services;
(e) exposures deducted from Common Equity Tier 1 items or Additional Tier 1 items in accordance with Articles 36 and 56 or any other deduction from those items that reduces the solvency ratio.
EBA shall develop draft regulatory technical standards to specify:
(a) the conditions and methodologies to be used to determine the overall exposure to a client or a group of connected clients for the types of exposures referred to in paragraph 7;
(b) the conditions under which the structure of the transactions referred to in paragraph 7 do not constitute an additional exposure.
EBA shall submit those draft regulatory technical standards to the Commission by 1 January 2014.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
EBA shall submit those draft regulatory technical standards to the Commission by 28 March 2020.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 391
Definition of an institution for large exposures purposes
For the purposes of calculating the value of exposures in accordance with this Part the term ‘institution’ shall include a private or public undertaking, including its branches, which, were it established in the Union, would fulfil the definition of the term ‘institution’ and has been authorised in a third country that applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union.
For the purposes of the first paragraph, the Commission may adopt, by means of implementing acts, and subject to the examination procedure referred to in Article 464(2), decisions as to whether a third country applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union.
Article 392
Definition of a large exposure
An institution's exposure to a client or a group of connected clients shall be considered a large exposure where the value of the exposure is equal to or exceeds 10 % of its Tier 1 capital.
Article 393
Capacity to identify and manage large exposures
An institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with this Regulation.
Article 394
Reporting requirements
Institutions shall report the following information to their competent authorities for each large exposure that they hold, including large exposures exempted from the application of Article 395(1):
(a) the identity of the client or the group of connected clients to which the institution has a large exposure;
(b) the exposure value before taking into account the effect of the credit risk mitigation, where applicable;
(c) where used, the type of funded or unfunded credit protection;
(d) the exposure value, after taking into account the effect of the credit risk mitigation calculated for the purposes of Article 395(1), where applicable.
Institutions that are subject to Chapter 3 of Title II of Part Three shall report their 20 largest exposures to their competent authorities on a consolidated basis, excluding the exposures exempted from the application of Article 395(1).
Institutions shall also report exposures of a value greater than or equal to EUR 300 million but less than 10 % of the institution's Tier 1 capital to their competent authorities on a consolidated basis.
In addition to the information referred to in paragraph 1 of this Article, institutions shall report the following information to their competent authorities in relation to their 10 largest exposures to institutions on a consolidated basis, as well as their 10 largest exposures to shadow banking entities on a consolidated basis, including large exposures exempted from the application of Article 395(1):
(a) the identity of the client or the group of connected clients to which an institution has a large exposure;
(b) the exposure value before taking into account the effect of the credit risk mitigation, where applicable;
(c) where used, the type of funded or unfunded credit protection;
(d) the exposure value after taking into account the effect of the credit risk mitigation calculated for the purposes of Article 395(1), where applicable.
In addition to the information referred to in the first subparagraph, institutions shall report to their competent authorities their aggregate exposure to shadow banking entities.
In developing those draft regulatory technical standards, EBA shall take into account international developments and internationally agreed standards on shadow banking and shall consider whether:
(a) the relation with an individual entity or a group of entities may carry risks to the institution's solvency or liquidity position;
(b) entities that are subject to solvency or liquidity requirements similar to those imposed by this Regulation and Directive 2013/36/EU should be entirely or partially excluded from the obligation to be reported referred to in paragraph 2 on shadow banking entities.
EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2020.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 395
Limits to large exposures
Where the amount of EUR 150 million is higher than 25 % of the institution's Tier 1 capital, the value of the exposure, after having taken into account the effect of credit risk mitigation in accordance with Articles 399 to 403 of this Regulation, shall not exceed a reasonable limit in terms of that institution's Tier 1 capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Article 81 of Directive 2013/36/EU in order to address and control concentration risk. That limit shall not exceed 100 % of the institution's Tier 1 capital.
Competent authorities may set a lower limit than EUR 150 million, in which case they shall inform EBA and the Commission thereof.
By way of derogation from the first subparagraph of this paragraph, a G-SII shall not incur an exposure to another G-SII or a non-EU G-SII, the value of which, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, exceeds 15 % of its Tier 1 capital. A G-SII shall comply with such limit no later than 12 months from the date on which it came to be identified as a G-SII. Where the G-SII has an exposure to another institution or group which comes to be identified as a G-SII or as a non-EU G-SII, it shall comply with such limit no later than 12 months from the date on which that other institution or group came to be identified as a G-SII or as a non-EU G-SII.
In developing those guidelines, EBA shall consider whether the introduction of additional limits would have a material detrimental impact on the risk profile of institutions established in the Union, on the provision of credit to the real economy or on the stability and orderly functioning of financial markets.
By 31 December 2015 the Commission shall assess the appropriateness and the impact of imposing limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework, taking into account Union and international developments in the area of shadow banking and large exposures as well as credit risk mitigation in accordance with Articles 399 to 403. The Commission shall submit the report to the European Parliament and the Council, together, if appropriate, with a legislative proposal on exposure limits to shadow banking entities which carry out banking activities outside a regulated framework.
In updating those guidelines, EBA shall take due account, among other considerations, of the contribution of shadow banking entities to the capital markets union, the potential adverse impact that any changes of those guidelines, including additional limits, could have on the business model and risk profile of the institutions and on the stability and the orderly functioning of financial markets.
In addition, by 31 December 2027, EBA, after consulting ESMA, shall submit a report to the Commission on the contribution of shadow banking entities to the capital markets union and on institutions’ exposures to such entities, including on the appropriateness of aggregate limits or tighter individual limits to those exposures, while taking due account of the regulatory framework and business models of such entities.
By 31 December 2028, the Commission shall, where appropriate, on the basis of that report, submit to the European Parliament and to the Council a legislative proposal on exposure limits to shadow banking entities.
The limits laid down in this Article may be exceeded for the exposures in the institution's trading book, provided that all the following conditions are met:
(a) the exposure in the non-trading book to the client or group of connected clients in question does not exceed the limit laid down in paragraph 1, this limit being calculated with reference to Tier 1 capital, so that the excess arises entirely in the trading book;
(b) the institution meets an additional own funds requirement on the part of the exposure in excess of the limit laid down in paragraph 1 of this Article which is calculated in accordance with Articles 397 and 398;
(c) where 10 days or less have elapsed since the excess referred to in point (b) occurred, the trading-book exposure to the client or group of connected clients in question does not exceed 500 % of the institution's Tier 1 capital;
(d) any excesses that have persisted for more than 10 days do not, in aggregate, exceed 600 % of the institution's Tier 1 capital.
Each time the limit has been exceeded, the institution shall report to the competent authorities without delay the amount of the excess and the name of the client concerned and, where applicable, the name of the group of connected clients concerned.
Notwithstanding paragraph 1 of this Article and Article 400(1)(f), where Member States adopt national laws requiring structural measures to be taken within a banking group, competent authorities may require the institutions of the banking group which hold deposits that are covered by a Deposit Guarantee Scheme in accordance with Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes (34) or an equivalent deposit guarantee scheme in a third country to apply a large exposure limit below 25 % but not lower than 15 % between 28 June 2013 and 30 June 2015, and than 10 % from 1 July 2015 on a sub-consolidated basis in accordance with Article 11(5) to intragroup exposures where these exposures consist of exposures to an entity that does not belong to the same subgroup as regards the structural measures.
For the purpose of this paragraph, the following conditions shall be met:
(a) all entities belonging to a same subgroup as regards the structural measures are considered as one client or group of connected clients;
(b) the competent authorities apply a uniform limit to the exposures referred to in the first subparagraph.
Applying this approach shall be without prejudice to effective supervision on a consolidated basis and shall not entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole or form or create an obstacle to the functioning of the internal market.
Before adopting the specific structural measures as referred to in paragraph 6 relating to large exposures, the competent authorities shall notify the Council, the Commission, the competent authorities concerned and EBA at least two months prior to the publication of the decision to adopt the structural measures, and submit relevant quantitative or qualitative evidence of all of the following:
(a) the scope of the activities that are subject to the structural measures;
(b) an explanation as to why such draft measures are deemed to be suitable, effective and proportionate to protect depositors;
(c) an assessment of the likely positive or negative impact of the measures on the internal market based on information which is available to the Member State.
Within one month of receiving the notification referred to in paragraph 7, EBA shall provide its opinion on the points mentioned in that paragraph to the Council, the Commission and the Member State concerned. Competent authorities concerned may also provide their opinions on the points mentioned in that paragraph to the Council, the Commission and the Member State concerned.
Taking utmost account of the opinions referred to in the second subparagraph and if there is robust and strong evidence that the measures have a negative impact on the internal market that outweighs the financial stability benefits, the Commission shall, within two months of receiving the notification, reject the proposed national measures. Otherwise, the Commission shall accept the proposed national measures for an initial period of 2 years and where appropriate the measures may be subject to amendment.
The Commission shall only reject the proposed national measures if it considers the proposed national measures entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole, thus forming or creating an obstacle to the functioning of the internal market or to the free movement of capital in accordance with the provisions of the TFEU.
The assessment of the Commission shall take account of the opinion of EBA and shall take into account the evidence presented in accordance with paragraph 7.
Before the expiry of the measures, the competent authorities may propose new measures for the extension of the period of application for an additional period of 2 years each time. In this case, they shall notify the Commission, the Council, the competent authorities concerned and EBA. Approval of the new measures shall be subject to the process set out in this Article. This Article shall be without prejudice to Article 458.
Article 396
Compliance with large exposures requirements
Where the amount of EUR 150 million referred to in Article 395(1) is applicable, the competent authorities may allow the 100 % limit in terms of the institution's Tier 1 capital to be exceeded on a case-by-case basis.
Where, in the exceptional cases referred to in the first and second subparagraph of this paragraph, a competent authority allows an institution to exceed the limit set out in Article 395(1) for a period longer than three months, the institution shall present a plan for a timely return to compliance with that limit to the satisfaction of the competent authority and shall carry out that plan within the period agreed with the competent authority. The competent authority shall monitor the implementation of the plan and shall require a more rapid return to compliance if appropriate.
For the purposes of paragraph 1, EBA shall issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 to specify how the competent authorities may determine:
(a) the exceptional cases referred to in paragraph 1 of this Article;
(b) the time considered appropriate for returning to compliance;
(c) the measures to be taken to ensure the timely return to compliance of the institution.
Article 397
Calculating additional own funds requirements for large exposures in the trading book
As from 10 days after the excess has occurred, the components of the excess, selected in accordance with paragraph 1, shall be allocated to the appropriate line in Column 1 of Table 1 in ascending order of specific-risk requirements in Part Three, Title IV, Chapter 2 and/or requirements in Article 299 and Part Three, Title V. The additional own funds requirement shall be equal to the sum of the specific-risk requirements in Part Three, Title IV, Chapter 2 and/or the Article 299 and Part Three, Title V requirements on these components, multiplied by the corresponding factor in Column 2 of Table 1.
| Column 1: Excess over the limits (on the basis of a percentage of Tier 1 capital) | Column 2: Factors |
|---|---|
| Up to 40 % | 200 % |
| From 40 % to 60 % | 300 % |
| From 60 % to 80 % | 400 % |
| From 80 % to 100 % | 500 % |
| From 100 % to 250 % | 600 % |
| Over 250 % | 900 % |
Article 398
Procedures to prevent institutions from avoiding the additional own funds requirement
Institutions shall not deliberately avoid the additional own funds requirements set out in Article 397 that they would otherwise incur, on exposures exceeding the limit laid down in Article 395(1) once those exposures have been maintained for more than 10 days, by means of temporarily transferring the exposures in question to another company, whether within the same group or not, and/or by undertaking artificial transactions to close out the exposure during the 10-day period and create a new exposure.
Institutions shall maintain systems which ensure that any transfer which has the effect referred to in the first subparagraph is immediately reported to the competent authorities.
Article 399
Eligible credit mitigation techniques
For the purposes of Articles 400 to 403, the term ‘guarantee’ shall include credit derivatives recognised under Chapter 4 of Title II of Part Three other than credit linked notes.
Article 400
Exemptions
The following exposures shall be exempted from the application of Article 395(1):
(a) asset items constituting claims on central governments, central banks or public sector entities which, unsecured, would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;
(b) asset items constituting claims on international organisations or multilateral development banks which, unsecured, would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;
(c) asset items constituting claims carrying the explicit guarantees of central governments, central banks, international organisations, multilateral development banks or public sector entities, where unsecured claims on the entity providing the guarantee would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;
(d) other exposures attributable to, or guaranteed by, central governments, central banks, international organisations, multilateral development banks or public sector entities, where unsecured claims on the entity to which the exposure is attributable or by which it is guaranteed would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;
(e) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;
(f) exposures to counterparties referred to in Article 113(6) or (7) if they would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2. Exposures that do not meet those criteria, whether or not exempted from Article 395(1) shall be treated as exposures to a third party;
(g) asset items and other exposures secured by collateral in the form of cash deposits placed with the lending institution or with an institution which is the parent undertaking or a subsidiary of the lending institution;
(h) asset items and other exposures secured by collateral in the form of certificates of deposit issued by the lending institution or by an institution which is the parent undertaking or a subsidiary of the lending institution and lodged with either of them;
(i) exposures arising from undrawn credit facilities that are classified as bucket 5 off-balance-sheet items in Annex I or contractual arrangements that meet the conditions for not being treated as commitments and provided that an agreement has been concluded with the client or group of connected clients under which the facility may be drawn only if it has been ascertained that it will not cause the limit applicable under Article 395(1) to be exceeded;
(j) clearing members' trade exposures and default fund contributions to qualified central counterparties;
(k) exposures to deposit guarantee schemes under Directive 94/19/EC arising from the funding of those schemes, if the member institutions of the scheme have a legal or contractual obligation to fund the scheme;
(l) clients' trade exposures referred to in Article 305(2) or (3);
(m) holdings by resolution entities, or by their subsidiaries which are not themselves resolution entities, of own funds instruments and eligible liabilities referred to in Article 45f(2) of Directive 2014/59/EU that have been issued by any of the following entities: (i) in respect of resolution entities, other entities belonging to the same resolution group; (ii) in respect of subsidiaries of a resolution entity that are not themselves resolution entities, the relevant subsidiary's subsidiaries belonging to the same resolution group;
(n) exposures arising from a minimum value commitment that meets all the conditions set out in Article 132c(3).
Cash received under a credit linked note issued by the institution and loans and deposits of a counterparty to or with the institution which are subject to an on-balance sheet netting agreement recognised under Part Three, Title II, Chapter 4 shall be deemed to fall under point (g).
Competent authorities may fully or partially exempt the following exposures:
(a) covered bonds as referred to in Article 129;
(b) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2;
(c) exposures incurred by an institution, including through participations or other kinds of holdings, to its parent undertaking, to other subsidiaries of that parent undertaking, or to its own subsidiaries and qualifying holdings, in so far as those undertakings are covered by the supervision on a consolidated basis to which the institution itself is subject, in accordance with this Regulation, Directive 2002/87/EC or with equivalent standards in force in a third country; exposures that do not meet those criteria, whether or not exempted from Article 395(1) of this Regulation, shall be treated as exposures to a third party;
(d) asset items constituting claims on and other exposures, including participations or other kinds of holdings, to regional or central credit institutions with which the credit institution is associated in a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network;
(e) asset items constituting claims on and other exposures to credit institutions incurred by credit institutions, one of which operates on a non-competitive basis and provides or guarantees loans under legislative programmes or its statutes, to promote specified sectors of the economy under some form of government oversight and restrictions on the use of the loans, provided that the respective exposures arise from such loans that are passed on to the beneficiaries via credit institutions or from the guarantees of these loans;
(f) asset items constituting claims on and other exposures to institutions, provided that those exposures do not constitute such institutions' own funds, do not last longer than the following business day and are not denominated in a major trading currency;
(g) asset items constituting claims on central banks in the form of required minimum reserves held at those central banks which are denominated in their national currencies;
(h) asset items constituting claims on central governments in the form of statutory liquidity requirements held in government securities which are denominated and funded in their national currencies provided that, at the discretion of the competent authority, the credit assessment of those central governments assigned by a nominated ECAI is investment grade;
(i) 50 % of bucket 4 off-balance-sheet documentary credits and of bucket 3 off-balance-sheet undrawn credit facilities referred to in Annex I with an original maturity of up to and including one year and subject to the competent authorities’ agreement, 80 % of guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions;
(j) legally required guarantees used when a mortgage loan financed by issuing mortgage bonds is paid to the mortgage borrower before the final registration of the mortgage in the land register, provided that the guarantee is not used as reducing the risk in calculating the risk -weighted exposure amounts;
(k) exposures in the form of a collateral or a guarantee for residential loans, provided by an eligible protection provider referred to in Article 201 qualifying for the credit rating which is at least the lower of the following: (i) credit quality step 2; (ii) the credit quality step corresponding to the central government foreign currency rating of the Member State where the protection provider's headquarters are located;
(l) exposures in the form of a guarantee for officially supported export credits, provided by an export credit agency qualifying for the credit rating which is at least the lower of the following: (i) credit quality step 2; (ii) the credit quality step corresponding to the central government foreign currency rating of the Member State where the export credit agency's headquarters are located.
Competent authorities may only make use of the exemption provided for in paragraph 2 where the following conditions are met:
(a) the specific nature of the exposure, the counterparty or the relationship between the institution and the counterparty eliminate or reduce the risk of the exposure; and
(b) any remaining concentration risk can be addressed by other equally effective means such as the arrangements, processes and mechanisms provided for in Article 81 of Directive 2013/36/EU.
Competent authorities shall inform EBA of whether they intend to use any of the exemptions provided for in paragraph 2 in accordance with points (a) and (b) of this paragraph and provide EBA with the reasons substantiating the use of those exemptions.
Article 401
Calculating the effect of the use of credit risk mitigation techniques
By way of derogation from paragraph 1, institutions with permission to use the methods referred to in Section 4 of Chapter 4 of Title II of Part Three and Section 6 of Chapter 6 of Title II of Part Three, may use those methods for calculating the exposure value of securities financing transactions.
The periodic stress tests referred to in the first subparagraph shall address risks arising from potential changes in market conditions that could adversely impact the institutions' adequacy of own funds and risks arising from the realisation of collateral in stressed situations.
The stress tests carried out shall be adequate and appropriate for the assessment of those risks.
Institutions shall include the following in their strategies to address concentration risk:
(a) policies and procedures to address risks arising from maturity mismatches between exposures and any credit protection on those exposures;
(b) policies and procedures relating to concentration risk arising from the application of credit risk mitigation techniques, in particular from large indirect credit exposures, for example, exposures to a single issuer of securities taken as collateral.
Article 402
Exposures arising from mortgage lending
For the calculation of exposure values for the purposes of Article 395, institutions may, except where prohibited by applicable national law, reduce the value of an exposure or any part of an exposure that is secured by residential property in accordance with Article 125(1) by the pledged amount of the property value, but by not more than 55 % of the property value, provided that all of the following conditions are met:
(a) the competent authorities have not set a risk weight higher than 20 % for exposures or parts of exposures secured by residential property in accordance with Article 124(9);
(b) the exposure or part of the exposure is fully secured by any of the following: (i) one or more mortgages on residential property; or (ii) a residential property in a leasing transaction under which the lessor retains full ownership of the residential property and the lessee has not yet exercised his or her option to purchase;
(c) the requirements laid down in Article 208 and Article 229(1) are met.
For the calculation of exposure values for the purposes of Article 395, institutions may, except where prohibited by applicable national law, reduce the value of an exposure or any part of an exposure that is secured by commercial immovable property in accordance with Article 126(1) by the pledged amount of the property value, but by not more than 55 % of the property value, provided that all of the following conditions are met:
(a) the competent authorities have not set a risk weight higher than 60 % for exposures or parts of exposures secured by commercial immovable property in accordance with Article 124(9);
(b) the exposure is fully secured by any of the following: (i) one or more mortgages on offices or other commercial premises; or (ii) one or more offices or other commercial premises and the exposures related to property leasing transactions;
(c) the requirements in Article 124(3), point (c), and in Article 208 and Article 229(1) are met;
(d) the commercial immovable property is fully constructed.
An institution may treat an exposure to a counterparty that results from a reverse repurchase agreement under which the institution has purchased from the counterparty non-accessory independent mortgage liens on immovable property of third parties as a number of individual exposures to each of those third parties, provided that all of the following conditions are met:
(a) the counterparty is an institution or an investment firm;
(b) the exposure is fully secured by liens on the immovable property of those third parties that have been purchased by the institution and the institution is able to exercise those liens;
(c) the institution has ensured that the requirements in Article 208 and Article 229(1) are met;
(d) the institution becomes beneficiary of the claims that the counterparty has against the third parties in the event of default, insolvency or liquidation of the counterparty;
(e) the institution reports to the competent authorities in accordance with Article 394 the total amount of exposures to each other institution or investment firm that are treated in accordance with this paragraph.
For these purposes, the institution shall assume that it has an exposure to each of those third parties for the amount of the claim that the counterparty has on the third party instead of the corresponding amount of the exposure to the counterparty. The remainder of the exposure to the counter party, if any, shall continue to be treated as an exposure to the counter party.
Article 403
Substitution approach
Where an exposure to a client is guaranteed by a third party or is secured by collateral issued by a third party, an institution shall:
(a) treat the portion of the exposure which is guaranteed as exposure to the guarantor rather than to the client, provided that the unsecured exposure to the guarantor would be assigned a risk weight that is equal to or lower than the risk weight of the unsecured exposure to the client under Chapter 2 of Title II of Part Three;
(b) treat the portion of the exposure collateralised by the market value of recognised collateral as exposure to the third party rather than to the client, provided that the exposure is secured by collateral and provided that the collateralised portion of the exposure would be assigned a risk weight that is equal to or lower than the risk weight of the unsecured exposure to the client under Chapter 2 of Title II of Part Three.
The approach referred to in point (b) of the first subparagraph shall not be used by an institution where there is a mismatch between the maturity of the exposure and the maturity of the protection.
For the purposes of this Part, an institution may use both the Financial Collateral Comprehensive Method and the treatment set out in point (b) of the first subparagraph of this paragraph only where it is permitted to use both the Financial Collateral Comprehensive Method and the Financial Collateral Simple Method for the purposes of Article 92.
Where an institution applies point (a) of paragraph 1, the institution:
(a) where the guarantee is denominated in a currency different from that in which the exposure is denominated, shall calculate the amount of the exposure that is deemed to be covered in accordance with the provisions on the treatment of currency mismatch for unfunded credit protection set out in Part Three;
(b) shall treat any mismatch between the maturity of the exposure and the maturity of the protection in accordance with the provisions on the treatment of maturity mismatch set out in Chapter 4 of Title II of Part Three;
(c) may recognise partial coverage in accordance with the treatment set out in Chapter 4 of Title II of Part Three.
For the purposes of point (b) of paragraph 1, an institution may replace the amount in point (a) of this paragraph with the amount in point (b) of this paragraph, provided that the conditions set out in points (c), (d) and (e) of this paragraph are met:
(a) the total amount of the institution's exposure to a collateral issuer due to tri-party repurchase agreements facilitated by a tri-party agent;
(b) the full amount of the limits that the institution has instructed the tri-party agent referred to in point (a) to apply to the securities issued by the collateral issuer referred to in that point;
(c) the institution has verified that the tri-party agent has in place appropriate safeguards to prevent breaches of the limits referred to in point (b);
(d) the competent authority has not expressed to the institution any material concerns;
(e) the sum of the amount of the limit referred to in point (b) of this paragraph and any other exposures of the institution to the collateral issuer does not exceed the limit set out in Article 395(1).
EBA shall publish those guidelines by 31 December 2019.
PART SIX
LIQUIDITY
TITLE I
DEFINITIONS AND LIQUIDITY REQUIREMENTS
Article 411
Definitions
For the purposes of this Part, the following definitions apply:
(1) ‘financial customer’ means a customer, including a financial customer belonging to a non-financial corporate group, which performs one or more of the activities listed in Annex I to Directive 2013/36/EU as its main business, or which is one of the following: (a) a credit institution; (b) an investment firm; (c) a securitisation special purpose entity (SSPE); (d) a collective investment undertaking (CIU); (e) a non-open ended investment scheme; (f) an insurance undertaking; (g) a reinsurance undertaking; (h) a financial holding company or mixed-financial holding company; (i) a financial institution; (j) a pension scheme arrangement as defined in point (10) of Article 2 of Regulation (EU) No 648/2012;
(2) ‘retail deposit’ means a liability to a natural person or to a SME, where the SME would qualify for the retail exposure class under the standardised or IRB approaches for credit risk, or a liability to a company which is eligible for the treatment set out in Article 153(4), and where the aggregate deposits by that SME or company on a group basis do not exceed EUR 1 million;
(3) ‘personal investment company’ or ‘PIC’ means an undertaking or a trust, the owner or beneficial owner of which is either a natural person or a group of closely related natural persons which does not carry out any other commercial, industrial or professional activity and which was set up with the sole purpose of managing the wealth of the owner or owners, including ancillary activities such as segregating the owners' assets from corporate assets, facilitating the transmission of assets within a family or preventing a split of the assets after the death of a member of the family, provided that those ancillary activities are connected to the main purpose of managing the owners' wealth;
(4) ‘deposit broker’ means a natural person or an undertaking that places deposits from third parties, including retail deposits and corporate deposits but excluding deposits from financial customers, with credit institutions in exchange of a fee;
(5) ‘unencumbered assets’ means assets which are not subject to any legal, contractual, regulatory or other restriction preventing the institution from liquidating, selling, transferring, assigning or, generally, disposing of those assets via an outright sale or a repurchase agreement;
(6) ‘non-mandatory overcollateralisation’ means any amount of assets which the institution is not obliged to attach to a covered bond issuance by virtue of legal or regulatory requirements, contractual commitments or for reasons of market discipline, including in particular where the assets are provided in excess of the minimum legal, statutory or regulatory overcollateralisation requirement applicable to the covered bonds under the national law of a Member State or a third country;
(7) ‘asset coverage requirement’ means the ratio of assets to liabilities as determined in accordance with the national law of a Member State or a third country for credit enhancement purposes in relation to covered bonds;
(8) ‘margin loans’ means collateralised loans extended to customers for the purpose of taking leveraged trading positions;
(9) ‘derivative contracts’ means the derivative contracts listed in Annex II and credit derivatives;
(10) ‘stress’ means a sudden or severe deterioration in the solvency or liquidity position of an institution due to changes in market conditions or idiosyncratic factors as a result of which there is a significant risk that the institution becomes unable to meet its commitments as they become due within the next 30 days;
(11) ‘level 1 assets’ means assets of extremely high liquidity and credit quality as referred to in the second subparagraph of Article 416(1);
(12) ‘level 2 assets’ means assets of high liquidity and credit quality as referred to in the second subparagraph of Article 416(1) of this Regulation; level 2 assets are further subdivided into level 2A and 2B assets as set out in the delegated act referred to in Article 460(1);
(13) ‘liquidity buffer’ means the amount of level 1 and level 2 assets that an institution holds in accordance with the delegated act referred to in Article 460(1);
(14) ‘net liquidity outflows’ means the amount which results from deducting an institution's liquidity inflows from its liquidity outflows;
(15) ‘reporting currency’ means the currency of the Member State where the head office of the institution is located;
(16) ‘factoring’ means a contractual agreement between a business (the ‘assignor’) and a financial entity (the ‘factor’) in which the assignor assigns or sells its receivables to the factor in exchange for the factor providing the assignor with one or more of the following services with regard to the receivables assigned: (a) an advance of a percentage of the amount of the assigned receivables, generally short term, uncommitted and without automatic roll-over; (b) receivables management, collection and credit protection, whereby, in general, the factor administers the assignor's sales ledger and collects the receivables in the factor's own name; for the purposes of Title IV, factoring shall be treated as trade finance;
(17) ‘committed credit or liquidity facility’ means a credit or liquidity facility that is irrevocable or conditionally revocable.
Article 412
Liquidity coverage requirement
Unless specified otherwise in the delegated act referred to in Article 460(1), where an item can be counted in more than one outflow category, it shall be counted in the outflow category that produces the greatest contractual outflow for that item.
Article 413
Stable funding requirement
Article 414
Compliance with liquidity requirements
An institution that does not meet, or does not expect to meet, the requirements set out in Article 412 or in Article 413(1), including during times of stress, shall immediately notify the competent authorities thereof and shall submit to the competent authorities without undue delay a plan for the timely restoration of compliance with the requirements set out in Article 412 or Article 413(1), as appropriate. Until compliance has been restored, the institution shall report the items referred to in Title III, in Title IV, in the implementing act referred to in Article 415(3) or (3a) or in the delegated act referred to in Article 460(1), as appropriate, daily by the end of each business day, unless the competent authority authorises a lower reporting frequency and a longer reporting delay. Competent authorities shall only grant such authorisations on the basis of the individual situation of the institution, taking into account the scale and complexity of the institution's activities. Competent authorities shall monitor the implementation of such restoration plan and shall require a more rapid restoration of compliance where appropriate.
TITLE II
LIQUIDITY REPORTING
Article 415
Reporting obligation and reporting format
The reporting frequency shall be at least monthly for items referred to in the delegated act referred to in Article 460(1) and at least quarterly for items referred to in Titles III and IV.
An institution shall report separately to the competent authorities the items referred to in the implementing technical standards referred to in paragraph 3 or 3a of this Article, in Title III until such time as the reporting obligation and the reporting format for the net stable funding ratio set out in Title IV have been specified and introduced in Union law, in Title IV and in the delegated act referred to in Article 460(1), as appropriate, in accordance with the following:
(a) where items are denominated in a currency other than the reporting currency and the institution has aggregate liabilities denominated in such a currency which amount to or exceed 5 % of the institution's or the single liquidity sub-group's total liabilities, excluding own funds and off-balance-sheet items, reporting shall be done in the currency of denomination;
(b) where items are denominated in the currency of a host Member State where the institution has a significant branch as referred to in Article 51 of Directive 2013/36/EU and that host Member State uses another currency than the reporting currency, the reporting shall be done in the currency of the Member State in which the significant branch is located;
(c) where items are denominated in the reporting currency, and the aggregate amount of liabilities in other currencies than the reporting currency amounts to or exceeds 5 % of the institution's or the single liquidity subgroup's total liabilities, excluding own funds and off-balance-sheet items, the reporting shall be done in the reporting currency.
EBA shall develop draft implementing technical standards to specify the following:
(a) uniform formats and IT solutions with associated instructions for frequencies and reference and remittance dates; the reporting formats and frequencies shall be proportionate to the nature, scale and complexity of the different activities of the institutions and shall comprise the reporting required in accordance with paragraphs 1 and 2;
(b) additional liquidity monitoring metrics required, to allow competent authorities to obtain a comprehensive view of an institution's liquidity risk profile, proportionate to the nature, scale and complexity of an institution's activities.
EBA shall submit to the Commission those draft implementing technical standards for the items specified in point (a) by 28 July 2013 and for the items specified in point (b) by 1 January 2014.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.
EBA shall submit those draft implementing technical standards to the Commission by 28 June 2020.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.
Competent authorities that exercise supervision on a consolidated basis in accordance with Article 111 of Directive 2013/36/EU shall upon request provide in a timely manner and by electronic means the following authorities with all reporting submitted by the institution in accordance with the uniform reporting formats referred to in paragraph 3:
(a) the competent authorities and the national central bank of the host Member States in which there are significant branches in accordance with Article 51 of Directive 2013/36/EU of the parent institution or institutions controlled by the same parent financial holding company;
(b) the competent authorities that have authorised subsidiaries of the parent institution or institutions controlled by the same parent financial holding company and the central bank of the same Member State;
(c) EBA;
(d) ECB.
Article 416
Reporting on liquid assets
Institutions shall report the following as liquid assets unless excluded by paragraph 2 and only if the liquid assets fulfil the conditions in paragraph 3:
(a) cash and exposures to central banks to the extent that these exposures can be withdrawn at any time in times of stress. As regards deposits held with central banks, the competent authority and the central bank shall aim at reaching a common understanding regarding the extent to which minimum reserves can be withdrawn in times of stress;
(b) other transferable assets that are of extremely high liquidity and credit quality;
(c) transferable assets representing claims on or guaranteed by: (i) the central government of a Member State, a region with fiscal autonomy to raise and collect taxes, or of a third country in the domestic currency of the central or regional government, if the institution incurs a liquidity risk in that Member State or third country that it covers by holding those liquid assets; (ii) central banks and non-central government public sector entities in the domestic currency of the central bank and the public sector entity; (iii) the Bank for International Settlements, the International Monetary Fund, the Commission and multilateral development banks; (iv) the European Financial Stability Facility and the European Stability Mechanism;
(d) transferable assets that are of high liquidity and credit quality;
(e) standby credit facilities granted by central banks within the scope of monetary policy to the extent that these facilities are not collateralised by liquid assets and excluding emergency liquidity assistance;
(f) if the credit institution belongs to a network in accordance with legal or statutory provisions, the legal or statutory minimum deposits with the central credit institution and other statutory or contractually available liquid funding from the central credit institution or institutions that are members of the network referred to in Article 113(7), or eligible for the waiver provided in Article 10, to the extent that this funding is not collateralised by liquid assets.
Pending specification of a uniform definition in accordance with Article 460 of high and extremely high liquidity and credit quality, institutions shall identify themselves in a given currency transferable assets that are respectively of high or extremely high liquidity and credit quality. Pending specification of a uniform definition, competent authorities may, taking into account the criteria listed in Article 509(3), (4) and (5) provide general guidance that institutions shall follow in identifying assets of high and extremely high liquidity and credit quality. In the absence of such guidance, institutions shall use transparent and objective criteria to this end, including some or all of the criteria listed in Article 509(3), (4) and (5).
The following shall not be considered liquid assets:
(a) assets that are issued by a credit institution unless they fulfil one of the following conditions: (i) they are bonds eligible for the treatment set out in Article 129(4) or (5) or asset backed instruments if demonstrated to be of the highest credit quality as established by EBA pursuant to the criteria in Article 509 (3), (4) and (5); (ii) they are covered bonds as defined in point (1) Article 3 of Directive (EU) 2019/2162 other than those referred to in point (i) of this point; (iii) the credit institution has been set up by a Member State central or regional government and that government has an obligation to protect the economic basis of the institution and maintain its viability throughout its lifetime; or the asset is explicitly guaranteed by that government; or at least 90 % of the loans granted by the institution are directly or indirectly guaranteed by that government and the asset is predominantly used to fund promotional loans granted on a non-competitive, not for profit basis in order to promote that government's public policy objectives;
(b) assets that are provided as collateral to the institution under reverse repo and securities financing transactions and that are held by the institution only as a credit risk mitigant and that are not legally and contractually available for use by the institution;
(c) assets issued by any of the following: (i) an investment firm; (ii) an insurance undertaking; (iii) a financial holding company; (iv) a mixed financial holding company; (v) any other entity that performs one or more of the activities listed in Annex I to Directive 2013/36/EU as its main business.
In accordance with paragraph 1, institutions shall report assets that fulfil the following conditions as liquid assets:
(a) the assets are unencumbered or stand available within collateral pools to be used for obtaining additional funding under committed or, where the pool is operated by a central bank, uncommitted but not yet funded credit lines available to the institution;
(b) the assets are not issued by the institution itself, by its parent or subsidiary institutions, or by another subsidiary of its parent institution or parent financial holding company;
(c) the price of the assets is generally agreed upon by market participants and can easily be observed in the market or the price can be determined by a formula that is easy to calculate on the basis of publicly available inputs and that does not depend on strong assumptions, as is typically the case for structured or exotic products;
(d) the assets are listed on a recognised exchange or they are tradable by an outright sale or via a simple repurchase agreement on repurchase markets; those criteria shall be assessed separately for each market.
The conditions referred to in points (c) and (d) of the first subparagraph shall not apply to the assets referred to in points (a), (e) and (f) of paragraph 1.
Notwithstanding the provisions of paragraphs 1, 2 and 3, pending the specification of a binding liquidity requirement in accordance with Article 460 and in accordance with the second subparagraph of paragraph 1 of this Article, institutions shall report on:
(a) other non-central bank eligible but tradable assets such as equities and gold based on transparent and objective criteria, including some or all of the criteria listed in Article 509(3), (4) and (5);
(b) other central bank eligible and tradable assets such as asset backed instruments of the highest credit quality as established by EBA pursuant to the criteria in Article 509(3), (4) and (5);
(c) other central bank eligible but non-tradable assets such as credit claims as established by EBA pursuant to the criteria in Article 509(3), (4) and (5).
The use or potential use by a CIU of derivative instruments to hedge risks of permitted investments shall not prevent that CIU from being eligible for the treatment referred to in the first subparagraph of this paragraph. Where the value of the shares or units of the CIU is not regularly marked to market by the third parties referred to in points (a) and (b) of Article 418(4) and the competent authority is not satisfied that an institution has developed robust methodologies and processes for such valuation as referred to in Article 418(4), shares or units in that CIU shall not be treated as liquid assets.
Article 417
Operational requirements for holdings of liquid assets
The institution shall only report as liquid assets those holdings of liquid assets that meet the following conditions:
(a) they are appropriately diversified. Diversification is not required in terms of assets corresponding to points (a), (b) and (c) of Article 416(1);
(b) they are legally and practically readily available at any time during the next 30 days to be liquidated via outright sale or via a simple repurchase agreement on approved repurchase markets in order to meet obligations coming due. Liquid assets referred to in point (c) of Article 416(1) which are held in third countries where there are transfer restrictions or which are denominated in non-convertible currencies shall be considered available only to the extent that they correspond to outflows in the third country or currency in question, unless the institution can demonstrate to the competent authorities that it has appropriately hedged the ensuing currency risk;
(c) the liquid assets are controlled by a liquidity management function;
(d) a portion of the liquid assets except those referred to in points (a), (c), (e) and (f) of Article 416(1) is periodically and at least annually liquidated via outright sale or via simple repurchase agreements on an approved repurchase market for the following purposes: (i) to test the access to the market for these assets; (ii) to test the effectiveness of its processes for the liquidation of assets; (iii) to test the usability of the assets; (iv) to minimise the risk of negative signalling during a period of stress;
(e) price risks associated with the assets may be hedged but the liquid assets are subject to appropriate internal arrangements that ensure that they are readily available to the treasury when needed and especially that they are not used in other ongoing operations, including: (i) hedging or other trading strategies; (ii) providing credit enhancements in structured transactions; (iii) covering operational costs.
(f) the denomination of the liquid assets is consistent with the distribution by currency of liquidity outflows after the deduction of inflows.
Article 418
Valuation of liquid assets
Shares or units in CIUs as referred to in Article 416(6) shall be subject to haircuts, looking through to the underlying assets as follows:
(a) 0 % for the assets referred to in point (a) of Article 416(1);
(b) 5 % for the assets referred to in points (b) and (c) of Article 416(1);
(c) 20 % for the assets referred to in point (d) of Article 416(1).
The look-through approach referred to in paragraph 2 shall be applied as follows:
(a) where the institution is aware of the underlying exposures of a CIU, it may look through to those underlying exposures in order to assign them to points (a) to (d) of Article 416(1);
(b) where the institution is not aware of the underlying exposures of a CIU, it shall be assumed that the CIU invests, to the maximum extent allowed under its mandate, in descending order in the asset types referred to in points (a) to (d) of Article 416(1) until the maximum total investment limit is reached.
Institutions shall develop robust methodologies and processes to calculate and report the market value and haircuts for shares or units in CIUs. Only where they can demonstrate to the satisfaction of the competent authority that the materiality of the exposure does not justify the development of their own methodologies, institutions may rely on the following third parties to calculate and report the haircuts for shares or units in CIUs, in accordance with the methods set out in points (a) and (b) of paragraph 3:
(a) the depository institution of the CIU provided that the CIU exclusively invests in securities and deposits all securities at this depository institution;
(b) for other CIUs, the CIU management company, provided that the CIU management company meets the criteria set out in Article 132(3)(a).
The correctness of the calculations by the depository institution or the CIU management company shall be confirmed by an external auditor.
Article 419
Currencies with constraints on the availability of liquid assets
Where the justified needs for liquid assets in light of the requirement in Article 412 exceed the availability of those liquid assets in a currency, one or more of the following derogations shall apply:
(a) by way of derogation from point (f) of Article 417, the denomination of the liquid assets may be inconsistent with the distribution by currency of liquidity outflows after the deduction of inflows;
(b) for currencies of a Member State or third countries, required liquid assets may be substituted by credit lines from the central bank of that Member State or third country which are contractually irrevocably committed for the next 30 days and are fairly priced, independent of the amount currently drawn, provided that the competent authorities of that Member State or third country do the same and provided that that Member State or third country has comparable reporting requirements in place;
(c) where there is a deficit of level 1 assets, additional level 2A assets may be held by the institution, subject to higher haircuts, and any cap applicable to those assets in accordance with the delegated act referred to in Article 460(1) may be amended.
EBA shall submit those draft implementing technical standards to the Commission by 31 March 2014.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.
EBA shall submit those draft regulatory technical standards to the Commission by 28 December 2019.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 420
Liquidity outflows
Pending the specification of a liquidity requirement in accordance with Article 460, liquidity outflows to be reported shall include:
(a) the current amount outstanding for retail deposits as set out in Article 421;
(b) the current amounts outstanding of other liabilities that come due, can be called for payout by the issuing institutions or by the provider of the funding or entail an implicit expectation of the provider of the funding that the institution would repay the liability during the next 30 days as set out in Article 422;
(c) the additional outflows referred to in Article 423;
(d) the maximum amount that can be drawn during the next 30 days from undrawn committed credit and liquidity facilities, as set out in Article 424;
(e) the additional outflows identified in the assessment in accordance with paragraph 2.
For this assessment, institutions shall take particular account of material reputational damage that could result from not providing liquidity support to such products or services. Institutions shall report not less than annually to the competent authorities those products and services for which the likelihood and potential volume of the liquidity outflows referred to in the first subparagraph are material and the competent authorities shall determine the outflows to be assigned. The competent authorities may apply an outflow rate up to 5 % for trade finance off-balance sheet related products, as referred to in Article 429 and Annex I.
The competent authorities shall at least annually report to EBA the types of products or services for which they have determined outflows on the basis of the reports from institutions. They shall in that report also explain the methodology applied to determine the outflows.
Article 421
Outflows on retail deposits
Institutions shall separately report the amount of retail deposits covered by a Deposit Guarantee Scheme in accordance with Directive 94/19/EC or an equivalent deposit guarantee scheme in a third country, and multiply by at least 5 % where the deposit is either of the following:
(a) part of an established relationship making withdrawal highly unlikely;
(b) held in a transactional account, including accounts to which salaries are regularly credited.
Institutions may exclude from the calculation of outflows certain clearly circumscribed categories of retail deposits as long as in each and every instance the institution rigorously applies the following for the whole category of those deposits, unless in individually justified circumstances of hardship for the depositor:
(a) within 30 days, the depositor is not allowed to withdraw the deposit; or
(b) for early withdrawals within 30 days, the depositor has to pay a penalty that includes the loss of interest between the date of withdrawal and the contractual maturity date plus a material penalty that does not have to exceed the interest due for the time elapsed between the date of deposit and the date of withdrawal.
Article 422
Outflows on other liabilities
Institutions shall multiply liabilities resulting from secured lending and capital market-driven transactions as defined in point (3) of Article 192 by:
(a) 0 % up to the value of the liquid assets in accordance with Article 418 if they are collateralised by assets that would qualify as liquid assets in accordance with Article 416;
(b) 100 % over the value of the liquid assets in accordance with Article 418, if they are collateralized by assets that would qualify as liquid assets in accordance with Article 416;
(c) 100 % if they are collateralized by assets that would not qualify as liquid assets in accordance with Article 416, with the exception of transactions covered by points (d) and (e) of this paragraph;
(d) 25 % if they are collateralized by assets that would not qualify as liquid assets in accordance with Article 416 and the lender is the central government, a public sector entity of the Member State in which the credit institution has been authorised or has established a branch, or a multilateral development bank. Public sector entities that receive that treatment shall be limited to those that have a risk weight of 20 % or lower in accordance with Chapter 2, Title II of Part Three;
(e) 0 % if the lender is a central bank.
Institutions shall multiply liabilities resulting from deposits that have to be maintained:
(a) by the depositor in order to obtain clearing, custody or cash management or other comparable services from the institution;
(b) in the context of common task sharing within an institutional protection scheme meeting the requirements of Article 113(7) or as a legal or statutory minimum deposit by another entity being a Member of the same institutional protection scheme;
(c) by the depositor in the context of an established operational relationship other than that mentioned in point (a);
(d) by the depositor to obtain cash clearing and central credit institution services and where the credit institution belongs to a network in accordance with legal or statutory provisions;
by 5 % in the case of point (a) to the extent to which they are covered by a Deposit Guarantee Scheme in accordance with Directive 94/19/EC or an equivalent deposit guarantee scheme in a third country and by 25 % otherwise.
Deposits from credit institutions placed at central credit institutions that are considered as liquid assets in accordance with Article 416(1)(f) shall be multiplied by 100 % outflow rate.
Pending a uniform definition of an established operational relationship as referred to in point (c) of paragraph 3, institutions shall themselves establish the criteria for identifying an established operational relationship for which they have evidence that the client is unable to withdraw amounts legally due over a 30-day time horizon without compromising its operational functioning and shall report those criteria to the competent authorities. In the absence of a uniform definition, competent authorities may provide general guidance that institutions are to follow in identifying deposits maintained by the depositor in a context of an established operational relationship.
Competent authorities may grant the permission to apply a lower outflow percentage to the liabilities referred to in paragraph 7 on a case-by-case basis, provided that all the following conditions are met:
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