Changes from plenary report to adopted text

Removed2a. Institutions may apply the derogation referred to in the second subparagraph of paragraph 2 also in cases where competent authorities of a third country jurisdiction, which apply supervisory and regulatory arrangements at least equivalent to those applied in the Union as decided in accordance with Article 107(4), publish corresponding loss rates for exposures secured by commercial immovable property situated within the territory of their country. Where a competent authority of a third country jurisdiction does not publish corresponding loss rates for exposures secured by commercial immovable property situated within the territory of their country, EBA may publish such information for a third country jurisdiction, provided that valid statistical data, that is statistically representative of the corresponding commercial real estate market, is available.’;

Removed(47) a new Article 126a is inserted:

Removed‘Article 126a Land acquisition, development and construction exposures

Removed1. An ADC exposure shall be assigned a risk weight of 150 %.

Removed2. ADC exposures to residential property, however, may be risk weighted at 100 %, provided that▌, the institution applies sound origination and monitoring standards which meet the requirements of Articles 74 and 79 of Directive 2013/36/EU and where at least one of the following conditions is met:

Removed(a) legally binding pre-sale or pre-lease contracts, for which the purchaser or tenant has made a substantial cash deposit which is subject to forfeiture if the contract is terminated or where the financing is ensured in an equivalent manner, amount to a significant portion of total contracts;

Removed(b) the obligor has substantial equity at risk, which is represented as an appropriate amount of obligor-contributed equity to the residential property's appraised value upon completion.

Removed3. EBA shall by [OP please insert date = 1 year after entry into force] issue guidelines specifying the terms "substantial cash deposits", “appropriate amount of obligor-contributed equity”, "significant portion of total contracts", and "substantial equity at risk, and what can be considered “financing in an equivalent manner".

RemovedThose guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010.

Removed(48) Article 127 is amended as follows:

Removed(a) in paragraph (1), the following subparagraph is added:

Removed‘For the purposes of calculating the sum of specific credit risk adjustments referred to in this paragraph, institutions shall include in the calculation any positive difference between▌ the amount owed by the obligor on that exposure and▌ the sum of:

Removed(i) the additional own funds reduction if that exposure were written off fully; and

Removed(ii) any already existing own funds reductions related to that exposure.’

Removed(b) paragraph 2 is replaced by the following:

Removed‘2. For the purposes of determining the secured part of a defaulted exposure, collateral and guarantees shall be eligible for credit risk mitigation purposes in accordance with Chapter 4.’;

Removed(c) paragraphs 3 is replaced by the following:

Removed‘3. The exposure value remaining after specific credit risk adjustments of non-IPRE exposures secured by residential or commercial immovable property in accordance with Article 125 and 126, respectively, shall be assigned a risk weight of 100 % if a default has occurred in accordance with Article 178.’;

Removed(d) paragraph 4 is deleted;

Removed(49) Article 128 is replaced by the following:

Removed‘Article 128 Subordinated debt exposures

Removed1. The following exposures shall be treated as subordinated debt exposures:

Removed(a) debt exposures which are subordinated to claims of other ordinary unsecured creditors;

Removed(b) own funds instruments to the extent that those instruments are not considered as equity exposures in accordance with Article 133(1); and

Removed(c) liabilities instruments that meet the conditions set out in Article 72b.

Removed2. Subordinated debt exposures shall be assigned a risk weight of 150 %, unless those subordinated debt exposures are required to be deducted in accordance with Part Two of this Regulation.’;

Removed(50) Article 129 is amended as follows:

Removed(a) in paragraph 3, the following subparagraph is added:

Removed‘ By way of derogation from the first subparagraph, for the purposes of valuing immovable property, the competent authorities designated pursuant to Article 18(2) of Directive (EU) 2019/2162 may allow that property to be valued at or at less than the market value, or in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, the mortgage lending value of that property without applying the limits set out in Article 208(3), point (b).’

Removed(b) paragraph 4, subparagraph 1 is replaced by the following:

Removed’4. Covered bonds for which a directly applicable credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 6a which corresponds to the credit assessment of the ECAI in accordance with Article 136.’;

Removed(c) paragraph 5 is replaced by the following:

Removed5. Covered bonds for which a directly applicable credit assessment by a nominated ECAI is not available shall be assigned a risk weight on the basis of the risk weight assigned to senior unsecured exposures to the institution which issues them. The following correspondence between risk weights shall apply:

Removed(a) if the exposures to the institution are assigned a risk weight of 20 %, the covered bond shall be assigned a risk weight of 10 %;

Removed(aa) if the exposures to the institution are assigned a risk weight of 30 %, the covered bond shall be assigned a risk weight of 15 %;

Removed(ab) if the exposures to the institution are assigned a risk weight of 40 %, the covered bond shall be assigned a risk weight of 20 %;

Removed(b) if the exposures to the institution are assigned a risk weight of 50 %, the covered bond shall be assigned a risk weight of 25 %;

Removed(ba) if the exposures to the institution are assigned a risk weight of 75 %, the covered bond shall be assigned a risk weight of 35 %;

Removed(c) if the exposures to the institution are assigned a risk weight of 100 %, the covered bond shall be assigned a risk weight of 50 %;

Removed(d) if the exposures to the institution are assigned a risk weight of 150 %, the covered bond shall be assigned a risk weight of 100 %.’;▌(51a) in Article 132c(2), subparagraph 1 is replaced by the following:

Removed‘Institutions shall calculate the exposure value of a minimum value commitment that meets the conditions set out in paragraph 3 of this Article as the discounted present value of the guaranteed amount using a discount factor that is derived from a risk free rate. Institutions may reduce the exposure value of the minimum value commitment by any losses recognised with respect to the minimum value commitment under the applicable accounting standard.’;

Removed(52) Article 133 is replaced by the following:

Removed‘Article 133 Equity exposures

Removed1. All of the following shall be classified as equity exposures:

Removed(a) any exposure meeting all of the following conditions:

Removed(i) the exposure is irredeemable in the sense that the return of invested funds can be achieved only by the sale of the investment or sale of the rights to the investment or by the liquidation of the issuer;

Removed(ii) the exposure does not embody an obligation on the part of the issuer; and

Removed(iii) the exposure conveys a residual claim on the assets or income of the issuer;

Removed(b) instruments that would qualify as Tier 1 items if issued by an institution;

Removed(c) instruments that embody an obligation on the part of the issuer and meet any of the following conditions:

Removed(i) the issuer may defer the settlement of the obligation indefinitely;

Removed(ii) the obligation requires, or permits at the issuer’s discretion, settlement by issuance of a fixed number of the issuer’s equity shares;

Removed(iii) the obligation requires, or permits at the issuer’s discretion, settlement by issuance of a variable number of the issuer’s equity shares and, ceteris paribus, any change in the value of the obligation is attributable to, comparable to, and in the same direction as, the change in the value of a fixed number of the issuer’s equity shares;

Removed(iv) the holder of the instrument has the option to require that the obligation be settled in equity shares, unless one of the following conditions is met:

Removed– in the case of a traded instrument, the institution has demonstrated to the satisfaction of the competent authority that the instrument is traded on the market more like the debt of the issuer than like its equity;

Removed– in the case of non-traded instruments, the institution has demonstrated to the satisfaction of the competent authority that the instrument should be treated as a debt position.

RemovedFor the purposes of point (c)(iii), obligations are included that require or permit settlement by issuance of a variable number of the issuer’s equity shares, for which the change in the monetary value of the obligation is equal to the change in the fair value of a fixed number of equity shares multiplied by a specified factor, where both the factor and the referenced number of shares are fixed.

RemovedFor the purposes of point (iv), where one of the conditions laid down in that point is met, the institution may decompose the risks for regulatory purposes, subject to the prior permission by the competent authority.

Removed(d) debt obligations and other securities, partnerships, derivatives or other vehicles structured in a way that the economic substance is similar to the exposures referred to in points (a), (b) and (c), including liabilities from which the return is linked to that of equities;

Removed(e) equity exposures that are recorded as a loan but arise from a debt/equity swap made as part of the orderly realisation or restructuring of the debt.