Changes from plenary report to adopted text

Removed‘(c) an institution shall consider the extent of any dependence between, on the one hand, the risk of the obligor and, on the other hand, that of funded credit protection, other than master netting agreements and on-balance sheet netting of loans and deposits, or its provider.;

Removed(d) currency mismatches between the underlying obligation and the funded credit protection other than master netting agreements and on-balance sheet netting of loans and deposits shall be treated conservatively in the institution's assessment of LGD;’

Removed(e) to the extent that LGD estimates take into account the existence of funded credit protection other than master netting agreements and on-balance sheet netting of loans and deposits, those estimates shall not solely be based on the estimated market value of the funded credit protection.;

Removed(f) to the extent that LGD estimates take into account the existence of funded credit protection other than master netting agreements and on-balance sheet netting of loans and deposits, institutions shall establish internal requirements for the management, legal certainty and risk management of that funded credit protection, and those requirements shall be generally consistent with those set out in Chapter 4, Section 3;

Removed(g) to the extent that an institution recognises funded credit protection other than master netting agreements and on-balance sheet netting of loans and deposits for determining the exposure value for counterparty credit risk in accordance with Chapter 6, Section 5 or 6, any amount expected to be recovered from this funded credit protection shall not be taken into account in the LGD estimates;’;

Removed(ii) point (i) is replaced by the following:

Removed‘(i) to the extent that fees for late payments, imposed on the obligor before the time of default, have been capitalised in the institution's income statement, they shall be added to the institution's measure of exposure and loss;’;

Removed▌

Removed(iv) the following subparagraphs are added:

Removed‘For the purposes of point (a), institutions shall adequately take into account recoveries realised in the course of the relevant recovery processes from any form of FCP as well as from UFCP not falling under the definition of Article 142, point (10).

RemovedFor the purposes of point (c), cases where there is a significant degree of dependence shall be addressed in a conservative manner.

RemovedFor the purposes of point (e), LGD estimates shall take into account the effect of the potential inability of institutions to expeditiously gain control of their collateral and liquidate it.’;

Removed(b) paragraph 2 is amended as follows:

Removed(i) in the first subparagraph, point (b) is replaced by the following;:

Removed‘(b) reflect future drawings either in their conversion factors or in their LGD estimates. In case institutions include future additional drawings in their conversion factors, these should be taken into account in the LGD in both numerator and denominator. In case institutions do not include future additional drawings in their conversion factors, these should be taken into account in the LGD numerator only;’;

Removed(ii) the second subparagraph is replaced by the following:

Removed‘For retail exposures, estimates of LGD shall be based on data over a minimum of five years. Subject to the permission of the competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until the data concerned cover a period of five years.’;

Removed(c) the following paragraphs added:

Removed‘4. EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines to clarify the treatment of any form of funded and unfunded credit protection for the purposes of paragraph 1, point (a), and for the purposes of the application of the LGD parameters;

Removed4a. For the purpose of calculating loss in accordance with point 2 of Article 5 with regard to cases that return to non-default status, the EBA shall issue updated guidelines until 31 December 2025, in accordance with Article 16 of Regulation (EU) No 1093/2010, specifying how artificial cash flow should be treated and consider the possibility of institutions only discounting the artificial cash flow over the actual period of default.’;

Removed(92) Article 182 is amended as follows:

Removed(a) ▌paragraph 1 is amended as follows:

Removed(i) point (c) is replaced by the following:

Removed‘(c) institutions’ IRB-CCF shall reflect the possibility of additional drawings by the obligor up to and after the time a default event is triggered▌;’;

Removed(ii) the following points (g) and (h) are added:

Removed‘(g) institutions’ IRB-CCF shall be estimated using a 12-month fixed-horizon approach▌;

Removed(h) institutions’ IRB-CCF shall be based on reference data that reflect the obligor, facility and bank management practice characteristics of the exposures to which the estimates are applied.

Removed(iii) the following subparagraphs are added:

Removed‘For the purposes of point (c), the IRB-CCF shall incorporate a larger margin of conservatism where a stronger positive correlation can reasonably be expected between the default frequency and the magnitude of the conversion factor.

RemovedFor the purposes of point (g), ▌each ▌default▌ shall be linked to relevant obligor and facility characteristics at the fixed reference date defined as 12 months prior to the date of default▌.

RemovedFor the purposes of point (h), IRB-CCF applied to particular exposures shall not be based on data that comingle the effects of disparate characteristics or data from exposures that exhibit materially different risk characteristics. IRB-CCF shall be based on appropriately homogenous segments. For that purpose, the following practices shall not be allowed or would request a detailed scrutiny and justification:

Removed(a) SME/mid-market underlying data being applied to large corporate obligors;

Removed(b) data from commitments with ‘small’ unused limit availability being applied to facilities with ‘large’ unused limit availability;

Removed(c) data from delinquent obligors or blocked for further drawdowns at reference date being applied to obligors with no known delinquency or relevant restrictions;

Removed(d) data that have been affected by changes in the obligors’ mix of borrowing and other credit-related products over the observation period unless those data have been effectively adjusted by removing the effects of the changes in the product mix.

RemovedFor the purposes of the fourth subparagraph, point (d), institutions shall demonstrate to the competent authorities that they have a detailed understanding of the impact of changes in customer product mix on the exposures reference data sets and associated CCF estimates, and that the impact is immaterial or has been effectively mitigated within their estimation process. In that regard, the following shall not be deemed appropriate:

Removed(a) setting floors or caps to realised CCF or realised exposure values ▌

Removed(b) the use of obligor-level estimates that do not fully cover the relevant product transformation options or inappropriately combine products with very different characteristics,

Removed(c) adjusting only material observations affected by product transformation,

Removed(d) excluding observations affected by product profile transformation.’;

Removed(aa) the following paragraphs are inserted:

Removed‘1a. Institutions shall ensure that their CCF estimates are effectively quarantined from the potential effects of region of instability caused by a facility being close to being fully drawn at reference date.

Removed1b. Reference data must not be capped at the principal amount outstanding of a facility or the available facility limit. Accrued interest, other due payments and drawings in excess of facility limits must be included in the reference data.’;

Removed▌

Removed(c) the following paragraph 5 is added:

Removed‘5. EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines to specify the methodology institutions shall apply to estimate IRB-CCF.

RemovedEBA shall submit those draft regulatory technical standards to the Commission by 31 December 2026.

RemovedPower 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.’;

Removed(93) Article 183 is amended as follows

Removed(a) the title is replaced by the following:

Removed‘Requirements for assessing the effect of unfunded credit protection for exposures to corporates, central governments and central banks where own estimates of LGD are used and for retail exposures’;

Removed(b) paragraph 1 is amended as follows:

Removed(i) point (c) is replaced by the following:

Removed‘(c) the guarantee shall be evidenced in writing, non-cancellable and non-changeable on the part of the guarantor, in force until the obligation is satisfied in full, to the extent of the amount and tenor of the guarantee, and legally enforceable against the guarantor in a jurisdiction where the guarantor has assets to attach and enforce a judgement;

Removed(ii) the following points (d) and (e) are added:

Removed‘(d) the guarantee shall be unconditional.

Removed(e) first-to-default credit derivatives may be recognised as eligible unfunded credit protection, but second-to-default or more generally nth-to-default credit derivatives shall not be recognised as eligible unfunded credit protection.’;

Removed(iii) the following subparagraph is added:

Removed▌

Removed‘Guarantees where the payment by the guarantor is subject to the lending institution first having to pursue the obligor and that only cover losses remaining after the institutions has completed the workout process shall be considered as unconditional.’;