Changes from report parliamentary committee draft to plenary report

Added5a. To the extent that an institution recognises FCP under the IRB Approach, the institution may recognise the FCP in the calculation of the LGD input floor for secured exposures. Otherwise, the LGD input floor for unsecured exposures shall apply.

Added6. Where an institution that uses own LGD estimates for a given type of corporate unsecured exposures is not able to take into account the effect of the FCP securing one of the exposures of that type of exposures in the own LGD estimates due to lack of data, the institution shall be permitted to apply the formula set out in Article 230, with the exception that the LGDU term in that formula shall be the institution’s own LGD estimate for unsecured exposures. In that case, the FCP shall be eligible in accordance with Chapter 4 and the institution’s own LGD estimate used as LGDU term shall be calculated based on underlying losses data excluding any recoveries arising from that FCP.

Added6a. For exposures assigned to the exposure class ‘exposures to regional government and local authorities and to public sector entities (‘RGLA-PSE’), referred to in Article 147(2), point (a1), for the sole purpose of calculating risk weighted exposure amounts and expected loss amounts of those exposures, where own LGD estimates are used, the LGD values used as an input of the risk weight and expect loss formulas shall not be less than the following value: 5%.’;

Added(75) Article 162 is amended as follows:

Added(a) paragraph 1 is replaced by the following:

Added‘1. For exposures for which an institution has not received permission of the competent authority to use own estimates of LGD, the maturity value (‘M’) shall either be set at 2,5 years, except for exposures arising from securities financing transactions, for which M shall be 0,5 years or, alternatively, calculated in accordance with paragraph 2.

Added▌’;

Added(b) paragraph 2 is amended as follows:

Added(i) the introductory phrase in paragraph 2 is replaced by the following:

Added‘For exposures for which an institution applies own estimates of LGD, the maturity value (‘M’) shall be calculated using periods of times expressed in years, as set out in this paragraph and subject to paragraphs 3 to 5 of this Article. M shall be no greater than 5 years, except in the cases specified in Article 384(2) where M as specified there shall be used. M shall be calculated as follows in each of the following cases:’;

Added(ii) the following points (da) and (db) are inserted:

Added‘(da) for secured lending transactions which are subject to a master netting agreement, M shall be the weighted average remaining maturity of the transactions where M shall be at least 20 days. The notional amount of each transaction shall be used for weighting the maturity;

Added(db) for a master netting agreement including more than one of the transaction types corresponding to points (c), (d) or (da), M shall be the weighted average remaining maturity of the transactions where M shall be at least the longest holding period (expressed in years) applicable to such transactions as provided in Article 224(2) (either 10 days or 20 days, depending on the cases). The notional amount of each transaction shall be used for weighting the maturity’;

Added(iii) point (f) is replaced by the following:

Added‘(f) for any instrument other than those referred to in this paragraph or when an institution is not in a position to calculate M as set out in point (a), M shall be the maximum remaining time (in years) that the obligor is permitted to take to fully discharge its contractual obligations (principal, interest, and fees), where M shall be at least one year;’;

Added(iv) point (i) is replaced by the following:

Added‘(i) for institutions using the approaches referred to in Article 382a(1), points (a) or (b), to calculate own fund requirement for CVA risks of transactions with a given counterparty, M shall be no greater than 1 in the formula laid out in Article 153(1) for the purposes of calculating the risk weighted exposure amounts for counterparty risk for the same transactions, as referred to in Article 92(4), points (a) or (f), as applicable;’;

Added(v) point (j) is replaced by the following:

Added‘(j) For revolving exposures, M shall be determined using the maximum contractual termination date of the facility. Institutions shall not use the repayment date of the current drawing if this date is not the maximum contractual termination date of the facility.’;

Added(c) paragraph 3 is amended as follows:

Added(i) in the first subparagraph, the introductory sentence is replaced by the following:

Added‘Where the documentation requires daily re-margining and daily revaluation and includes provisions that allow for the prompt liquidation or set off of collateral in the event of default or failure to remargin, M shall be the weighted average remaining maturity of the transactions and M shall be at least one day:’;

Added(ii) the second subparagraph is amended as follows:

Added– point (b) is replaced by the following:

Added‘(b) self-liquidating short-term trade finance transactions connected to the exchange of goods or services, ▌ as referred to in Article 4(1), point (80) and corporate purchased receivables, provided that the respective exposures have a residual maturity of up to one year;’;

Added– the following point (e) is added:

Added‘(e) issued as well as confirmed letters of credit that are short term, meaning they have a maturity below 1 year, and are self-liquidating.’;

Added(d) paragraph 4 is replaced by the following:

Added‘4. For exposures to corporates established in the Union which are not large corporates, institutions may choose to set for all such exposures M as set out in paragraph 1 instead of applying paragraph 2.’;

Added(e) the following new paragraph 6 is added:

Added‘6. For the purposes of expressing in years the minimum numbers of days referred to in paragraph 2, points (c) to (db), and paragraph 3, the minimum numbers of days shall be divided by 365,25.’;

Added(76) Article 163 is amended as follows:

Added(a) paragraph 1 is replaced by the following:

Added‘1. For the sole purposes of calculating risk weighted exposure amounts and expected loss amounts of those exposures, and in particular for the purposes of Article 154, Article 157 and Article 158, paragraphs 1, 5 and 10, the PD for each retail exposure that is used in the input of the risk weight and expected loss formulas shall not be less than the one-year PD associated with the internal borrower grade to which the retail exposure is assigned and the following:

Added(a) 0,1 % for QRRE revolvers;

Added(b) 0,05 % for retail exposures which are not QRRE revolvers.’;

Added(b) paragraph 4 is replaced by the following:

Added‘4. For an exposure covered by an unfunded credit protection, an institution using own LGD estimates under Article 143 for direct comparable exposures to the protection provider may recognise the unfunded credit protection in the PD in accordance with Article 183.’;

Added(77) Article 164 is amended as follows:

Added(a) paragraphs 1 and 2 are replaced by the following:

Added‘1. Institutions shall provide own estimates of LGDs subject to the requirements specified in Section 6 of this Chapter and to permission of the competent authorities granted in accordance with Article 143. For dilution risk of purchased receivables, an LGD value of 100 % shall be used. Where an institution can decompose its expected loss estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the institution may use its own LGD estimate.

Added2. Institutions using own LGD estimates pursuant to Article 143 for direct comparable exposures to the protection provider may recognise the unfunded credit protection in the LGD in accordance with Article 183.’;

Added(b) paragraph 3 is deleted;

Added(c) paragraph 4 is replaced by the following:

Added‘4. For the sole purpose of calculating risk weighted exposure amounts and expected loss amounts for retail exposures, and in particular pursuant to Article 154(1), Article 157, Article 158, paragraphs 1 and 10, the LGD for each exposure used as an input of the risk weight and expected loss formulas shall not be less than the LGD input floor values laid down in Table 2aa and in accordance with paragraphs 4a and 4b:

AddedTable 2aa

Added’;

Added(d) the following paragraphs 4a and 4b are inserted:

Added‘4a. For the purposes of paragraph 4, the following shall apply:

Added(a) LGD input floors in paragraph 4, Table 2aa shall be applicable for exposures secured with FCP when the FCP is eligible pursuant to this Chapter;

Added(b) except for retail exposures secured by residential property, the LGD input floors in paragraph 4, Table 2aa shall be applicable to exposures fully secured with FCP where the value of the FCP, after the application of the relevant volatility adjustments in accordance with Article 230, is equal to or exceeds the value of the underlying exposure;

Added(c) except for retail exposures secured by residential property, the applicable LGD input floor for an exposure partially secured with FCP is calculated in accordance with the formula laid down in Article 161(5);

Added(d) for retail exposures secured by residential property, the applicable LGD input floor shall be fixed at 5 % irrespective of the level of collateral provided by the residential property.

AddedFor the purposes of point (b), the type of FCP "Other physical collateral" in Table 2aaa of Article 230 shall be understood as "Other physical and other eligible collateral".

Added4b. To the extent that an institution ▌recognises ▌FCP under the IRB Approach, the institution may recognise the FCP in the calculation of the LGD input floor for secured exposures. Otherwise, the LGD input floor for unsecured exposures shall apply.’;

Added(78) Part Three, Title II, Chapter 3, Section 4, Sub-Section 3 is deleted.;

Added(79) Article 166 is amended as follows:

Added(a) paragraph 8 is replaced by the following:

Added‘8. The exposure value of off-balance sheet items which are not contracts as listed in Annex II, shall be calculated by using either using IRB-CCF or SA-CCF, in accordance with paragraphs 8a and 8b and Article 151(8).

AddedWhere only the drawn balances of revolving facilities have been securitised, institutions shall ensure that they continue to hold the required amount of own funds against the undrawn balances associated with the securitisation.