Changes from report parliamentary committee draft to plenary report

AddedAn institution that has not received permission to use IRB-CCF ▌, shall calculate the exposure value as the committed but undrawn amount multiplied by the SA-CCF concerned.

AddedAn institution that uses IRB-CCF, shall calculate the exposure value for undrawn commitments as the undrawn amount multiplied by an IRB-CCF.’;

Added(b) the following paragraphs 8a, 8b and 8c are inserted:

Added8a. For an exposure for which an institution has not received permission to use IRB-CCF▌, the applicable CCF shall be the SA-CCF as provided under Chapter 2 for the same types of items as laid down in Article 111. The amount to which the SA-CCF shall be applied shall be the lower of the value of the undrawn committed credit line, and the value that reflects any possible constraining of the availability of the facility, including the existence of an upper limit on the potential lending amount which is related to an obligor’s reported cash flow. Where a facility is constrained in that way, the institution shall have sufficient line monitoring and management procedures to support the existence of that constraining.

Added8b. Subject to the permission of competent authorities, institutions that meet the requirements for the use of IRB-CCF as specified in Section 6 shall use IRB-CCF for exposures arising from undrawn revolving commitments treated under the IRB Approach provided that those exposures would not be subject to a SA-CCF of 100 % under the Standardised Approach. SA-CCF shall be used for:

Added(a) all other off-balance sheet items, in particular undrawn non-revolving commitments;

Added(b) exposures where the minimum requirements for calculating IRB-CCF as specified in Section 6 are not met by the institution or where the competent authority has not permitted the use of IRB-CCFs.

AddedFor the purposes of this Article, a commitment shall be deemed ‘revolving’ where it lets an obligor obtain a loan where the obligor has the flexibility to decide how often to withdraw from the loan and at what time intervals, allowing the obligor to drawdown, repay and re-draw loans advanced to it. Contractual arrangements that allow prepayments and subsequent redraws of those prepayments shall be considered as revolving.

Added8c. Where the IRB-CCF are used for the sole purposes of calculating risk-weighted exposure amounts and expected loss amounts of exposures arising from revolving commitments other than exposures assigned to the exposure class in accordance with Article 147(2), point (a), in particular pursuant to Article 153(1), Article 157, Article 158 paragraph 1, 5 and 10, the exposure value for each exposure used as input in the risk-weighted exposure amount and expected loss formulas shall not be less than the sum of:

Added(a) the drawn amount of the revolving commitment;

Added(b) 50 % of the off-balance exposure amount of the remaining undrawn part of the revolving commitment calculated using the applicable SA-CCF provided for in Article 111.

AddedThe sum of points (a) and (b) shall be referred to as the ‘CCF input floor’.’;

Added(c) paragraph 10 is deleted;

Added(80) Article 167 is deleted;

Added(81) in Article 169(3), the following subparagraph is added:

Added‘EBA shall issue guidelines on how to apply in practice the requirements on model design, risk quantification, validation and application of risk parameters using continuous or very granular rating scales for each risk parameter. Those guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010.’;

Added(82) in Article 170(4), point (b) is replaced by the following:

Added‘(b) transaction risk characteristics, including product and funded credit protection, recognised unfunded credit protection, loan to value measures, seasoning and seniority. Institutions shall explicitly address cases where several exposures benefit from the same funded or unfunded credit protection;’;

Added(83) in Article 171, the following paragraph 3 is added:

Added‘3. Although the time horizon used in PD estimation is one year, institutions shall use a longer time horizon in assigning ratings. A borrower rating must represent the institution’s assessment of the borrower’s ability and willingness to contractually perform independently from the adverse economic conditions or the occurrence of unexpected events. Rating systems shall be designed in such a way that idiosyncratic or industry-specific changes are a driver of migrations from one grade to another. In addition, business cycles effects shall be taken into account as a driver for migrations of obligors and facilities from one grade or pool to another.’;

Added(84) in Article 172, paragraph 1 is amended as follows:

Added(a) the introductory sentence is replaced by the following:

Added‘For exposures to corporates, institutions and central governments and central banks, assignment of exposures shall be carried out in accordance with the following criteria:’;

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

Added‘(d) each separate legal entity to which the institution is exposed shall be separately rated;’;

Added(c) the following subparagraph is added:

Added‘For the purposes of point (d), an institution shall have appropriate policies for the treatment of individual obligor clients and groups of connected clients. Those policies shall contain a process for the identification of specific wrong way risk for each legal entity to which the institution is exposed. For the purposes of Chapter 6, transactions with counterparties where specific wrong way risk has been identified shall be treated differently when calculating their exposure value For the purposes of Chapter 3, transactions with counterparties where specific wrong way risk has been identified shall be treated differently when calculating their loss given default.’;

Added(85) Article 173 is amended as follows:

Added(a) in paragraph 1, the introductory sentence is replaced by the following:

Added‘For exposures to corporates, institutions and central governments and central banks, assignment process shall meet the following requirements:’;

Added(b) paragraph 3 is replaced by the following:

Added‘3. EBA shall develop draft regulatory technical standards setting out the methodologies of the competent authorities to assess the integrity of the assignment process and the regular and independent assessment of risks.

AddedEBA shall submit those draft regulatory technical standards to the Commission by 31 December 2025.

AddedPower 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.’;

Added(86) Article 174 is amended as follows:

Added(a) the introductory sentence is replaced by the following:

Added‘If an institution uses statistical or other mathematical methods (‘models’) to assign exposures to obligors or facility grades or pools, ▌the following requirements shall be met:’;

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

Added‘(a) the model shall have good predictive power and capital requirements shall not be distorted as a result of its use;’;

Added(c) the following subparagraph is added:

Added‘For the purposes of point (a), the input variables shall form a reasonable and effective basis for the resulting predictions. The model shall not have material biases. There shall be a functional link between the inputs and the outputs of the model, which may be determined through expert judgement where appropriate.’;

Added(87) Article 176 is amended as follows:

Added(a) in paragraph 2, the introductory sentence is replaced by the following:

Added‘For exposures to corporates, institutions and central governments and central banks, institutions shall collect and store:’;

Added(b) paragraph 3 is replaced by the following:

Added‘3. For exposures for which this Chapter allows the use of own estimates of LGDs or the use of IRB-CCFs but for which institutions do not use own estimates of LGDs or IRB-CCFs, institutions shall collect and store data on comparisons between realised LGDs and the values as set out in Article 161(1), and between realised CCFs and SA-CCFs as set out in Article 166(8a).’;

Added(88) ▌Article 177 is amended as follows:

Added(a) the following paragraph is inserted:

Added‘2a. The scenarios used under paragraph 2 must also include ESG risk factors, in particular physical and transition risks stemming from climate change.

AddedEBA shall issue guidelines on the application of paragraph 2a of this Article. Those guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010.’;

Added(b) paragraph 3 is deleted.

Added(89) Article 178 is amended as follows:

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

Added‘Default of an obligor or facility’

Added(b) in paragraph 1, point (b) is replaced by the following:

Added‘(b) the obligor is more than 90 days past due on any material credit obligation to the institution, the parent undertaking or any of its subsidiaries.’;

Added(c) in paragraph 3, point (d) is replaced by the following:

Added‘(d) the institution consents to a distressed restructuring of the credit obligation where such restructuring is likely to result in a diminished financial obligation due to the material forgiveness, or postponement, of principal, interest or, where relevant, fees. A distressed restructuring shall be considered to have occurred when forbearance measures as referred to in Article 47b have been extended toward the obligor;’;

Added(ca) paragraph 7 is replaced by the following:

Added‘7. By 30 June 2024 EBA shall issue updated guidelines on the application of this Article and, in particular, what constitutes a material ‘diminished financial obligation’ in case of distressed restructuring for the purposes of point (d) of paragraph 3. Those guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010.’;