Changes from report parliamentary committee draft to plenary report

Added(c) the value is not higher than a market value for the immovable property where such market value can be determined.

AddedThe value of the collateral shall reflect the results of the monitoring required under Article 208(3) and take account of any prior claims on the immovable property.’;

Added(119) Article 230 is replaced by the following:

Added‘Article 230 Calculating risk-weighted exposure amounts and expected loss amounts for an exposure with an eligible FCP under the IRB Approach

Added1. Under the IRB Approach, except for those exposures that fall under the scope of Article 220, institutions shall use the effective LGD (LGD*) as the LGD for the purposes of Chapter 3 to recognise funded credit protection eligible pursuant to this Chapter. Institutions shall calculate LGD* as follows:

Addedwhere:

AddedE = the exposure value before taking into account the effect of the funded credit protection. For an exposure secured with financial collateral eligible in accordance with this Chapter, that amount shall be calculated in accordance with Article 223(3). In the case of securities lent or posted, that amount shall be equal to the cash lent or securities lent or posted. For securities that are lent or posted the exposure value shall be increased by applying the volatility adjustment (HE) in accordance with Articles 223 to 227;

AddedES = the current value of the funded credit protection received after the application of the volatility adjustment applicable to that type of funded credit protection (HC) and the application of the volatility adjustment for currency mismatches (Hfx) between the exposure and the funded credit protection, in accordance with paragraphs 2 and 2a. ES shall be capped at the following value: E·(1+HE);

AddedEU = E·(1+HE) - ES;

AddedLGDU = the applicable LGD for an unsecured exposure as set out in Article 161(1);

AddedLGDS = the applicable LGD to exposures secured by the type of eligible FCP used in the transaction, as specified in paragraph 2, Table 2aaa.

Added2. Table 2aaa specifies the values of LGDS and Hc applicable in the formula set out in paragraph 1.

AddedTable 2aaa

Added2a. Where an eligible funded credit protection is denominated in a different currency than that of the exposure, the volatility adjustment for currency mismatch (Hfx) shall be the same as the one that applies pursuant to Articles 224 to 227.

Added3. As an alternative to the treatment set out in paragraphs 1 and 2, and subject to Article 124(7), institutions may assign a 50 % risk weight to the part of the exposure that is, within the limits set out in Article 125(1), point (a) and Article 126(1), point (a) respectively, fully collateralised by residential property or commercial immovable property situated within the territory of a Member State where all of the conditions laid down in Article 199, paragraph 3 or 4 are met.

Added4. To calculate risk-weighted exposure amounts and expected loss amounts for IRB exposures that fall within the scope of Article 220, institutions shall use E* in accordance with Article 220(4) and shall use LGD for unsecured exposures, as set out in Article 161(1), points (a), (aa) and (b).’;

Added(120) Article 231 is replaced by the following:

Added‘Article 231 Calculating risk-weighted exposure amounts and expected loss amounts in the case of pools of eligible funded credit protections for an exposure under the IRB Approach

AddedInstitutions that have obtained multiple types of funded credit protections may, for exposures treated under the IRB Approach, apply the formula set out in Article 230, sequentially for each individual type of collateral. For that purpose, those institutions shall, after each step of recognising one individual type of FCP, reduce the remaining value of the unsecured exposure (EU) by the adjusted value of the collateral (ES) recognised in that step. In accordance with Article 230(1), the total of ES across all funded credit protection types shall be capped at the value of E·(1+HE), resulting in the following formula:

Addedwhere:

AddedLGDS,i = the LGD applicable to FCP i, as specified in Article 230(2);

AddedES,i = the current value of FCP i received after the application of the volatility adjustment applicable for the type of FCP (Hc) pursuant to Article 230(2).’;

Added(121) in Article 232, paragraph 1 is replaced by the following:

Added‘1. Where the conditions set out in Article 212(1) are met, cash on deposit with, or cash assimilated instruments held by, a third party institution in a non-custodial arrangement and pledged to the lending institution, may be treated as a guarantee provided by the third party institution.’;

Added(122) in Article 233, paragraph 4 is replaced by the following:

Added‘4. Institutions shall base the volatility adjustments for any currency mismatch on a 10 business day liquidation period, assuming daily revaluation, and shall calculate those adjustments based on the Supervisory Volatility Adjustments as set out in Articles 224. Institutions shall scale up the volatility adjustments in accordance with Article 226.’;

Added(123) Article 235 is amended as follows:

Added(a) the title is amended as follows:

Added‘Calculating risk-weighted exposure amounts under the substitution approach when the guaranteed exposure is under the Standardised Approach’;

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

Added‘1. For the purposes of Article 113(3), institutions shall calculate the risk-weighted exposure amounts for exposures with unfunded credit protection to which those institutions apply the Standardised Approach, irrespective of the treatment of comparable direct exposure to the protection provider, in accordance with the following formula:

Addedmax · r + GA · g

Addedwhere:

AddedE = the exposure value calculated in accordance with Article 111. For that purpose, the exposure value of an off-balance sheet item listed in Annex I shall be 100 % of its value rather than the exposure value indicated in Article 111(1);

AddedGA = the amount of credit risk protection as calculated under Article 233(3) (G*) further adjusted for any maturity mismatch as laid down in Section 5;

Addedr = the risk weight of exposures to the obligor as specified in Chapter 2;

Addedg = the risk weight applicable for a direct exposure to the protection provider as specified in Chapter 2.’

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

Added‘3. Institutions may extend the preferential treatment set out in Article 114, paragraphs 4 and 7, to exposures or parts of exposures guaranteed by the central government or the central bank as if those exposures were direct exposures to the central government or the central bank, provided that the conditions in Article 114, paragraphs 4 or 7, as applicable, are met for such direct exposures.’;

Added(124) the following Article 235a is inserted:

Added‘Article 235a Calculating risk-weighted exposure and expected loss amounts under the substitution approach when the guaranteed exposure is treated under the IRB Approach and comparable direct exposures to the protection provider are treated under the Standardised Approach

Added1. For exposures with unfunded credit protection to which an institution applies the IRB Approach referred to in Chapter 3 and where comparable direct exposures to the protection provider are treated under the Standardised Approach, institutions shall calculate the risk-weighted exposure amounts in accordance with the following formula:

Addedmax · r + GA · g

Addedwhere:

AddedE = the exposure value determined in accordance with Chapter 3, Section 5. For that purpose, institutions shall calculate the exposure value for off-balance sheet items other than derivatives treated under the IRB Approach using CCFs of 100 % instead of the SA-CCFs or IRB-CCFs provided for in Article 166, paragraphs 8, 8a and 8b;

AddedGA = the amount of credit risk protection as calculated in accordance with Article 233(3)

Added(G*) further adjusted for any maturity mismatch as laid down in Chapter 3, Section 5;

Addedr = the risk weight ▌as specified in Chapter 3 by using the PD of the obligor and the LGD of the exposure to the obligor without taking into account the unfunded credit protection;

Addedg = the risk weight applicable for a direct exposure to the protection provider as specified in Chapter 2.

Added2. Where the protected amount (GA) is less than the exposure (E), institutions may apply the formula specified in paragraph 1 only where the protected and unprotected parts of the exposure are of equal seniority.

Added3. Institutions may extend the preferential treatment set out in Article 114, paragraphs 4 and 7, to exposures or parts of exposures guaranteed by the central government or the central bank as if those exposures were direct exposures to the central government or the central bank, provided that the conditions in Article 114, paragraphs 4 or 7, as applicable, are met for such direct exposures.

Added4. The expected loss amount for the covered portion of the exposure value shall be zero.

Added5. For any uncovered portion of the exposure value (E) the institution shall use the risk weight and the expected loss corresponding to the underlying exposure. For the calculation laid down in Article 159, institutions shall assign any general or specific credit risk adjustments or additional value adjustments in accordance with Articles 34 related to the non-trading book business of the institution or other own funds reductions related to the exposure, to the uncovered portion of the exposure value.’;

Added(125) Article 236 is amended as follows:

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

Added‘Calculating risk-weighted exposure amounts and expected loss amounts under the substitution approach when the guaranteed exposure is treated under the IRB Approach and a comparable direct exposure to the protection provider is treated under the IRB Approach’;

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

Added‘1. For an exposure with unfunded credit protection to which an institution applies the IRB Approach referred to in Chapter 3, but without using its own estimates of loss given default (LGD), and where comparable direct exposures to the protection provider are treated under the IRB Approach set out in Chapter 3, institutions shall determine the covered portion of the exposure as the lower of the exposure value E and the adjusted value of the unfunded credit protection GA calculated in accordance with Article 235a(1);’

Added(c) the following paragraphs 1a to 1d are inserted:

Added‘1a. An institution that applies to comparable direct exposures to the protection provider the IRB Approach using own estimates of PD shall calculate the risk-weighted exposure amount and the expected loss amount for the covered portion of the exposure value by using the PD of the protection provider and the LGD applicable for a comparable direct exposure to the protection provider as referred to in Article 161(1), in accordance with paragraph 1b. For subordinated exposures and non-subordinated unfunded credit protection, the LGD to be applied by institutions to the covered portion of the exposure value is the LGD associated with senior claims and▌ may account for any funded credit protection securing the unfunded credit protection in accordance with this Chapter.