20 December 2013
The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) on the method for the identification of the geographical location of the relevant credit exposures. These RTS ensure a consistent EU wide implementation of the countercyclical buffer (CCB) to protect against excess credit growth.
The countercyclical buffer (CCB) was introduced by the CRD IV package so that national authorities can protect the banking system against potential losses when excess credit growth is associated with an increase in system wide risk.
In order to establish their exact institution-specific buffer rate, banks with relevant exposures to different jurisdictions must therefore assess the proportion of their exposures in each jurisdiction and need to identify the geographical location of their relevant credit exposures. These RTS specify in detail how the geographical location of credit, trading and securitisation exposures shall be determined, as mentioned in Article 140(7) CRD.
The main principle for identifying the geographical location of relevant exposures is the obligor principle, i.e. the residence of the obligor. Further details on this principle for credit risk, trading book and securitisation exposures, are specified in these RTS.
Regarding trading book exposures, the RTS take into account banks that use internal models to calculate the geographical location of trading book exposures. Institutions will be required to determine the location of these exposures by running their internal models on sub-portfolios split by geographical location.
These RTS also include proportionality and materiality considerations for institutions with limited foreign exposures. This is intended to alleviate the regulatory burden for smaller institutions, which tend to have more limited foreign trading activity.
Legal basis and next steps
These draft RTS are produced in accordance with Article 10 of the EBA Regulation (EU) No 1093/2010. Pursuant to Article 10(4) of the EBA Regulation, these RTS shall be adopted by means of a regulation or decision. The EBA has developed these draft RTS on the basis of the Directive 2013/36/EU of the European Parliament and of the Council (CRD).