Search for Q&As Submit a question

List of Q&As

Grandfathering limit

Once applicable percentages in the range are specified by the local regulator, would it be applied: (1) at the beginning of the period; (2) at the end of the period or (3) on a straight-line basis throughout the 12 months period?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_30| Topic: Own funds| Date of submission: 05/07/2013

Anerkennung der Kapitalrücklage "zugehörig zu" deutschen Vorzugsaktien als Kernkapital - Recognition as Tier 1 equity of share premiums related to German preference shares

Kapitalinstrumente dürfen gem. Art. 28 Abs. 1 Buchstabe h Ziffer i CRR keine Vorzugsbehandlung erfahren. In Ziffer vi wird bestimmt, dass keine Ausschüttungspflicht bestehen darf. Deutsche Vorzugsaktien genügen diesen Anforderungen bislang nicht, da sie einen nachzuzahlenden Vorzug beinhalten. Deswegen sind sie bislang als Ergänzungskapital nach KWG anerkannt. Die Kapitalrücklage "zugehörig zu" den Vorzugsaktien gilt bislang als Kernkapital. Gem. Artikel 26 Abs. 1 Buchstabe b soll nur das mit dem Kapitalinstrument verbundene Agio als Kernkapital gelten, d.h. die Kapitalrücklage die mit dem Ergänzungskapital "verbunden" ist, gehört gem. Art. 62 Buchstabe b mit Inkrafttreten der CRR zum 01.01.2014 zum Ergänzungskapital. Am 28. Juni 2013 hat der Deutsche Bundestag die Aktienrechtsnovelle beschlossen. Der Sechste Unterabschnitt des Aktiengesetzes (Vorzugsaktien ohne Stimmrecht) wird in § 139 dahingehend geändert, dass das Wort "nachzuzahlenden" gestrichen wird, somit also nur noch von "Aktien, die mit einem Vorzug bei der Verteilung des Gewinns ausgestattet sind" die Rede ist. Weiterhin muss die Satzung dahingehend geändert werden, dass der Vorzug nicht nachgezahlt wird. Damit dürften deutsche Vorzugsaktien grundsätzlich kernkapitalfähig sein. Die Reihenfolge der Ausschüttungen wird in Art. 28 Abs. 1 Buchstabe h Ziffer i der CRR ebenfalls ausgeschlossen. Dort steht: "es gibt keine Vorzugsbehandlung in Bezug auf die Reihenfolge der Ausschüttungen, auch nicht im Zusammenhang mit anderen Instrumenten des harten Kernkapitals, und in den für das Instrument geltenden Bestimmungen sind keine Vorzugsrechte für die Auszahlung von Ausschüttungen vorgesehen". Weiterhin steht in § 28 Abs. 4 CRR: Für die Zwecke des Absatzes 1 Buchstabe h Ziffer i dürfen Unterschiede bei der Ausschüttung nur Ausdruck von Unterschieden bei den Stimmrechten sein. Hierbei darf eine höhere Ausschüttung nur für Instrumenten des harten Kernkapitals vorgenommen werden, an die weniger oder keine Stimmrechte geknüpft sind." Zu der Bedeutung des Begriffs „Vozugsausschüttung“ gem. Art. 28 Abs. 5 Buchstabe c CRR soll die EBA einen technischen Regulierungsstandard erarbeiten. Im RTS 2013/01 (Own funds) habe ich diesbezüglich keine Besonderheiten gefunden. Sind deutsche Vorzugsaktien nach der Aktienrechtsnovelle kernkapitalfähig, so dass auch das Agio, das mit dem Instrument "verbunden" ist, im Kernkapital anerkannt werden kann? Translation to EN: Under Article 28(1)(h)(i) of CRR, there must be no preferential distribution treatment regarding the order of distribution payments in respect of Common Equity Tier 1 instruments. Item h(vi) specifies that there must be no obligation to pay distributions. German preference shares do not yet meet these requirements, because they entail a cumulative preferential distribution. For this reason they have hitherto been recognised as supplementary capital under the Banking Act (Kreditwesensgesetz). The capital surplus comprising German preference shares has always counted as Tier 1 equity. Under Article 26(1)(b) of CRR, only the share premium accounts related to the capital instrument are to be regarded as a Common Equity Tier 1 item, which means that, under Article 62(b), capital surplus ‘related to’ supplementary capital will be a Tier 2 item when the CRR enters into force on 1 January 2014. On 28.06.13, the Bundestag adopted a revision of company law. The sixth subsection of the Companies Act (Aktiengesetz), headed ‘Non-voting preference shares’, was amended in Section 139, the word ‘cumulative’ being deleted, leaving only a reference to ‘shares that carry the benefit of a preference right with regard to the distribution of profits’. In addition, the company’s instruments of incorporation must be amended to the effect that preferential distributions are not payable on a cumulative basis. This ought to ensure that German preference shares qualify, in principle, as Tier 1 capital. An order of distribution is also ruled out by Article 28(1)(h)(i) of CRR, which states that ‘there is no preferential distribution treatment regarding the order of distribution payments, including in relation to other Common Equity Tier 1 instruments, and the terms governing the instruments do not provide preferential rights to payment of distributions’. Moreover, Article 28(4) of CRR states that ‘For the purposes of point (h)(i) of paragraph 1, differentiated distributions shall only reflect differentiated voting rights. In this respect, higher distributions shall only apply to Common Equity Tier 1 instruments with fewer or no voting rights.’ Article 28(5)(c) of CRR states that the EBA should develop a draft regulatory technical standard to specify the meaning of preferential distributions. In RTS 2013/01, on institutions’ own funds, I have not found any particularly relevant provisions. Do German preference shares qualify as Tier 1 capital under the amended Companies Act, which would mean that share premium accounts ‘linked to’ the instrument may be recognised as part of Tier 1 capital?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_24| Topic: Own funds| Date of submission: 05/07/2013

Credit risk approach applicable to exposures to CCPs: standardized approach (SA) or internal rating based approach (IRB)

Is the IRB approach applicable to exposures to CCPs?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_172| Topic: Credit risk| Date of submission: 20/08/2013

Prudential Consolidation of Financial Institutions

'Financial Institution' means an undertaking other than an institution, the principle activity of which is to acquire holdings or to pursue one or more of the activities listed in points 2 to 12 and point 15 of Annex 1 to Directive 2013/36/EU, including a financial holding company, a mixed financial holding company, a payment institution within the meaning of Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (1), and an asset management company, but excluding insurance holding companies and mixed-activity insurance holding companies as defined in point (g) of Article 212(1) of Directive 2009/138/E. The definition in Article 4(1)(26) Regulation 575/2013 is in line with the definition of financial institution under Article 4(5) of Directive 2006/48/EC in that it encompasses firms whose principle activity is to acquire holdings or to perform the activities under Annex 1 of Directive 2013/36/EU. The EU had issued guidance on its Your Question on Legislation ('YQOL') site that indicated that, for Article 4(5) of 2006/48/EC it was correct to consider holding companies as financial institutions. We understand that t his has been interpreted differently by different regulators in the EU, in particular, where a bank owns shares in a holding company that owns a non-financial group (i.e. a group that does not undertake an Annex 1 activity), certain regulators have taken the view that the holding company as a legal entity should be consolidated for regulatory capital purposes whilst the non-financial subsidiaries are deconsolidated. However, other regulators have considered the nature of the activities of the group (holding company plus non-financial subsidiaries) and determined that the holding company need not be consolidated. Could the EBA please clarify which interpretation is correct?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_310| Topic: Other topics| Date of submission: 01/10/2013

Treatment of commodity indices

Must exposures to commodity indices be broken down into its underlying constituent commodities or can a commodity index be treated as if it were an individual commodity, just like stock indices (see Article 344 of Regulation (EU) No. 575/2013 (CRR))?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_163| Topic: Market risk| Date of submission: 14/08/2013

Scope of application of Articles 341 to 344 of Regulation (EU) No. 575/2013 (CRR)

Article 341 starts with "The institution shall separately sum all its net long positions and all its net short positions in accordance with Article 327.". Does "all positions" also include positions in the banking book, or are Articles 341-344 only valid for positions in the trading book?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_157| Topic: Market risk| Date of submission: 14/08/2013

Scope of application of Articles 339 and 340 of Regulation (EU) No 575/2013 (CRR)

Article 339 of Regulation (EU) No. 575/2013 starts with "In order to calculate own funds requirements against general risk all positions shall be weighted...". Does "all positions" also include positions in the banking book or are Articles 339 and 340 only valid for positions in the trading book?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_155| Topic: Market risk| Date of submission: 13/08/2013

Scope of calculation of own funds requirements for CVA risk

Can you provide some details on what criteria and/or thresholds are likely to apply in order to determine that securities financing transactions are material in the context of article 382(2)?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_130| Topic: Market risk| Date of submission: 07/08/2013

Information to be declared under the concept of "discretionary pension benefits" in the annex of EBA/GL/2012/5 and in annex 2 of EBA/GL/2012/4

(1) What is the information to be declared by institutions under the concept of “total discretionary pension benefits” established in the annex of GL 5? A. Contributions made, during the year, by the credit institution to the company’s pension scheme, on behalf of the employee as part of their variable remuneration, or B. Amounts to be paid, or already satisfied, by the credit institution to the employees who have left the institution or got retired during the year. (2) What is the information to be declared by institutions under the concept of “total discretionary pension benefits” established in the annex 2 of GL 4? A. Contributions made, during the year, by the credit institution to the company’s pension scheme, on behalf of the employee as part of their variable remuneration, or B. Amounts to be paid, or already satisfied, by the credit institution to the employees who have left the institution or retired during the year.

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_103| Topic: Remuneration| Date of submission: 30/07/2013

Exclusion of provisioned counterparties from the CVA capital charge

Could you confirm that a defaulted or doubtful counterparty that is subject to specific provisions/cost of risk shall not be subject to the CVA capital charge?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_99| Topic: Market risk| Date of submission: 26/07/2013

Grandfathering on own funds instruments

What will be the treatment of the "phased-out" amounts which exceed the applicable percentages according to Article 486 (5)) of grandfathered Additional Tier 1 instruments which are non-eligible due to an incentive to redeem (accord. to Art 489) or a coupon pusher (accord. to Art 53 (a)), during the grandfathering period (accord. to Art. 486 (5)). Will the phased-out amounts flow into grandfathered Tier 2 amounts (subject to applicable limits) or will they lose their regulatory recognition completely (i.e. are these amounts entirely eliminated from regulatory own funds)?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_56| Topic: Own funds| Date of submission: 10/07/2013

Grandfathering of Non-Step Tier 1 instruments

A Tier 1 instrument, with no incentive to redeem, was issued prior to 31 December 2011, and, at the time of issue, was not callable for 5 years. It reaches its first call date in May 2014, and is callable quarterly thereafter. It is not called at its first call date. It does not meet all of the requirements as T1 capital under Article 52. Subject to grandfathering limits, does the instrument continue to count as Tier 1 capital? If it does not count toward Tier 1, would it count as Tier 2?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_52| Topic: Own funds| Date of submission: 09/07/2013

Treatment of non-step Tier 1 hybrids post grandfathering

This query concerns “non-innovative” (i.e. non step) hybrid Tier 1 instruments that fully qualified as original own funds which are now callable every quarter, which do not meet the requirements of Article 52 but are eligible for grandfathering under Article 484 of Regulation (EU) No. 575/2013 (CRR). Once they cease to be eligible (in part or in full) as AT1 due to the grandfathering limits, is the de-recognised amount eligible as Tier 2?"

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_40| Topic: Own funds| Date of submission: 05/07/2013

Grandfathering of capital instruments

This question concerns two types of non-innovative Hybrid Tier 1 instruments (both issued before 31 December 2011): -- Type A: securities with first call date occurred in year 5, and before 31 December 2012; -- Type B: securities with first call date occurred in year 5, and after 31 December 2012. Questions: 1. For both A and B, is it correct to follow Article 484(4) & Article 486(3) for grandfathering guidelines? 2. For both A and B, is it correct to assume that the amount in excess of the applicable Tier 1 grandfathering percentage limit will be treated as grandfathered Tier 2 capital, i.e. being subject to the Tier 2 cap, as per Article 487(2)? 3. Alternatively, for both A and B, can the amount in excess of the applicable Tier 1 grandfathering percentage limit be treated as Tier 2 in full from 1 January 2014? Since they are meeting all the criteria for Tier 2 capital under Regulation (EU) No. 575/2013, as per Article 63 post the call date?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_28| Topic: Own funds| Date of submission: 05/07/2013

Grandfathering of Tier 1 instruments

In your response to the following question "What will be the treatment of an Additional Tier 1 (AT1) instrument structured with a first call date and one step up after 5 years prior to 1 January 2013, callable quarterly thereafter at every interest payment date without any step up (subject to supervisory approval)? Is the instrument eligible for grandfathering if not called at the first call date? If the instrument is derecognized as AT1 on 1 January 2013, can it be included into Tier 2 and, if so, what amount will be eligible (full amount or gradually phased out amount)?”, you mention that: "because in particular of the quarterly call, the instrument would not meet the eligibility criteria for inclusion in fully eligible Tier 2 capital. It would also not meet the eligibility criteria for inclusion in grandfathered Tier 2 capital as foreseen under Article 484 (5) of Regulation (EU) No 575/2013." Does that mean that an existing non-innovative (i.e. non-step) Tier 1 instrument with quarterly calls will also not be grandfathered in Tier 2 capital because of the quarterly calls?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_31| Topic: Own funds| Date of submission: 05/07/2013

First reporting date / reporting period

Given that the application date of Directive 2013/36/EU (CRD) / Regulation (EU) No 575/2013 (CRR) has now changed from 1 January 2014 to 31 December 2013 (see Directive 2013/36/EU, Article 162, Paragraph 1), what is the first reporting date / reporting period, specifically for the LCR and NSFR returns (Regulation (EU) No 575/2013, Part Six, Title II and Title III, respectively), but also for other returns such as COREP? Supplementary question: If the first reporting date is 31 December 2013, i.e. the first reporting period for the LCR return, for example, is December 2013, this would mean that most of the reporting period lies outside the application date of the legal provisions (CRD and CRR) underpinning the reporting. Do you see any legal complications in this fact?"

COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (as amended)

ID: 2013_25| Topic: Supervisory reporting| Date of submission: 05/07/2013

Own funds: Value adjustments for prudent valuation (Additional Value Adjustments)

Article 34 of Regulation (EU) No 575/2013 (CRR) requires institutions to deduct from CET1 the amount of any additional value adjustments on all assets measured at fair value calculated in accordance with a prudent valuation of these assets based on the provisions specified in Article 105 of CRR. In this context, paragraph 14 of Article 105 of CRR specifies that EBA shall submit draft regulatory technical standards (RTS) to the Commission by 28 July 2013 (as per CRR corrigendum published on 2 August 2013). In this regard the EBA published a draft consultation paper (EBA/CP/2013/28) whereby it is specified that "as a consequence of the EBA decision to conduct a QIS, the EBA currently envisages to finalise the technical standard in Q2 2014". On 7 October 2013 the EBA published revised deadlines for the delivery of the technical standards to the European Commission; in particular it is specified that the revised deadline for the submission of the RTS on prudent valuation (Article 105(14) CRR) has been postponed to 1 June 2014. Therefore it is not clear as concerns the first reporting date on Q12014 whether institutions must: 1) not apply the prudential filter (i.e. the relative reporting item shall be valued zero) until the publication of the final EBA RTS 2) calculate the prudential filter in accordance with the Basel II framework (i.e. requirements for prudent valuation defined by each local regulator) 3) calculate the prudential filter in accordance with the draft EBA standards as defined in consultation paper EBA/CP/2013/28

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_359| Topic: Market risk| Date of submission: 08/10/2013

Operational risk risk

Article 95 (3) in Regulation (EU) No 575/2013 (CRR) has a reference to Title VII, Chapter 3, Section II, Sub-section 1 of Directive 2013/36/EU. From reviewing Directive 2013/36/EU (CRD) there are no sub-sections of the above mentioned Section II. Section II which starts with Article 119 regards Financial holding companies etc. In light of this the reference to the CRD in Article 95 (3) of the CRR does not seem to be correct, could the EBA please provide guidance?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_358| Topic: Operational risk| Date of submission: 08/10/2013

Artikel 115 (3) Zuordnung von Religiongemeinschaften zu Forderungsklasse/ Attribution of religious communities to an exposure class

Was ist mit der Aussage im 3. Satz gemeint: In diesem Fall gilt Absatz 2 nicht..." ? English translation: What does the statement ‘In this case, paragraph 2 shall not apply…’ in Article 115(3) mean?

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_327| Topic: Credit risk| Date of submission: 04/10/2013

Use of Core Market Participants Rule

This question regards the use of the Core Market Participants rule (Article 227 of Regulation (EU) No 575/2013 (CRR)) in the context of Master Netting Agreements with Own Estimates of Volatility (Article 220). The rule detailed under Article 227 of CRR specifically excludes only the Internal Models Approach for Master Netting Agreements (Article 221), and is consistent with the Basel II text (June 2006) in which paragraph 170 excludes the same approach in paragraphs 178-181. However, paragraph 177 of the June 2006 text provides for repo-style transactions under master netting agreements to have haircuts calculated in accordance with paragraphs 147-172, inclusive of the core market participant rules. This is in contrast to the CRR, where article 220(1) is only inclusive of the volatility adjustments detailed in Articles 223-226, thereby excluding the core market participant rule. The question is whether this exclusion in the final CRR was intentional or an oversight.

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2013_269| Topic: Credit risk| Date of submission: 24/09/2013