Question ID:
2016_3055
Legal Act:
Directive 2013/36/EU as amended by Directive (EU) 2019/878 – CRD5
Topic:
Other topics
Article:
130
Paragraph:
1
COM Delegated or Implementing Acts/RTS/ITS/GLs:
Not applicable
Article/Paragraph:
1
Type of submitter:
Credit institution
Subject Matter:
Basis of risk exposures to take in consderation for calculation of the countercyclical buffer (CcyB)
Question:

Should the risk exposure basis to take in consideration for calculation of CCyB be limited to the "relevant exposures" (as defined in Article 140(4) of Directive 2013/36/EU (CRD)) which are considered for assessment of the institution-specific CCyB rate?

Background on the question:

Any other interpretation - ie including also the "non relevant exposures" in the calculation basis- would lead to requiring CCyB also on those non relevant exposures. As an illustration, take the extreme example of a bank having only 2 risk weighted assets (RWA) : a) EUR 100.000.000 on a Belgian bank (non relevant exposure, in addition on a country with 0% CCyb rate) ; b) EUR 100 on a Norwegian retail client (relevant exposure, on country with CCyB rate 1.5%) -> the institution-specific CCyB rate is in this case 1.5% (ie 1.5%*100/100) -> the CCyB required to cover the exposure on the Norwegian retail client should be EUR 100*1.5% = EUR 1.5 -> however , if applied to total RWA, CCyB would be EUR 100.000.100*1.5% = EUR 1.500.001.5 -> hence, the bank's capital requirement in respect of its (non relevant + on country with CCyB rate 0%) Belgian interbank exposure would be increased by EUR 1.5mio, due to presence of the tiny and completely uncorrelated other exposure on a Norwegian retail client!? Such calculation would appear completely inconsistent and beyond the scope of CCyB, which as we understand is to require extra capital cover on -and only on- specific relevant exposures of countries having opted for non 0% CCyb rate (Sweden and Norway at this point).

Date of submission:
16/12/2016
Published as Final Q&A:
21/04/2017
EBA Answer:

Following Article 130(1) of Directive 2013/36/EU (CRD) the institution-specific countercyclical capital buffer is calculated by multiplying the total risk exposure amount (TREA) with the weighted average of the countercyclical buffer rates as calculated in accordance with Article 140 CRD. The TREA is defined by Article 92(3) of Regulation (EU) No 575/2013 (CRR) and not limited to the relevant exposure in the sense of Article 140(4) CRD.

The weighted average of the countercyclical buffer rate is calculated in accordance with Article 140(1) subparagraph 2 CRD. It is calculated by multiplying the each applicable buffer rate with the total own funds requirements for credit risk relating to the ‘relevant credit exposure’ (Article 140(4) CRD) for the territory in question divided by the total own funds requirements for credit risk relating to all relevant credit exposure’ (Article 140(4) CRD).

Example: Institution has relevant exposure in three countries

BE:  TREA 500, CCyB = 0%, total own fund capital requirement for relevant exposures = 40
NO: TREA 750, CCyB = 1.5%, total own fund capital requirement for relevant exposures = 60
SE: TREA 1000, CCyB = 0.5%, total own fund capital requirement for relevant exposures = 80

(TREA in BE, NO and SE consist only of relevant exposures)

and a total TREA = 5000 (Article 92(3) of Regulation (EU) No 575/2013 (CRR))

1.     TREA ‘to all of its relevant exposure’ (Article 140(1) CRD)
=> 500+750+1000 = 2250.
Thus total own funds requirement for credit risk that relates to all of its relevant credit risk exposures = 40 + 60 + 80 = 180

2.      ‘Weighted average’ (Article 140(1) CRD)
=> ((40*0)+(60*0.015)+(80*0.005)) / (40+60+80) = 0.72%

3.     CCyB
=> 0.72%*5000 = 36 (Article 130(1) CRD)

Status:
Final Q&A