Single Rulebook Q&A

Question ID: 2018_3784
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Own funds
Article: 473a
Paragraph: 7
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Article/Paragraph : N/A
Type of submitter: Competent authority
Subject matter : Recalculation of thresholds of Article 48 CRR due to IFRS 9 transitional arrangements (Art. 473a)
Question:

Do the thresholds of Article 48 of Regulation (EU) No 575/2013 (CRR) have to be recalculated in the context of Article 473a(7) as well, taking into account the amounts added back to CET1 due to the application of Article 473a?

Background on the question:

Αs per Article 473a(7)(a) of the CRR: “Where an institution includes in its Common Equity Tier 1 capital an amount in accordance with paragraph 1 of Art. 473a, it shall recalculate all requirements laid down in the CRR 575/2013 and in Directive 2013/36/EU that use any of the following items, by not taking into account the effects that the expected credit loss provisions that it included in its Common Equity Tier 1 capital have on those items: (a) the amount of deferred tax assets that is deducted from Common Equity Tier 1 capital in accordance with point (c) of Article 36(1) or risk weighted in accordance with Article 48(4);

Although in the text above Article 36(1)(c) and Article 48(4) are explicitly mentioned, there is no reference to the calculation of the two thresholds described in Article 48(1)(a) and 48(2) of the CRR. Instead, as pointed out above, there is a general reference to the need for recalculation of all requirements included in the CRR.

In specific, the following two approaches for the calculation of the two thresholds could be followed, leading to different results:

1) Approach 1: The CET1, as described in Articles 48 1(a) and 2(a) of the CRR, is not adjusted by the amount of ABSA and/or ABIRB calculated according to the formulas of Article 473a(1) (i.e. added back to CET1). This approach will result in using a “lower” threshold (since it includes the full - probably negative - effect of IFRS 9) against which the amount of DTAs relying on future profitability and arising of temporary differences should be compared. It is possible that this comparison will produce i) higher amounts of DTAs being removed from CET1 due to Article 36(1)(c) and Article 48 and ii) lower amounts of DTAs risk weighted at 250% in the context of the Article 48(4) of the CRR.

2) Approach 2: The CET1, as described Articles 48(1)(a) and 2(a) CRR, is adjusted by the amount of ABSA and/or ABIRB calculated according to the formulas of Article 473a(1) CRR (i.e. added back to CET1). This approach will result in using a “higher” threshold against which the amount of DTAs should be compared. It is possible that this approach will produce i) lower amounts of DTAs being removed from CET1 due to Article 36(1)(c) and Article 48 and ii) higher amounts of DTAs risk weighted at 250% in the context of Article 48(4) of the CRR.

Date of submission: 02/04/2018
Published as Final Q&A: 24/08/2018
EBA answer:

As stated in Q&A 4113, the amount of DTAs related to provisions that are added back to CET1 should not be included in CET1 capital. This means that all the other requirements of Regulation 575/2013 (CRR) will be applied on a total stock of DTAs recognised in accounting terms excluding those DTAs linked to the amount of added back provisions. In accordance with Articles 48(1) and 48(2) CRR the thresholds do not need to be recalculated given that the amount of DTAs is corrected directly in the starting point.

Additionally, in accordance with the requirements under Article 473a(7) of the CRR, the amounts added back to CET1 due to the application of Article 473a(1) of the same Regulation are not considered for the purpose of threshold calculation and, as such, no recalculation is needed.

Status: Final Q&A
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