Single Rulebook Q&A

Question ID: 2018_4091
Legal act : Directive 2013/36/EU (CRD) as amended
Topic : Supervisory reporting
Article: 78
Paragraph:
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: Draft ITS on Supervisory Reporting for Institutions (for benchmarking the internal approaches)
Article/Paragraph : Draft ITS on 2019, part 2.2 Credit risk changes
Type of submitter: Credit institution
Subject matter : Reporting of exposures whose collateral type is (g) credit derivatives, (h) guarantees or (i) unfunded credit protection
Question:

How to report exposures whose collateral type is (g) credit derivatives, (h) guarantees or (i) unfunded credit protection?

Background on the question:

Reporting of original exposures under IRB approach that are guaranteed by an SA guarantor.

According to the Draft ITS on 2019 portfolios in the supervisory benchmarking exercise (EBA-2018-ITS-04) published the last 2nd July 2018 in the Draft benchmarking package for 2019 exercise (end 2018 data), for the reporting of Low Default Portfolio exposures whose collateral type is (g) credit derivatives, (h) guarantees or (i) unfunded credit protection, we should proceed as follows: “For RW substitution: original exposures under SA are not reported anyway. For original exposure under the IRB approach, the covered portion (from an SA guarantor) would not be reported too, since the RW of the guarantor is computed using the SA. “ In other words, that exposures guaranteed by a SA guarantor should not be reported in the Benchmarking exercise. However it does not meet the definition provided in the Instructions of the Own Funds COREP reporting “C 08.01 - Credit and counterparty credit risks and free deliveries: IRB Approach to Capital Requirements (CR IRB 1)”, which states in the instructions for Column 80 that: “Institutions report the exposure value before taking into account any value adjustments, provisions, effects due to credit risk mitigation techniques or credit conversion factors. The original exposure value shall be reported in accordance with Article 24 of CRR and Article 166 (1) and (2) and (4) to (7) of CRR. The effect resulting from Article 166 (3) of CRR (effect of on balance sheet netting of loans and deposits) is reported separately as Funded Credit Protection and therefore shall not reduce the Original Exposure.” In other words, that in this column we have to report the exposures before taking into account any CRM substitution technique. As it is stated, there is an inconsistency between both Reports. In addition, the Annex IV of Benchmarking instructions for original exposure explicitly refers to the COREP definition of Column 020. Example given: There is an exposure of 100 m.u. with an AIRB counterpart, which is guaranteed by an SA guarantor. ¿Should we report this exposure in column 080 (Original Exposure) of Template C.102?

Date of submission: 10/07/2018
Published as Final Q&A: 29/03/2019
EBA answer:

The clarification introduced in the Background and Rationale (Section 2) of the Draft ITS on 2019 portfolios in the supervisory benchmarking exercise (EBA-2018-ITS-04), provides that when RW substitution is applied, the covered portion from an SA guarantor should not be reported (since the RW of the guarantor is computed using the SA), holds only for those values reported after taking CRM substitution effects into account, and not for the original exposure value (pre conversion factor) to be reported in column 080 in C 102 and C 103 of Annex III.

As specified in Annex III and explained in Annex IV, the original exposure value (pre conversion factor) should be reported in column 080 of C 102 and C 103 of Annex III, whereas the exposure value after CRM substitution effects (and pre conversion factors) should be reported in column 090 of C 102 and C103 of Annex III.

In the case of an exposure guaranteed by an SA guarantor, the secured part of the exposure should be reported in column 080 under the exposure class of the obligor (with “collateralization status” as “exposures with credit protection”), and the unsecured part of the exposure should be reported in column 080 under the exposure class of the obligor (with “collateralization status” as “exposures without credit protection”).

The unsecured part of the exposure should be reported in column 090 under the exposure class of the obligor (with “collateralization status” as “exposures without credit protection”), whereas the secured part of the exposure should not be reported in column 090 because the guarantor is in the SA.

Disclaimer:
The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal. The text of the Implementing Regulation may differ from the text of the draft ITS to which this Q&A refers.
Status: Final Q&A
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