Institution can incur incur exposures to the central governments and central banks of Member States, where those exposures are denominated and funded in the domestic currency of another Member State provided that it has obtained prior approval from the competent authority. However, article 500a does not state that these exposures are exempted from the application of Article 395 (it states only that different limit may be used for those exposures after obtaining the approval). It is not clear how the approval influence the limit for remaining exposure (for example in third countries currency)?

For illustrative purposes we consider the following example:

Institution obtained approval issued in accordance with article 500a. Approval states that this institution can incur exposures referred to in paragraph 1 of this Article, up to the 60 % of the institution’s Tier 1 capital until 31 December 2023. The decision did not contain any other restrictions. The value of Tier 1 as at reporting date is 135 m EUR, so the limit of 60% equals 81 m EUR, and the limit referred to in Article 395 equals 33.75 m EUR.

As at reporting date institution has exposure to a group of connected clients of 112 m EUR. The total exposure is due to exposure to 2 customers and 3 currencies as shown in the table below. Client A is a Romanian government, Client B which is not a central government, nor institution but is connected to the Romanian government.

Client Original currency Value of exposure (mEUR) A EUR 80 A USD 30 B EUR 2

It is clear that for exposure covered by approval (80 m EUR of exposure to Client A denominated in EUR) institution can apply limit 60% of Tier 1 which is 81 m EUR.

Should the institution in such a situation consider that

1) the limit set under Article 395 of 25% of the capital has been utilised by the EU currency exposure since its is not excluded from the limit (as distinguished from, for example, exposures to central government denominated and funded in the domestic currency of that central government which would not utilise the limit because are excluded under Article 400) , and consequently the joint limit was exceeded in this situation or

2) the limit set under Article 395 of 25% limit is additive to the limit set under the approval given under Article 500a and consequently remaining exposure of 32 is within the limits.