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Single Rulebook Q&A

Question ID: 2015_2252
Legal act : Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 – CRR2
Topic : Market risk
Article: 384
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Article/Paragraph : N/A
Type of submitter: Competent authority
Subject matter : Break clauses in capital requirements and Residual maturity

In a swap contract with break clauses, basically with an enforceable option of early termination by one of the counterparties, which is the residual maturity to be considered for the application of the CVA capital charge in article 384 of CRR? The residual maturity of the original contract or the residual maturity for the break clause date?

Background on the question:

The situation described in the question is regarding to a swap contract with an (enforceable) option of early termination by one of the counterparties and the residual maturity to consider when the capital requirements are calculated under the scope of Article 384 CRR.
This article (standardised approach for capital requirements calculation on CVA risk) has no explicit reference to this situation regarding to residual maturity neither links to other CRR articles with this information.

Date of submission: 24/08/2015
Published as Final Q&A: 09/12/2016
EBA answer:

The treatment of a swap contract with option of early termination by one of the counterparties has no explicit reference in Article 384 Regulation (EU) No 575/2013 (CRR). In the light of this situation, institutions shall apply the residual maturity since this approach ensures the most prudent approach from regulatory perspective.

Status: Final Q&A
Permanent link: link