The question is about the calculation and application of the scaling factor according to Article 473a(7)(b) of CRR. The scaling factor adjusts the specific credit risk adjustment, not directly the exposure value. The scaling factor (sf) is calculated as specified in Article 473a(7)(b) of CRR: sf = 1 – (AB_{SA}/RA_{SA}), where AB_{SA}= the amount calculated in accordance with point (a) in the second subparagraph of paragraph 1 of Article 473a of CRR, i.e. the amount added back to CET1 capital due to exposures subject to the standardized approach; RA_{SA}= the total amount of specific credit risk adjustments for those exposures. It follows that the scaling factor is calculated based on total amounts for the add back and specific credit risk adjustments, not at an exposure-by-exposure level. There is only one single scaling factor to be calculated for all exposures at each reporting date. The scaling factor is not fixed but recalculated at each reporting date. Risk weights are assigned to exposure values after deduction of the credit risk adjustments (which themselves are reduced by multiplication by the scaling factor) at an exposure-by-exposure level. The impact of the application of Article 473a of CRR is reported in template C 05.01 of Annex I to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) as a memo item. Furthermore, institutions must disclose capital ratios with and without application of transitional arrangements under Article 473a(8) of CRR. Hence, in order to be able to do so, institutions must calculate the capital requirements twice at each reporting date: one time applying the transitional arrangements (these figures are reported in COREP Templates C 02.00 and 07.00) and one time without applying the transitional arrangements. |