EBA · 2014_1199 Final Q&A

Excess General Credit Risk Adjustments - Standardised Approach (SA)

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
62, 110
Topic
Own funds
Submitted by
Credit institution
Submitted
2014-05-14
Answered
2014-12-12
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Can institutions use the excess of SA general credit risk adjustments over the 1.25% cap to reduce SA exposure value under own funds requirements, or reductions to SA original exposure value are just limited to specific credit risk adjustments? If so, where should the excess of general provisions, not considered as Tier 2 due to the 1.25% cap, be deducted (i.e. Retail class)?

Background

It is possible to increase the value of the institution’s Tier 2 through provisions for general credit risk up until the cap of 1.25% of the risk weighted exposure amounts. In the current national report institutions are able to reduce the SA exposure value with the value of general provisions which exceeds the 1.25% cap. Although Regulation (EU) No 575/2013 (CRR) aims at harmonizing calculation of own funds and own funds requirements among all member states, it seems appropriate to consider the excess of general provisions as a mechanism to reduce the institution’s exposure value in the appropriate class.

Answer

Excess general credit risk adjustments cannot be used for reducing the exposure value under the standardised approach or otherwise recognised. Article 110 of Regulation (EU) 575/2013 (CRR) requires mandatorily that institutions applying the Standardised Approach shall treat general credit risk adjustments in accordance with Article 62(c) of CRR. Accordingly, Article 111(1) of the CRR limits recognition for the exposure value to those credit risk adjustments which form specific credit risk adjustments. For further details please refer to Regulation (EU) 183/2014 (RTS on Credit Risk Adjustments).

Original source: European Banking Authority, Q&A ID 2014_1199

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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