- Regulation
- Directive 2013/36/EU (CRD)
- Article
- 130, 140, para. 1
- Topic
- Other issues
- Submitted by
- Credit institution
- Submitted
- 2016-12-16
- Answered
- 2017-04-21
- Answer provided by
- ESAs (EBA, ESMA, EIOPA)
Background
Any other interpretation - ie including also the "non relevant exposures" in the calculation basis- would lead to requiring CCyB also on those non relevant exposures. As an illustration, take the extreme example of a bank having only 2 risk weighted assets (RWA) : a) EUR 100.000.000 on a Belgian bank (non relevant exposure, in addition on a country with 0% CCyb rate) ; b) EUR 100 on a Norwegian retail client (relevant exposure, on country with CCyB rate 1.5%) -> the institution-specific CCyB rate is in this case 1.5% (ie 1.5%*100/100) -> the CCyB required to cover the exposure on the Norwegian retail client should be EUR 100*1.5% = EUR 1.5 -> however , if applied to total RWA, CCyB would be EUR 100.000.100*1.5% = EUR 1.500.001.5 -> hence, the bank's capital requirement in respect of its (non relevant + on country with CCyB rate 0%) Belgian interbank exposure would be increased by EUR 1.5mio, due to presence of the tiny and completely uncorrelated other exposure on a Norwegian retail client!? Such calculation would appear completely inconsistent and beyond the scope of CCyB, which as we understand is to require extra capital cover on -and only on- specific relevant exposures of countries having opted for non 0% CCyb rate (Sweden and Norway at this point).
Answer
Following Article 130(1) of Directive 2013/36/EU (CRD) the institution-specific countercyclical capital buffer is calculated by multiplying the total risk exposure amount (TREA) with the weighted average of the countercyclical buffer rates (i.e., the institution specific CCyB rate) as calculated in accordance with Article 140 CRD on an individual and on a consolidated basis, as applicable in accordance with Title II, Part One of Regulation (EU) No 575/2013 (CRR) . The TREA is defined by Article 92(3) of Regulation (EU) No 575/2013 (CRR) and is not limited to the relevant exposure s in the sense of Article 140(4) CRD.The weighted average of the countercyclical buffer rate is calculated in accordance with Article 140(1) subparagraph 2 CRD. The institution-specific countercyclical capital buffer should consist of Common Equity Tier 1 capital. The weighted average of the countercyclical buffer rate is calculated in accordance with Article 140(1) subparagraph 2 CRD. It is calculated by multiplying the each applicable country specific countercyclical buffer rate with to the ratio between the total own funds requirements that relate to the for credit risk relating to the ‘relevant credit exposure s ’ (Article 140(4) CRD) in the country of question and the total own funds requirements that relate to all relevant credit exposures relevant for the calculation of the countercyclical buffer as referred to in for the territory in question divided by of the total own funds requirements for credit risk relating to all relevant credit exposure’ ( Article 140(4) CRD ) . Example: Institution has relevant exposure in three countries BE: TREA 500, CCyB = 0%, total own fund capital requirement for relevant exposures = 40 NO: TREA 750, CCyB = 1.5%, total own fund capital requirement for relevant exposures = 60 SE: TREA 1000, CCyB = 0.5%, total own fund capital requirement for relevant exposures = 80 (TREA in BE, NO and SE consist only of relevant exposures) and a total TREA = 5000 (Article 92(3) of Regulation (EU) No 575/2013 (CRR) 1. TREA ‘to all of its relevant exposure’ (Article 140(1) CRD) => 500+750+1000 = 2250. Thus total own funds requirement for credit risk that relates to all of its relevant credit risk exposures = 40 + 60 + 80 = 180 2. ‘Weighted average’ (Article 140(1) CRD)=> ((40*0)+(60*0.015)+(80*0.005)) / (40+60+80) = 0.72% 3. CCyB => 0.72%*5000 = 36 (Article 130(1) CRD)
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