EBA · 2018_3732 Rejected question

Leverage ratio methodology - Art. 429(6) and (7) of Reg.(EU) No 575/2013 and Art. 429 a) of the Del. Reg. 2015/62 - art. 5 par. 3 of Comm. Deleg. Regulation (EU) 2015/63

Regulation
Directive 2014/59/EU (BRRD)
Article
103, para. 2
Topic
Resolution financing arrangements
Submitted by
Credit institution
Submitted
2018-02-22
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Question

To fill in some parts of the SRF 2018 Ex ante contributions Reporting forms in line with the Commission Delegated Regulation (EU) 2015/63, in particular the section related to “Derivative adjustment” (Art. 5 par 3), institutions must apply the “leverage ratio methodology” as defined in art. 429 of regulation 575 (CRR) to derivatives recognized in accordance with Article 295, where the current market value of the derivatives is negative. Are the variation margins paid in cash to the counterparty (a receivable asset) deductible from the net negative current market value (liability) of derivatives, based on the instructions contained in par. 3 of Article 429 a) of the delegated regulation 2015/62?

Background

According to par. 3 of Article 429 a) of the delegated regulation 2015/62 “institutions may deduct variation margin received in cash from the counterparty from the current replacement cost portion of the exposure value in so far as under the applicable accounting framework the variation margin has not already been recognised as a reduction of the exposure value…” where some conditions are met. One of these conditions applies “… Where under the applicable accounting framework an institution recognises the variation margin paid in cash to the counterparty as a receivable asset, it may exclude that asset from the exposure measure provided that the conditions in points (a) to (e) are met.“ In case the afore mentioned conditions are all met, may an institution that recognises the variation margin paid in cash to the counterparty as a receivable asset, deduct that variation margin from the calculation of the net negative current market value (liability) of derivatives, based on the instructions contained in par. 3 of Article 429 a) of the delegated regulation 2015/62?
No answer published yet.

Original source: European Banking Authority, Q&A ID 2018_3732

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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