EBA · 2018_3756 Final Q&A

Application of margin period of risk scalars for exposures to clients

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
304, para. 3(a), (4)
Topic
Leverage ratio
Submitted by
Credit institution
Submitted
2018-03-08
Answered
2019-03-22
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Do the provisions laid out in Article 304(3)(a), Article 304(4) and Article 304(5) of the CRR, also apply to the calculation of the EAD for leverage ratio purposes?

Background

Article 304(3)(a), Article304(4) and Article 304(5) CRR allow an institution acting as a clearing member to apply specific provisions regarding margin period of risk (MPOR) or maturity factors when calculating the own funds requirement for its exposures to a client. The ability to apply these provisions for leverage purposes is not specifically mentioned. Moreover, and in Article 429c CRR, which determines how the derivative exposure value is to be calculated for leverage purposes, Article 304 CRR is not specifically referenced. In order to maintain consistency with regard to the treatment of cleared transactions, it would seem logical to apply the provisions for leverage purposes as well as for RWAs. This would be consistent with the overall principle that institutions should not be discouraged from providing clearing services. We assume that the references included in Article 429c(1) CRR are not intended to be comprehensive.

Answer

The margin period of risk scalars, as provisions laid out in Article 304( 4) (3)(a), Article 304(4) and Article 304(5) of Regulation (EU) No 575/2013 (CRR) , may not be applied for the purposes of determining the exposure value of centrally cleared derivatives clearing members’ exposures to clients for the purpose of calculating the leverage ratio. Pursuant to Article 304( 4) (3)(a), Article 304(4) and Article 304(5) CRR, the margin period of risk scalars these provisions may be applied to the EAD by an institution when calculating the own fund requirements for its exposures to a client as they reflect potentially lower risk levels in transactions with clients that are cleared via CCPs.  According to Recitals 90 to 94 of Regulation (EU) No 575/2013 (CRR), the leverage ratio is a distinct regulatory and supervisory tool, which is supplementary to risk-based own funds requirements. The exposure values of derivatives for the purpose of calculating the leverage ratio must be determined by institutions in accordance with Article 429a 429c CRR.

Original source: European Banking Authority, Q&A ID 2018_3756

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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