Exemption from and alternatives to deduction from Common Equity Tier 1 items

For the purpose of Article 48(1)(a) CRR, should the applicable amount of insufficient coverage for non-performing exposures under Article 36(1)(m) CRR be included among the other points of Article 36(1) CRR considered under par. (ii) of Article 48(1)(a) CRR, even though not expressly mentioned? The same issue arises with reference to Article 46(1)(a)(ii) CRR and Article 48(1)(b)(ii) CRR.

According to Article 48(1) CRR, in making the deductions required pursuant to points (c) and (i) of Article 36(1) CRR, institutions are not required to deduct the amounts of the items listed in points a) and b) of Article 48(1) CRR which in aggregate are equal to or less than the threshold amount referred to in par. 2 of Article 48 CRR. Paragraph a) of Article 48(1) CRR reads as follows: ‘’(a) deferred tax deferred tax assets that are dependent on future profitability and arise from temporary differences, and in aggregate are equal to or less than 10 % of the Common Equity Tier 1 items of the institution calculated after applying the following: Articles 32 to 35; (ii)   points (a) to (h), points (k)(ii) to (v) and point (l) of Article 36(1) [bold added], excluding deferred tax assets that rely on future profitability and arise from temporary differences’’. Although Reg. (EU) 2019/630 introducing, among others, Article 36(1)(m) CRR has not amended Article 48(1)(a)(ii) CRR in order to add reference to point (m) of Article 36 CRR, no apparent economic or prudential rationale seems to justify an exclusion of point (m) of Article 36(1) CRR from the other points of Article 36(1) CRR mentioned in Article 48(1)(a) (ii) CRR. Excluding Article 36(1)(m) CRR from Article 48(1)(a)(ii) CRR would result in a higher amount of the Common Equity Tier 1 items of the institution being used in the calculation of the 10% limit under Article 48(1)(a) CRR. That could result in a higher amount of aggregate deferred tax assets that are dependent on future profitability and arise from temporary differences being exempted from deduction under Article 48(1) CRR. Moreover, it would not be clear the reason pursuant to which Article 36(1)(m) CRR would be excluded for the purpose of Article 48(1)(a)(ii) CRR, but then included in the calculation of the threshold for the exemption from deduction from CET1 items under par. 2(a) of Article 48 CRR. Article 48(2)(a) CRR indeed generally refers to the deductions under Article 36 CRR without explicitly excluding any point of Article 36 CRR. The same issue arises with reference to Article 46(1)(a)(ii) CRR and Article 48(1)(b)(ii) CRR.