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Evaluation of Credit Quality Assessment of Loans document sample
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List of discretions analysed by the EGRBCD
No. Cross-Reference if
not mentioned
otherwise:
Document EG RBCD proposal to proceed after
Text of the directive (summary) Drafting proposals Additional comments
MARKT/1050/04 meeting September 10
Scope
1 Art. 73.2 Imposition of the application of capital requirements on a sub- Leave the national discretion in place.
consolidated basis Important to a number of Member States
2 Art. 60 Option for parent institution not to deduct holdings in institutions etc Leave the national discretion in place.
included in sub-consolidation Important to a number of Member States
3 Art. 22 of 93/6/EEC Investment firms waiver Leave the national discretion in place.
Important to a number of Member States
Standardised approach (mortgage lending is covered separately in
items 71-81 below)
4 art 80-3/Annex VI, "for the purpose of calculating risk-weighted exposure amounts for Leave the national discretion in place. The text of §24 in Annex VI needs to be clarified to be consistent
Part 1, §24 exposures to institutions, competent authorities shall decide whether to Important to a number of Member States with art 80,3: the choice between the two methods must be kept
adopt the method based on the credit quality of the central government within supervisors' hands.
of the jurisdiction in which the credit institution is incorporated or the
method based on the credit quality of the counterparty institution in
accordance with Annex VI.
5 art 80-7 "With the exception of exposures giving rise to liabilities in the form of Leave the national discretion in place.
the items referred to in points (1) to (8) of article 57(1 (items of own Important to a number of Member States
funds), competent authorities may exempt from the requirements of
article 80-1 (risk-weight) the exposures of a credit institution to a
counterparty which is its parent untertaking, its subsidiary or a
subsidiary of its parent undertaking, provided that the following
6 art 81-1 conditions are met assessmenta case, a risk weight of 0% the risk
"An external credit (...) In such may be used to determine shall be Leave the national discretion in place. It is
weight of an exposure if the ECAI has been recognised by competent an option for credit institutions, not for the
authorities (…)" competent authorities.
7 art 81-3 Mutual recognition of ECAI within EU: "if an ECAI has been Leave the national discretion in place. Convergence issue
recognised as eligible by the competent authorities of a Member State, Important to a number of Member States
the competent authorities of other Member States may recognise that
ECAI as eligible without carrying out their own evaluation process"
8 art 82-2 Mutual recognition of mapping within EU: "when a competent Leave the national discretion in place.
authorities of a Member State have made a determination under § 1 Important to a number of Member States
(ECA I assessment associated with credit quality step), the competent
authorities of other Member State may recognise that determination
without carrying out their own determination process"
Annex VI, Part 1: Risk Weight
9 §4 Exposures to central government and central bank denominated and Remove the national discretion Exposures to Member States' central government
funded in domestic currency: "Subject to the discretion of competent and central bank denominated and funded in the
authorities, exposures to their central government and central bank domestic currency of the central government and
denominated and funded in the domestic currency may be assigned a central bank shall be assigned a risk weight of 0%.
risk weight which is lower than that indicated in § 2"
10 §5 Mutual recognition within EU:" When the discretion in §4 is exercised Remove the national discretion Remove the provision When §4 is redrafted §5 is not needed any longer.
by the competent authorities of one MS, the competent authorities of
another MS may also allow their credit institutions to apply the same
RW to exposures to that central government or central bank
denominated and funded in that currency."
11 §6 Recognition by Member States of the treatment of exposures to central Leave the national discretion in place. Replace "Member States" by "the competent
gvt and central bank by third countries: "When the competent Important to a number of Member States authorities".
authorities of a third country which apply supervisory and regulatory
arrangements at least equivalent to those applied in the Community
assigns a risk weight which is lower than the indicted in §1 to 2 to
exposures to its central government and central bank denominated and
funded in the domestic currency, Member States may allow their credit
institutions to risk weight such exposures in the same manner."
12 § 7 Recognition of Export Credit Agencies' (ECA) assessments for claims Remove the national discretion To be recognised by competent authorities, a Remove the option by making clear that the recognition of the
on central governments and central banks: "a credit assessment by credit assessment by an ECA shall meet the ECA's credit assessment is made by the competent authorities.
an ECA may be recognised only if either of the following conditions are following conditions
13 § 9 met"
Exposures to regional governments or local authorities as exposures to Remove the national discretion Delete "exercise of this discretion" and draft Removal of the national discretion may require a drafting
institutions: "Without prejudice to the other provisions of the present instead "This treatment is independent of the amendment to article 80.
section, exposures to regional governments and local authorities shall exercise of discretion by competent authorities as
be risk weighted as exposures to institutions. Exercise of this specified in art 80. (…)"
discretion by competent authorities is independent of the exercise of
discretion by competent authorities as specified in art 80. The
preferential treatment for short-term exposures specified in paragraphs
30,31 and 36 shall not be applied."
14 § 10 Exposures to regional governments or local authorities as exposures to Remove the national discretion Delete the words "subject to the discretion of Remove the national discretion by indicating clearly that it is the
central government: "Subject to the discretion of competent authorities, competent authorities" and replace "may" by competent authorities rather than the credit institutions that will
exposures to regional governments and local authorities may be "shall". Add "Competent authorities will draw up determine whether there is no difference in risk. A list of the
treated as exposures to the central government in whose jurisdiction and make public the list of the regional regional governments or local authorities that are treated as
they are established where there is no difference in risk between such governments and local authorities to be Risk central government shall be drawn up and released.
exposures because of the specific revenue-raising powers of the Weighted like central governments"
former, and the existence of specific institutional arrangements the
effect of which is to reduce their risks of default. "
15 §11 Mutual recognition within EU: "when the discretion in §10 is exercised Remove the national discretion Remove the provision When §10 is redrafted §11 is not needed any longer.
by the competent authorities of one MS, the competent authorities of
another MS may also allow their credit institutions to apply the same
RW to exposures to those regional government and local authorities."
16 §12 Treatment of exposures to regional governments or local authorities as Leave the national discretion in place.
exposures to their central government or central bank by third countries Important to a number of Member States
17 § 15 Claims on PSEs as if institutions: "Subject to the national discretion of Leave the national discretion in place.
competent authorities, exposures to public sector entities may be Important to a number of Member States
18 §16 treated as exposures to institutions (…)"
Mutual recognition within EU of claims on PSEs as if institutions Leave the national discretion in place.
Important to a number of Member States
19 §17 Recognition by Member States of the treatment of claims on PSEs as Leave the national discretion in place.
if institutions by third countries Important to a number of Member States
20 § 18 Claims on churches as if institutions Leave the national discretion in place.
Important to a number of Member States
21 § 21 Exposures to a list of multilateral development banks Remove the option Exposures to a list of multilateral development Already taken into account in the draft directive
banks shall attract a 0% risk weight.
22 § 22 Risk weight of the portion of unpaid capital subscribed to the Remove the option A risk weight of 20% shall be applied to the Already taken into account in the draft directive
European Investment Fund portion of unpaid capital subscribed to the
European Investment Fund
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List of discretions analysed by the EGRBCD
No. Cross-Reference if
not mentioned
otherwise:
Document EG RBCD proposal to proceed after
Text of the directive (summary) Drafting proposals Additional comments
MARKT/1050/04 meeting September 10
23 §28 Exposures to institutions with an original effective maturity of more Remove the option Exposures to institutions with an original effective Already taken into account in the draft directive
than three months for with a credit assessment by a nominated ECAI maturity of more than three months for which a
credit assessment by a nominated ECAI is
available shall be assigned a risk weight
according to the following table in accordance with
the assignment by the competent authorities of
the credit assessments of eligible ECAIs to six
steps in a credit quality assessment scale.
24 §30 Preferential RW treatment for claims on institutions with an original Remove the option Exposure to an institution with an original effective Already taken into account in the draft directive
maturity of 3 months or less under Option 2 maturity of three months or less for which a credit
assessment by a nominated ECAI is available
shall receive a risk weight according to Table 5
(…)
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List of discretions analysed by the EGRBCD
No. Cross-Reference if
not mentioned
otherwise:
Document EG RBCD proposal to proceed after
Text of the directive (summary) Drafting proposals Additional comments
MARKT/1050/04 meeting September 10
25 § 36 Extension to institutions of a lower RW (one category less) to claims Leave the national discretion in place. The text of §36 has to be consistent with §4.
on central government and central bank in domestic currency if funded Important to a number of Member States
in that currency: "when competent authorities have adopted for
exposures to central governments and central banks the method
described in § 4 to 6, subject to their discretion, exposures to
institutions of an original maturity of 3 months or less denominated and
funded in the national currency may be assigned, under both methods
described in § 26 to 27 and 28 to 31, a risk weight that is one category
less favourable than the preferential risk weight, as described in § 4 to
6, assigned to exposures to its central government."
26 § 39 Exposures for which a credit assessment by a nominated ECAI is Remove the option Exposures for which a credit assessment by a Already taken into account in the draft directive
available nominated ECAI is available shall be assigned a
risk weight according to the following table in
accordance with the assignment by the competent
authorities of the credit assessments of eligible
ECAIs to six steps in a credit quality assessment
scale.
27 § 41 Risk weight of retail exposures : "exposures that comply with the Remove the national discretion delete the words "subject to national discretions" the national discretion for the authorities is removed and the option
criteria listed in article 47(2) may, subject to national discretion, be and leave "may" as an option given to credit is left to credit institutions. §49 should refer to article 79 (2).
assigned a risk weight of 75% " institutions: "exposures that comply with the
criteria listed in article 47(2) may be assigned a
risk weight of 75%"
28 § 58 Corporate past due items: " (...)the unsecured portion of any item that Remove the national discretion in § c) Delete the last paragraph c) : "- 50%, subject to Some group members pointed out that not making this discretion
is past due for more than 90 days shall be assigned a risk weight of: discretion of competent authorities, if value available might raise level playing field concerns for EU banks
a)- 150% if value adjustments are less than 20% of the unsecured part adjustments are no less than 50% of the competing in foreign markets (emerging ones in particular, but
of the exposure gross of value b) - 100% if value adjustments are no unsecured part of the exposure gross of value possibly also Japan and Canada) where local authorities make
less than 20% of the unsecured part of the exposure gross of value adjustments." this treatment available to local banks. However, it is not clear that
adjustments c)- 50%, subject to discretion of competent authorities, if this will be a significant issue for any institution on the
value adjustments are no less than 50% of the unsecured part of the standardised approach.
exposure gross of value adjustments."
29 §60 Where a past due item is fully secured by forms of collateral other than Leave the national discretion in place
those eligible for credit risk mitigation purposes, a 100% risk weight
may apply subject to the discretion of competent authorities based
upon strict operational criteria to ensure the good quality of the
collateral when value adjustments reach 15% of the exposure gross of
value adjustments.
30 § 61 Exposures indicated in paragraphs 43 to 47 (mortages on residential Remove the national discretion Exposures indicated in paragraphs 43 to 47 shall
property) shall be assigned a risk weight of 100% net of value be assigned a risk weight of 100% net of value
adjustments if they are past due for more than 90 days. If value adjustments if they are past due for more than 90
adjustments are no less than 20% of the exposures gross of value days. If value adjustments are no less than 20%
adjustments, the risk weight applicable to the remainder of the of the exposures gross of value adjustments, the
exposure may be reduced to 50% at national discretion risk weight applicable to the remainder of the
exposure is 50%.
31 §63 Risk weight of high-risk categories: "Subject to the discretion of Leave the national discretion in place Large majority in favour of keeping the national discretion as it
competent authorities, exposures associated with particularly high appears difficult to develop common definition or criteria on what a
risks such as investments in venture capital firms and private equity particularly high risk exposure is.Minority suggests to treat
investments shall be assigned a risk weight of 150%" exposures on venture capital firms separately and assign them a
150% RW.
32 §64 Competent authorities may permit non past due items receiving a Leave the national discretion in place. competent authorities may wish to give an incentive for institutions
150% RW (…) to be assigned a risk weight of (a) 100% if value Important to a number of Member States to establish value adjustments for non past due high risk
adjustments are no less than 20% of the exposure value gross of value exposures.
adjustments; (b) 50% if value adjustments are no less than 50% of the
exposure value gross of value adjustments
33 § 65 e) Increase of 60% LTV for eligible CRE collateral for covered bonds: " Leave the national discretion in place.
(…) the competent authorities may recognise loans secured by Important to a number of Member States
commercial real estate as eligible where the loan to value ratio of 60%
is exceeded up to a maximum level of 70% if…"
34 § 82 Member States may allow a risk weight of 10% for exposures to Remove the national discretion Delete the provision.
institutions specialising in the inter-bank and public-debt markets in
their home Member States and subject to close supervision by the
competent authorities where those asset items are fully completely
secured to the satisfaction of the competent authorities of the home
Member States by a item assigned a 0% or a 20% risk weight and
recognised by the latter as constituting adequate collateral.
35 § 84 Risk Weight of gold bullion held in own vaults or on an allocated basis Remove the option Gold bullion held in own vaults or on an allocated already taken into account in the draft directive
basis to the extent backed by bullion liabilities
shall receive a 0% RW
Annex VI, Part 3: Use of ECAIs' credit assessments for the
determination of risk weight
36 §8 credit the national discretion in place.
The competent authorities may allow credit institutions to use unsolicited Leave assessments.
Important to a number of Member States
37 §18 Domestic and foreign currency items: "nothwithstanding §17, when an Leave the national discretion in place
exposure arises through a bank's participation in a loan that has been
extended by a Multilateral Development Bank whose preferred creditor
status is recognised in the market, competent authorities may allow the
credit assessment on the obligor's domestic currency item to be used
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List of discretions analysed by the EGRBCD
No. Cross-Reference if
not mentioned
otherwise:
Document EG RBCD proposal to proceed after
Text of the directive (summary) Drafting proposals Additional comments
MARKT/1050/04 meeting September 10
Internal ratings based approach (IRB)
38 Art.85, 1+2 Roll-out: "(1): Subject to the approval of the competent authorities, Leave the national discretion in place.
implementation may be carried out sequentially across the different Important to a number of Member States
exposure classes (…) (2) Implementation as referred to §1 shall be
carried out within a reasonable period of time to be agreed by the
competent authorities."
39 Art. 89, 1 Partial use : "subject to the approval of the competent authorities, Leave the national discretion in place.
credit institutions permitted to use the IRB approach (…) for one or Important to a number of Member States
more exposure classes may apply Subsection 1 (standardised
approach) for the following exposures (…)
40 Art. 89, 1a, 1b and 1c Materiality: (a) and (b): the exposures class referred to in (...) and in Leave the national discretion in place. Covergence issue as to what materiality means.
(...) where the number of material counterparties is limited and it would
be unduly burdensome for the credit institution to implement a rating
system for those counterparties, c) exposures in non-significant
business units as well as exposure classes that are immaterial in
terms of size and perceived risk profile
41 Art. 89, 1 f) and g) Standardised Approach treatment for equity exposures to entities Leave the national discretion in place.
whose credit obligations qualify for a zero risk weight under the Important to a number of Member States
standardised approach (including those publicly sponsored entities
where a zero weight can be applied) and g) to equity exposures
incurred under legislated programmes to promote specified sectors of
the economy and (...)
42 Art 89 1. Last Mutual recognition within EU of the use of standardised approach for Leave the national discretion in place.
sentence the exposures listed : " this paragraph shall not prevent the competent Important to a number of Member States
authorities of other Member State to allow the application of the rules of
Subsection 1 (standardised approach) for equity exposures which
have been allowed for this treatment in other Member State.
43 Art. 154, 3 Grandfathering for equity: "until 31/12/2017, the competent authorities Leave the national discretion in place. National discretion will fall and be reviewed at the end of the
of the Member States may exempt from the IRB treatment certain Required for transitional period mentioned period
equity exposures held at 31 December 2007."
44 Art. 154, 4 DoD days past due for corporate: "until 31 December 2011, for Leave the national discretion in place. National discretion will fall at the end of the mentioned period
corporate exposures the competent authorities of each Member State Required for transitional period anyway.
may set the number of days past due that all credit institutions in its
jurisdiction shall abide by under the definition of default set out in
Annex VII, Part 4, §44 for exposures to such counterparts situated
45 Art. 154-5 and 154-6 within this Member State."
Transitional relaxation of data requirements: "in respect of the Leave the national discretion in place. National discretion will fall at the end of the mentioned period
observation period referred to in Annex VII,Part 4, §66, Member States Required for transitional period anyway.
may allow credit institutions which are not permitted to use own
estimates of LGDs or conversion factors to have , when they
implement the IRB Approach, but at the latest at the 31 December
2007, relevant data covering a period of 2 years.(...)". Same provision
in respect of the period referred to in Annex VII, Part 4, §71, 85, 94
Annex VII, Part 1: Risk weighted exposure amounts and expected loss amounts
46 § 4 Firm-size adjustment: "for exposures to companies where the total Leave the national discretion in place. It is
annual sales for the consolidated group of which the firm is a part is an option for credit institutions, not for the
less than 50 MEUR, credit institutions may use the following competent authorities.
correlation formula (…)
47 § 5 Lower risk weights for SL slotting: "the competent authorities may Leave the national discretion in place.
authorise a credit institution to generally assign preferential risk weigh Important to a number of Member States
of 50% to exposures in cat 1 and a 70% risk weight to exposures in cat
2, provided the credit institutions' underwriting characteristics and
other risk characteristics are substantially strong for the relevant
48 §15 category.
Use different approaches for equity: "subject to the approval of the Leave the national discretion in place.
competent authorities, a credit institution may employ different Important to a number of Member States
approaches to different portfolios where the credit institution itself uses
different approaches internally. Where a credit institution is permitted
to use different approaches, the credit institution shall demonstrate to
the competent authorities that the choice is made consistently and is
not determined by regulatory arbitrage considerations."
49 §16 "Notwithstanding §15, competent authorities may allow the attribution Leave the national discretion in place.
of risk weighted exposure amounts for equity exposures to ancillary Important to a number of Member States
services undertakings according to the treatment of other non-credit
obligation assets.
Annex VII, Part 2: PD, LGD and maturity
50 § 11 Use of implicit or explicit maturity under Foundation IRB: "(…) Leave the national discretion in place.
competent authorities may require all credit institutions in their Important to a number of Member States
jurisdiction to use M for each exposure as set out under §12."
51 §13 Use of 1 day maturity floor for specified exposures: " (…) for short- Leave the national discretion in place. Convergence issue as to the specification of short-term
term exposures specified by the competent authorities with a exposures. Already under scrutiny with Basel 2,5
remaining maturity below one year and which are not part of the credit
institutions ongoing financing of the obligor ,M shall be at least one-
day"
52 § 14 Carve out from explicit maturity for SME exposures: " competent Leave the national discretion in place.
authorities may allow for exposures to corporates situated in the Important to a number of Member States
Community and having consolidated sales and consolidated assets of
less than 50 MEUR the use of M as set out in §11. "
Annex VII, Part 3: Exposure value
53 § 8 and Annex III, Exemption for OTC contracts cleared by clearing houses of the Leave the national discretion in place.
Part 1,on the treatment of derivative instruments: "notwithstanding § 5, competent Important to a number of Member States
treatment of authorities may exempt from the application of the methods set out in
derivative instruments Annex III and attribute an exposure value of zero to OTC contracts
cleared by a clearing house where (...). The competent authorities shall
be satisfied that the risk of a build-up of the clearing house's
exposures beyond the market value of posted collateral is eliminated."
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List of discretions analysed by the EGRBCD
No. Cross-Reference if
not mentioned
otherwise:
Document EG RBCD proposal to proceed after
Text of the directive (summary) Drafting proposals Additional comments
MARKT/1050/04 meeting September 10
Annex VII, Part 4: Minimum requirements for IRB approach
54 § 48 DoD days past due for retail and PSEs: " for retail and PSE Leave the national discretion in place. Convergence issues as to the number of days past due for retail
exposures, the competent authorities of each Member States shall set Important to a number of Member States and PSE exposures
the exact number of days past due that all credit institutions in its
jurisdiction shall abide by under the definition of defaults set out in §44,
for exposures to such counterparts situated within this Member State.
The specific number shall fall within 990-180 days and may differ
across product lines. (...)"
55 § 56 Flexibility in standards for data: "if credit institutions can demonstrate Leave the national discretion in place.
to its competent authorities that for data that have been collected prior Required for transitional period
to the date of implementation of this directive appropriate adjustments
have been made to achieve broad equivalence with the definitions of
default or loss, competent authorities may allow the credit institutions
some flexibility in the application of the required standards for data."
CREDIT RISK MITIGATION (Mortgage lending is covered
separately in items 71-81 below)
Annex VIII, Part 1: Eligibility
56 § 8 Recognition as collateral of unrated, listed institution securities: "debt Leave the national discretion in place. It is
securities issued by credit institutions which securities do not have a an option for credit institutions, not for the
credit assessment by an eligible ECAI may be recognised as eligible competent authorities.
collateral if they fulfil the following criteria ..."
57 §21 Other physical collateral: "the competent authorities may recognise as Leave the national discretion in place. Convergence issue as to the definition of liquidity of physical
eligible collateral physical items of a type other than those types collateral
indicated above if satisfied as to the following: a) the existence of liquid
markets (…) and b) the existence of well-established, publicly available
market prices for the collateral (...)
58 § 24 and Recognition of life insurance policies as funded protection: "life Leave the national discretion in place. It is
Part 2, § 13 insurance policies pledged to the lending credit institution may be an option for credit institutions, not for the
Part 3, § 81 recognised as eligible credit protection" competent authorities.
59 § 25 and Recognition as funded protection of institution instruments Leave the national discretion in place. It is Majority wish to tighten the use of the option by the institutions by
Part 3, § 82 repurchased on request as funded protection an option for credit institutions, not for the adding minimum requirements related to the solvency of the
competent authorities. issuer (e.g risk weight <20%) and the liquidity of the instruments
Annex VIII, Part2: Minimum requirements
60 §16 Treatment where an exposure is protected by a guarantee which is Leave the national discretion in place. It is Redraft § c): delete the words "the competent
counter-guaranteed by a central government or central bank (…): the an option for credit institutions, not for the authorities are satisfied that" and replace by "the
exposure may be treated as protected by a guarantee by the entity in competent authorities. institutions can demonstrate that"
question provided the following conditions are satisfied : a); b) and c)
the competent authority is satisfied that the cover is robust and that
nothing in the historical evidence...in question.
61 §18 Discretion for supervisors to recognise „provisional payment‟ Remove the national discretion in the case of guarantees (…), the requirements
guarantees in the context of recognised „mutual guarantee schemes‟ in paragraph (a) shall be considered to be
and in the context of guarantees backed by national authorities or satisfied where...: (a) "the lending credit institution
public sector entitities: "in the case of guarantees provided in the has the right to obtain in a timely manner (...) ", (b)
context of mutual guarantee schemes recognised for these purposes : " the lending credit institution can demonstrate
by the competent authorities or provided by or counter-guranteed by that the loss-protecting effects of the guarantee,
entities referred to in §16, the requirements in § (a) may be considered including losses resulting from the non-payment
to be satisfied where either of the following conditions are met: (a) the which the borrower is obliged to make, justify
competent authorities are satisfied that the lending credit institution such treatment."
has the right to obtain in a timely manner a provisional payment by the
guarantor calculated to represent a robust estimate of the economic
loss, including losses resulting from the non-payment of interest and
other types of payment which the borrower is obliged to make, likely to
be incurred by the lending credit institution proportional to the coverage
of the guarantee; (b) the competent authorities are otherwise satisfied
as to the loss-protecting effects of the guarantee, including losses
resulting from the non-payment of interest and other types of payment
which the borrower is obliged to make"
Annex VIII, Part 3: Calculating the effects of credit risk mitigation
62 § 12 Recognition of internal models for calculation adjusted exposure Leave the national discretion in place.
amounts (E*) for repo-style transactions subject to a master netting Important to a number of Member States
agreement: "as an alternative to using the supervisory volatility
adjustments approach or the own estimates volatility adjustments
approach in calculating the fully adjusted exposure value (E*) resulting
from the applicaation of an eligible master netting agreement covering
repurchase transactions, securities or commodities lending or
borrowing transactions ...., credit institutions may be permitted to use
an internal models approach which ..."
63 § 43 Permission for institutions to use „own estimates‟ of volatility Remove the national discretion "the competent authorities shall permit credit the national discretion for the authorities is removed and the option
adjustments: "the competent authorities may permit credit institutions institutions complying with …to use their own is left to credit institutions
complying with the requirements set out in § 48 to 57 to use their own estimates of calculating the volatility adjustments
estimates of volatility for calculating the volatility adjustments to be to be applied to collateral and exposures"
applied to collateral and exposures."
64 § 44 Own estimate for „each category of security‟ investment grade or Leave the national discretion in place the text needs to be clarified so as to specify what is meant by
above: "when debt securities have a credit assessment from a "investment grade": what credit quality step in the standardised
recognised ECAI equivalent to investment grade or better, the approach does "Investment grade" refer to?
competent authorities may allow credit institutions to calculate a
volatility for each category of security".
65 § 59 Conditions for applying a 0% volatility adjustment: "in relation to Remove the national discretion In relation to repurchase transactions and
repurchase transactions and securities lending or borrowing securities lending or borrowing transactions,
transactions where …and where the conditions set out below are where (…) and where the conditions set out
satisfied, the competent authorities may allow credit institutions not to below are satisfied, credit institutions shall not
apply the volatility adjustments calculated under §35 to 58 and to apply the volatility adjustments specified above
instead apply a 0% volatility adjustment. " and shall instead apply a 0% volatility adjustment.
66 § 59 (h) List of core markets participants required as a condition for applying a Remove the national discretion Replace "may" by "shall". Also, the text shall allow This could only be removed as a national discretion if the Directive
0% volatility adjustment competent authorities to assess which required competent authorities to draw up and publish a list of
counterparts are core market participants and to core market participants.
draw up and publish a list of core market
participants.
2a64dcc8-5046-4a0e-bba5-44f353517e65.xls\National discretions Seite 5/10
List of discretions analysed by the EGRBCD
No. Cross-Reference if
not mentioned
otherwise:
Document EG RBCD proposal to proceed after
Text of the directive (summary) Drafting proposals Additional comments
MARKT/1050/04 meeting September 10
Large exposures
67 Art. 110, 3 Reporting of concentrated exposures to the issuers of collateral taken: Leave the national discretion in place. Reconsider the provision once the directive on large exposure,
"Member States may require the reporting of concentrated exposures currently under review by the European Commission, will have
to the issuers of collateral taken by the credit institutions". been revised. The same rationale for articles 111,113,
115,116,117_2c)
68 Art. 114, 1 Use of Financial Collateral Comprehensive Method in calculation of Leave the national discretion in place. Reconsider the provision once the directive on large exposure,
exposure amounts for purposes of LE limits: " subject to § 3, for the currently under review by the European Commission, will have
purposes of calculating the value of exposures for the purposes of been revised. The same rationale for articles 111,113,
article 111 (1) to (3), Member States may, in respect of credit 115,116,117_2c)
institutions using the Financial Collateral Comprehensive Method (...),
permit such credit institutions to use a value lower than the value of
exposure ...
69 Art. 114, 2 Allow Advanced IRB institutions to use own estimates of collateral Leave the national discretion in place. Reconsider the provision once the directive on large exposure,
effects in calculation of exposure amounts for purposes of LE limits: " currently under review by the European Commission, will have
a credit institution permitted to use own estimates of LGDs and been revised. The same rationale for articles 111,113,
conversion factors for an exposure class under articles 84 to 89 may 115,116,117_2c)
be permitted, where it is able to the satisfaction of the competent
authorities to estimate the effects of financial collateral on their
exposures separately from other LGD-relevant aspects, to recognise
such effects in calculating the value of exposures for the purposes of
article 113 (3)."
70 Art. 114, 4 "where the effects of collateral are recognised under the terms of §1 or Leave the national discretion in place. Reconsider the provision once the directive on large exposure,
2 above, MS may treat any covered part of the exposure as having currently under review by the European Commission, will have
been incurred to the collateral issuer rather than to client" been revised. The same rationale for articles 111,113,
115,116,117_2c)
Mortgage lending
Annex VI, Part 1: Standardised Approach, Risk Weight
71 § 46 Waiver eligibility criterion residential real estate (RRE): "competent Leave the national discretion in place.
authorities may dispense with the condition contained in § 45(b) for Important to a number of Member States
exposures fully and completely secured by mortageges on residential
property which is situated within their territory, if they have evidence
that a well-developed and long-established residential real estate
market in present in their territory with loss rates which are sufficiently
low to justify such treatment".
72 §47 Recognition of the treatment in §46 within EU: "when the discretion Leave the national discretion in place.
contained in §46 is exercised by the competent authorities of a Important to a number of Member States
Member State, the competent authorities of another Member State may
allow their credit institutions to apply a risk weight of 35% to such
exposures fully and completely secured by mortages on residential
property".
73 § 48 50% RW for commercial real estate (CRE): "subject to the discretion Leave the national discretion in place.
of the competent authorities, exposures fully and completely secured, Important to a number of Member States
to the satisfaction of the competent authorities by mortgages on offices
or other commercial premises situated within their territory may be
assigned a risk weight of 50%"
74 § 49 50% RW for Finnish Housing CRE Leave the national discretion in place.
Important to a number of Member States
75 § 50 + art 153 Property leasing transactions: "Subject to the discretion of competent Leave the national discretion in place.
authorities, exposures related to property leasing transactions Required for transitional period.
concerning offices or other commercial premises situated in their
territory and governed by statutory provisions whereby the lessor
retains full ownership of the rented assets until the tenant exercises his
option to purchase, may be assigned a risk weight of 50%. " Art 153:
(...) the competent authorities may until 31 December 2012 allow a
50% risk weighting to be applied without the application of Annex VI,
Part 1, § 55 & 56.
76 § 55 Waiver eligibility criterion CRE: "competent authorities may dispense Leave the national discretion in place.
with the condition contained in § 51 (b) for exposures fully and Important to a number of Member States
completely secured by mortgages on commercial property which is
situated within their territory if they have evidence that (...) with loss
rates do not exceed the following limits (...)
Annex VIII, Part 1: Credit risk mitigation, Eligibility
77 § 16 Waiver eligibility criterion RRE: "the competent authorities may waive Leave the national discretion in place.
the requirement for their credit institutions to comply with condition (b) Important to a number of Member States
in § 13 for exposures secured by residential real estate property
situated within the territory of that Member State if the competent
authority have evidence that (...).
78 § 17 Waiver eligibility criterion CRE: "the competent authorities may waive Leave the national discretion in place.
the requirement for their credit institutions to comply with condition (b) Important to a number of Member States
in § 13 for exposures secured by commercial real estate property
situated within the territory of that Member State if the competent
authority have evidence that (...).
79 §19 Application of the waiver in §17 within EU: "the competent authorities Leave the national discretion in place.
of a Member State, which do not use the waiver in §17, may recognise Important to a number of Member States
as eligible commercial real estate property recognised as eligible in
another Member State by virtue of the waiver".
Annex VIII, Part 3: Calculating the effects of credit risk mitigation
80 § 74 Cap for RRE: "subject to the requirements of this paragraph and §75 Leave the national discretion in place.
and as an alternative to the treatment in § 69 to 73, the competent Important to a number of Member States
authorities of a Member State may autorise credit institutions to apply a
50% risk weighting to the part of the exposure fully collateralised by
RRE property or CRE property situated within the territory of the
81 § 74 Member State if they have evidence that (...)
Cap for CRE: "subject to the requirements of this paragraph and §75 Leave the national discretion in place.
and as an alternative to the treatment in § 69 to 73, the competent Important to a number of Member States
authorities of a Member State may autorise credit institutions to apply a
50% risk weighting to the part of the exposure fully collateralised by
RRE property or CRE property situated within the territory of the
Member State if they have evidence that (...)
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Securitisation
82 Article 95.1 Where significant credit risk associated with securitised exposures Leave the discretion in place. It is an option One group member pointed out that as a national
has been transferred from the originator credit institution, in for credit institutions, not for the competent discretion, competent authorities would have to assess
accordance with the terms of Annex IX, Part 2, that credit institution authorities. to what extent a credit risk transfer is significant
may …
83 Article 96.1 To calculate the risk-weighted exposure amount of a securitisation Leave the discretion in place. It is an option
position, risk weights shall be applied to the exposure value of the for credit institutions, not for the competent
position in accordance with Annex IX, based on the credit quality of authorities.
the position, which may be determined by reference to an ECAI credit
assessment or otherwise, as set out in Annex IX.
84 Article 96.3 Where a securitised position is subject to funded or unfunded credit Leave the discretion in place. It is an option
protection the risk-weight to be applied to that position may be modified for credit institutions, not for the competent
… authorities.
85 Article 97.2 The competent authorities shall recognise an ECAI as eligible for the Leave the national discretion in place. Difficult to define "market acceptance"
purpose of paragraph 1 only if they are satisfied as to its compliance Important to a number of Member States
with the requirements … and that it has a demonstrated ability in the
area of securitisation, which may be evidenced by a strong market
86 Article 97.3 acceptance.
Recognition of ECAI within EU for securitisation purposes: "if an ECAI Leave the national discretion in place. Convergence issue
has been recognised as eligible by the competent authories of one Important to a number of Member States
Member State for the purpose of paragraph I, the competent
authorities of the other Member States may recognise that ECAI as
eligible for those purposes without carrying out their own evaluation
87 Article 98.2 process"
Recognition of mapping within EU for securitisation purposes: When Leave the national discretion in place. Convergence issue
the competent authorities of a Member State have made a Important to a number of Member States
determination under paragraph I, the competent authorities of the other
Member States may recognise that determination without carrying out
their own determination process.
88 Article 100.3 In the case of securitisation subject to an early amortisation provision Leave the national discretion in place. IT was noted that this option was introduced on purpose in order
of retail exposures … the competent authorities may apply a treatment Important for a number of Member States. to allow application of US excess spread rules to european
which approximates closely to that prescribed in Annex IX, Part 4, products (where other triggers are used). Option to maintain for
paragraphs 27 to 30 for determining the conversion figure indicated. level playing field with US.
Annex IX, Part 2: Minimum requirements for recognition of
significant risk transfer and calculation of risk-weighted exposure
amounts and expected loss amounts for securitised exposures.
89 § 1 The originator credit institution of a traditional securitisation may Leave the discretion in place. It is an option
exclude securitised exposures from the calculation of risk-weighted for credit institutions, not for the competent
exposure amounts and expected loss amounts if significant credit risk authorities.
associated with the securitised exposures has been transferred to third
parties and the transfer complies with the following conditions: ...
90 § 1 (ii) The clean-up call may only be exercised when 10% or less of the Leave the discretion in place. It is an option
original value of the exposures securitised remains unmortised… for credit institutions, not for the competent
authorities.
91 § 2 An originator credit institution of a synthetic securitisation may Leave the discretion in place. It is an option
calculate risk-weighted exposure amounts, and, as relevant, expected for credit institutions, not for the competent
loss amounts, for the securitised exposures … if significant credit risk authorities.
has been transferred to third parties either through funded or unfunded
credit protection and the transfer complied with the following
conditions: ...
Annex IX, Part 3: External credit assessment
92 § 7 Where credit protection eligible under Articles 90 to 93 is provided Leave the discretion in place. It is an option
directly to the SSPE, and that protection is reflected in the credit for credit institutions, not for the competent
assessment of a position by a nominated ECAI, the risk weight authorities.
associated with that credit assessment may be used. …
Annex IX, Part 4: Calculation
93 § 4 Where a securitised position is subject to funded credit protection, the Leave the discretion in place. It is an option
exposure value of that position may be modified … for credit institutions, not for the competent
authorities.
94 § 9 For an originator credit institution or sponsor credit institution, the risk- Leave the discretion in place. It is an option
weighted exposure amount calculated in respect of the positions in a for credit institutions, not for the competent
securitisation may be limited to the risk-weighted exposures amounts authorities.
which would be calculated for the securitised exposures had they not
been securitised subject to the presumed application of a 150% risk
weight to all past due items and...
95 § 10 Competent authorities may permit a credit institution having an unrated Remove the national discretion and make it Credit institution having an unrated securitisation The fact that the composition of “the pool of exposures securitised
securitisation position to apply the treatment set out in paragraph 11 … an option for credit institutions position may apply the treatment set out in is known at all time” is considered sufficient for the purpose of
paragraph 11 for calculating the risk-weighted §11.
exposure amount for that position provided that
96 § 11 A credit institution may apply the weighted risk-weight that would be Leave the discretion in place. It is an option credit institution demonstrate that the composition
applied to the securised exposures Articles 78 to 83 by a credit for credit institutions, not for the competent
institution holding the exposures multiplied by a concentration ratio…. authorities.
97 § 12 Subject to the availability of a more favourable treatment by virtue of Leave the discretion in place. It is an option
the provisions concerning liquidity facilities in Paragraphs 14 to 16, a for credit institutions, not for the competent
credit institution may apply to securitisation positions meeting the authorities.
conditions set out in paragraph 13 a risk weight that is the greater of (i)
100% or (ii) ....
98 § 14 When the following conditions are met, to determine its exposure value Leave the discretion in place. It is an option
a conversion figure of 20% may be applied to the nominal amount of a for credit institutions, not for the competent
liquidity facility with an original maturity of one year or less and a authorities.
conversion figure of 50% may be applied to the nominal amount of a
liquidity facility with an original maturity of more than one year.
99 § 15 To determine its exposure value a conversion figure of 0% may be Leave the discretion in place. It is an option
applied to the nominal amount of a liquditiy facility that may be drawn for credit institutions, not for the competent
only in the event of a general market disruption … authorities.
100 § 16 To determine its exposure value, a conversion figure of 0% may be Leave the discretion in place. It is an option
applied to the nominal amount of a liquidity facility that is for credit institutions, not for the competent
unconditionally cancellable provided …. authorities.
101 § 33 Where credit protection is obtained on a securitisation position, the Leave the discretion in place. It is an option
calculation of risk-weighted exposure amounts may be modified in for credit institutions, not for the competent
accordance with Annex VIII. authorities.
102 § 34 As provided in Article 66 (2), in respect of a securitisation position in Leave the discretion in place. It is an option
respect of which a 1250% risk weight applies, credit institutions may, for credit institutions, not for the competent
as an alternative to including the position in their calculation of risk- authorities.
weighted exposure amounts, deduct from own funds the exposure
value of the position.
For these purposes, the calculation of the exposure value may reflect
eligible funded protection in a manner consistent with paragraph 33.
103 § 39 A credit institution other than a originator credit institution or a sponsor Leave the discretion in place. It is an option
credit institution may only use the supervisory formula with the for credit institutions, not for the competent
approval of the competent authorities. authorities.
104 §42 Use of „internal assessment approach‟ for unrated ABCP exposures: Leave the national discretion in place A majority of members was in favour of removing the option as the
"subject to the approval of the competent authorities, when the conditions listed in the paragraph are sufficient. However, others
following conditions are satisfied, a credit institution may attribute to an observed that an element of discretion was appropriate to deal
unrated position in an asset backed commercial paper programme a with new and innovative securitisation structures.
dreived rating as laid down in §43"
105 § 42,+B156 last The requirement for the assessment methodology to be publicly Leave the national discretion in place.
paragraph available may be waived by the competent authorities … Important for a number of Member States.
106 § 44 For an originator credit institution, a sponsor credit institution, or for Leave the discretion in place. It is an option
other credit institutions which can calculate KIRB, the risk-weighted for credit institutions, not for the competent
exposure amounts calculated in respect of its position in a authorities.
securitisation may be limited to that which would produce a capital
requirement under Article 75(a) equal to the sum of 8% of the risk-
weighted exposure amounts which would be produced if the
securitised assets had not been securitised ...
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107 § 47 … If the portfolio share associated with the largest exposure, C1, is Leave the discretion in place. It is an option
available, the credit institution may compute N as 1/C1. for credit institutions, not for the competent
authorities.
108 § 49 Credit risk mitigation on securitisation positions may be recognised in Leave the discretion in place. It is an option
accordance with paragraphs 58 to 60. for credit institutions, not for the competent
authorities.
109 § 51 For securitisation involving retail exposures, the competent authorities Leave the national discretion in place. I Further criteria requirements would be discussed later on.The
may permit the Supervisory Formula Method to be implemented using table referred to by H and v should be added in the annex.
the simplifications:H=0 and v=0
110 § 52 Credit risk mitigation on securitisation position may be recognised in Leave the discretion in place. It is an option
accordance with paragraphs 58, 59 and 61, 65. for credit institutions, not for the competent
authorities.
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MARKT/1050/04 meeting September 10
111 § 54 A conversion figure of 20% may be applied to the nominal amount of a Leave the discretion in place. It is an option
liquidity facility that may only be drawn in the event of a general market for credit institutions, not for the competent
disruption … authorities.
112 § 55 A conversion figure of 0% may be applied to the nominal amount of a Leave the discretion in place. It is an option
liquidity facility that meets the conditions set out in paragraph 16. for credit institutions, not for the competent
authorities.
113 § 56 When it is not practical for the credit institution to calculate the risk- Leave the national discretion in place.
weighted exposure amounts for the securitised exposures as if they
had not been securitised, a credit institution may, on an exceptional
basis and subject to the consent of the competent authorities,
temporarily be allowed to apply the following method for the calculation
of risk-weighted exposure amounts for an unrated securitisation
position in the form of a liquidity facility.
114 § 57 The highest risk weight that would be applied under Articles 78 to 83 to Leave the discretion in place. It is an option
any of the securitised exposures had they not been securitised may be for credit institutions, not for the competent
applied to the securitised position represented by the liquidity facility. authorities.
To determine the exposure value of the position a conversion figure of
115 § 60 When risk-weighted exposure amounts are calculated using the Leave the discretion in place. It is an option
Ratings Based Method, the exposure value and/or risk-weighted for credit institutions, not for the competent
exposure amount for a securitisation position in respect of which credit authorities.
protection has been obtained may be modified in accordance with the
provisions of Annex VIII as they apply for the calculation ....
116 § 64 If the credit risk mitigation covers the "first loss" or losses on a Leave the discretion in place. It is an option
proportional basis on the securitisation position, the credit institution for credit institutions, not for the competent
may apply the provisions in paragraphs 61 to 63. authorities.
117 § 70 The risk-weighted exposure amount of a securitisation position to Leave the discretion in place. It is an option
which a 1250% risk weight is applied may be reduced by 12.5 times for credit institutions, not for the competent
the amount of any value adjustments made …. authorities.
118 § 71 The risk-weighted exposure amount of a securitisation position may be Leave the discretion in place. It is an option
reduced by 12.5 times the amount of any value adjustments made by for credit institutions, not for the competent
the credit institution …. authorities.
119 § 72 As provided in Article 66 (2), in respect of a securitisation position in Leave the discretion in place. It is an option
respect of which a 1250% risk weight applies, credit institutions may, for credit institutions, not for the competent
as an alternative to including the position in their calculation of risk- authorities.
weighted exposure amounts, deduct …
120 § 73 For the purpose of paragraph 73 (a) the exposure value of the position Leave the discretion in place. It is an option
may be derived from the risk-weighted exposure amounts …; (b) the for credit institutions, not for the competent
calculation of the exposure value may reflect eligible funded protection authorities.
in a manner constent …; (c)where the Supervisory Formula Method is
used and ... the position may be treated as two positions ...
Trading book
121 Art 18.2 of 93/6/EEC Conditions under which a TB may be considered small: "(..) Leave the discretion in place. Important to a
competent authorities may allow institutions to calculate the capital number of Member States.
requirements for their trading book business in accordance with art 75
(a) of Directive 2000/12 and … rather than in accordance with
Annexes I and II of directive 93/06 where the size of the trading book
business meets the following requirements (..)
122 Art 19.2 of 93/6/EEC Specific risk requirements for covered bonds: "by derogation to § 3 Leave the discretion in place. Important to a
and 14 of Annex I,Member States may set a specific risk requirement number of Member State.
for any bonds falling…
123 Directive 93/6, subject to competent authorities discretion, long and short positions in Remove the discretion by adding criteria on add "which are (i) considered by the institutions The text of §15 a) needs to be clarified so that it specifies what is
Annex I, § 15d assets issued by institutions subject to the capital adequacy solvency and liquidity concerned to be sufficiently liquid and (ii) whose meant by "investment grade": what credit quality step
requirements set forth in dir 2000/12, to be considered as qualifying investment quality is according to the institution's does"investment grade" refer to?
item own discretion, at least equivalent to that of the
assets refered to under a) above
124 Annex I § 35 of Reduced specific risk requirement for certain portfolios of equities Leave the discretion in place. Important to a
93/6/EEC number of Member States.
125 Annex I § 52 of Recognition of third country CIUs Leave the discretion in place. Important to a
93/6/EEC number of Member States.
Operational
risk
126 Directive 93/6 Limited licence exemption from explicit OpR charge Leave the discretion in place. Important to a
Art. 20 (2) and (3) number of Member States.
127 Directive 93/6 Consolidated calculation using EBR for limited licence groups Leave the discretion in place. Important to a
Art. 24 number of Member States.
128 Directive 93/6 art 25. Exemption of art 24 above: "by derogation to art 2(2), competent Leave the discretion in place. Important to a
authorities may exempt investment firms from the consolidted capital number of Member States.
requirements established there, provided that all the investment firms
in the group fall within the investment firms in art 20(2) and (3) and the
group does not include credit institutions.
129 Article 102.4- Competent Authorities may allow credit institutions to use a Leave the discretion in place. Important to a
Directive 2000/12 combination of approaches in accordance with Annex X, Part 4. number of Member States.
130 Article 104.3 For certain business lines, the competent authorities may under certain Leave the discretion in place. Important to a Members requested clearer reference to Annex X.
conditions authorise a credit institution to use an alternative indicator number of Member States.
for determining its capital requirement for operational risk.
131 Article 105.4 Where an EU parent institution and its subsidiaries or an EU parent Leave the discretion in place. Important to a
financial institution and its subsidiaries use an Advanced number of Member States.
Measurement Approach on a unified basis for the parent and its
subsidiaries, the competent authorities may allow the qualifying criteria
set out in Annex X, Part 3 to be met by the parent and its subsidiaries
considered together.
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Annex X, Part 1: Basic indicator approach
132 § 3 Calculation of the relevant indicator: When audited figures are not Leave the discretion in place. It is an option
available, business estimates may be used. for credit institutions, not for the competent
authorities.
133 § 6 These elements may need to be adjusted to reflect the qualifications … Leave the discretion in place. It is an option
for credit institutions, not for the competent
authorities.
Annex X, Part 2: Standardised approach
134 § 5 Calculation of the relevant indicator: When audited figures are not Leave the option in place. It is an option for
available, business estimates may be used. credit institutions, not for the competent
authorities.
135 § 7 Competent authorities may authorise a credit institutions to calculate Leave the national discretion in place.
its capital requirement for operational risk using an alternative Important to a number of Member State.
standardised approach, as set out in paragraphs 9 to 16.
136 § 8 (d) Credit institutions may use internal pricing methods to allocate the Leave the option in place. It is an option for
indicator between business lines. Costs generated in one business line credit institutions, not for the competent
which are imputable to a different business line may be reallocated to authorities.
the business line to which they pertain, for instance by using a
treatment based on internal transfer costs between the own business
137 § 9 lines.
The competent authorities may authorise the credit institution to use an Leave the discretion in place. Important to a
alternative indicator for the business lines: retail banking and number of Member State.
commercial banking
Annex X, Part 3: Advanced measurement approaches
138 §11 Correlations in operational risk losses across individual operational risk Leave the discretion in place. It is an option
estimates may be recognised only if credit institutions can demonstrate for credit institutions, not for the competent
to the satisfaction of the competent authorities that their systems for authorities.
measuring correlations are sound, implemented with integrity, and take
into account the uncertainty surrounding any such correlation
estimates (...)"
Annex X, Part 4: Combined use of different methodologies
139 § 1 A credit institution may use an Advanced Measurement Approach in Leave the discretion in place. Important to a
combination with either the Basic Indicator Approach or the number of Member State.
Standardised Approach, subject to the following conditions: ...
140 § 2 On a case by case basis, the competent authority may impose the Leave the discretion in place until the
following additional conditions: … European Commission has indicated to
what extent the text of the directive derives
from the Basel II New Accord and why.
141 § 3 A credit institution may use a combination of the Basic Indicator Leave the national discretion in place.
Approach and the Standardised Approach only in exceptional Important for a number of Member States.
circumstances such as the recent acquisition of new business which
may require a transition period for the roll out of the standardised
approach
Supervisory review process
142 Art. 124.4 Frequency/intensity/scope of the Evaluation Process Leave the national discretion in place.
Important for a number of Member States.
Market discipline
143 Art. 72.3 Exemption of EU subs of third-country groups from P3 disclosures: " Leave the national discretion in place.
the competent authorities responsible for exercising supervision on a Important for a number of Member States.
consolidated basis pursuant to articles 125 to 131 may decide not to
apply in full or in part § 1 &2 to the credit institutions which are
included within comparable disclosures provided on a consolidated
basis by parent undertaking established in a third country".
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