Regulation (EU) No 575/2013 is amended as follows:
(1)
Article 4 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
in point (1), point (b) is replaced by the following:
‘(b)
to carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU of the European Parliament and of the Council (*1), where one of the following applies, but the undertaking is not a commodity and emission allowance dealer, a collective investment undertaking, an insurance undertaking, or an investment firm for which the authorisation as a credit institution is waived in accordance with Article 8a of Directive 2013/36/EU:
(i)
the total value of the consolidated assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is equal to or exceeds EUR 30 billion;
(ii)
the total value of the assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in that group that are established in the Union, including any of their branches and subsidiaries established in a third country, that individually have total assets of less than EUR 30 billion and that carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU is equal to or exceeds EUR 30 billion;
(iii)
the total value of the assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in the group that carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU, is equal to or exceeds EUR 30 billion, where the consolidating supervisor, in consultation with the supervisory college, so decides in order to address potential risks of circumvention or potential risks for financial stability of the Union;
(*1) Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349).’;"
(ii)
point (12) is deleted;
(iii)
points (15) and (16) are replaced by the following:
‘(15)
“parent undertaking” means an undertaking that controls, within the meaning of point (37), one or more undertakings;
(16)
“subsidiary” means an undertaking that is controlled, within the meaning of point (37), by another undertaking; subsidiaries of subsidiaries shall also be considered to be subsidiaries of the undertaking that is their original parent undertaking;’
;
(iv)
point (18) is replaced by the following:
‘(18)
“ancillary services undertaking” means an undertaking the principal activity of which, whether provided to undertakings inside the group or to clients outside the group, consists of any of the following:
(a)
a direct extension of banking;
(b)
operational leasing, the ownership or management of property, the provision of data processing services or any other activity insofar as those activities are ancillary to banking;
(c)
any other activity considered similar by EBA to those referred to in points (a) and (b);’
;
(v)
point (20) is replaced by the following:
‘(20)
“financial holding company” means an undertaking that meets all of the following conditions:
(a)
it is a financial institution;
(b)
it is not a mixed financial holding company;
(c)
it has at least one subsidiary that is an institution;
(d)
more than 50 % of any of the following indicators are associated, on a steady basis, with subsidiaries that are institutions or financial institutions, and with activities carried out by the undertaking itself that are not related to the acquisition or owning of holdings in subsidiaries when those activities are of the same nature as the ones carried out by institutions or financial institutions:
(i)
the undertaking’s equity based on its consolidated situation;
(ii)
the undertaking’s assets based on its consolidated situation;
(iii)
the undertaking’s revenues based on its consolidated situation;
(iv)
the undertaking’s personnel based on its consolidated situation;
(v)
other indicators considered relevant by the competent authority.
The competent authority may decide that an entity does not qualify as a financial holding company even if one of the indicators referred to in the first paragraph, points (i) to (iv), is met, where the competent authority considers that the relevant indicator does not convey a fair and true view of the main activities and risks of the group. Before making such decision, the competent authority shall consult EBA and provide a substantiated and detailed qualitative and quantitative justification. The competent authority shall have due regard to EBA’s opinion and, where it decides to deviate from it, shall within three months of the date of receipt of EBA’s opinion, provide to EBA the rationale for deviating from the relevant opinion;’
;
(vi)
the following point is inserted:
‘(20a)
“investment holding company” means an investment holding company as defined in Article 4(1), point (23), of Regulation (EU) 2019/2033;’
(vii)
point (26) is replaced by the following:
‘(26)
“financial institution” means an undertaking that meets both of the following conditions:
(a)
it is not an institution, a pure industrial holding company, a securitisation special purpose entity, an insurance holding company as defined in Article 212(1), point (f), of Directive 2009/138/EC or a mixed-activity insurance holding company as defined in Article 212(1), point (g), of that Directive, except where a mixed-activity insurance holding company has a subsidiary institution;
(b)
it meets one or more of the following conditions:
(i)
the principal activity of the undertaking is to acquire or own holdings or to pursue one or more of the activities listed in Annex I, points 2 to 12 and points 15, 16 and 17, to Directive 2013/36/EU, or to pursue one or more of the services or activities listed in Annex I, Section A or B, to Directive 2014/65/EU in relation to financial instruments listed in Annex I, Section C, to Directive 2014/65/EU;
(ii)
the undertaking is an investment firm, a mixed financial holding company, an investment holding company, a payment services provider as categorised under Article 1(1), points (a) to (d), of Directive (EU) 2015/2366 of the European Parliament and of the Council (*2), an asset management company or an ancillary services undertaking;
(*2) Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (OJ L 337, 23.12.2015, p. 35).’;"
(viii)
the following point is inserted:
‘(26a)
“pure industrial holding company” means an undertaking that meets all of the following conditions:
(a)
its principal activity is to acquire or own holdings;
(b)
it is not referred to in point (27)(a), or point (27)(d) to (l), of this paragraph and is not an investment firm or an asset management company, or a payment service provider as categorised under Article 1(1), points (a) to (d), of Directive (EU) 2015/2366;
(c)
it does not hold any participations in a financial sector entity;’
;
(ix)
in point (27), point (c) is deleted;
(x)
point (28) is replaced by the following:
‘(28)
“parent institution in a Member State” means an institution in a Member State which has an institution or a financial institution as a subsidiary, or which holds a participation in an institution or financial institution, and which is not itself a subsidiary of another institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State;’
;
(xi)
point (35) is replaced by the following:
‘(35)
“participation” means a participating interest as defined in Article 2, point (2), of Directive 2013/34/EU of the European Parliament and of the Council (*3), or the ownership, direct or indirect, of 20 % or more of the voting rights or capital of an undertaking;
(*3) Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19).’;"
(xii)
point (37) is replaced by the following:
‘(37)
“control” means the relationship between a parent undertaking and a subsidiary, as described in Article 22 of Directive 2013/34/EU, or in the accounting standards to which an institution is subject under Regulation (EC) No 1606/2002 of the European Parliament and of the Council (*4), or a similar relationship between any natural or legal person and an undertaking;
(*4) Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (OJ L 243, 11.9.2002, p. 1).’;"
(xiii)
point (52) is replaced by the following:
‘(52)
“operational risk” means the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including, but not limited to, legal risk, model risk or information and communication technology (ICT) risk, but excluding strategic and reputational risk;’
;
(xiv)
the following points are inserted:
‘(52a)
“legal risk” means the risk of loss, including, expenses, fines, penalties or punitive damages, which an institution might incur as a consequence of events that result in legal proceedings, including the following:
(a)
supervisory actions and private settlements;
(b)
failure to act where action is necessary to comply with a legal obligation;
(c)
action taken to avoid compliance with a legal obligation;
(d)
misconduct events, which are events that arise from wilful or negligent misconduct, including inappropriate supply of financial services or the provision of inadequate or misleading information on the financial risk of products sold by the institution;
(e)
non-compliance with any requirement derived from national or international statutory or legislative provisions;
(f)
non-compliance with any requirement derived from contractual arrangements, or with internal rules and codes of conduct established in accordance with national or international rules and practices;
(g)
non-compliance with rules on ethics;
(52b)
“model risk” means the risk of loss resulting from decisions that are principally based on the output of internal models, due to errors in the design, development, parameter estimation, implementation, use or monitoring of such models, including the following:
(a)
the improper design of a selected internal model and its characteristics;
(b)
the inadequate verification of a selected internal model’s suitability for the financial instrument to be evaluated or for the product to be priced, or of the selected internal model’s suitability for the applicable market conditions;
(c)
errors in the implementation of a selected internal model;
(d)
incorrect mark-to-market valuations and risk measurement as a result of an error when booking a trade into the trading system;
(e)
the use of a selected internal model or of its outputs for a purpose for which that model was not intended or designed, including manipulation of the modelling parameters;
(f)
the untimely or ineffective monitoring or validation of model performance or of the predictive ability to assess whether the selected internal model remains fit for purpose;
(52c)
“ICT risk” means the risk of loss related to any reasonably identifiable circumstances related to the use of network and information systems which, if materialised, might compromise the security of the network and information systems, of any technology-dependent tool or process, of operations and processes, or of the provision of services, by producing adverse effects in the digital or physical environment;
(52d)
“environmental, social and governance risk” or “ESG risk” means the risk of any negative financial impact on an institution stemming from the current or prospective impact of environmental, social or governance (ESG) factors on that institution’s counterparties or invested assets; ESG risks materialise through the traditional categories of financial risks;
(52e)
“environmental risk” means the risk of any negative financial impact on an institution stemming from the current or prospective impact of environmental factors on that institution’s counterparties or invested assets, including factors related to the transition towards the objectives set out in Article 9 of Regulation (EU) 2020/852 of the European Parliament and of the Council (*5); environmental risk includes both physical risk and transition risk;
(52f)
“physical risk”, as part of the environmental risk, means the risk of any negative financial impact on an institution stemming from the current or prospective impact of the physical effects of environmental factors on that institution’s counterparties or invested assets;
(52g)
“transition risk”, as part of the environmental risk, means the risk of any negative financial impact on an institution stemming from the current or prospective impact of the transition to an environmentally sustainable economy on that institution’s counterparties or invested assets;
(52h)
“social risk” means the risk of any negative financial impact on an institution stemming from the current or prospective impact of social factors on its counterparties or invested assets;
(52i)
“governance risk” means the risk of any negative financial impact on an institution stemming from the current or prospective impact of governance factors on that institution’s counterparties or invested assets;
(*5) Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (OJ L 198, 22.6.2020, p. 13).’;"
(xv)
points (54), (55) and (56) are replaced by the following:
‘(54)
“probability of default” or “PD” means the probability of default of an obligor or, where applicable, of a credit facility over a one-year period, and, in the context of dilution risk, the probability of dilution over a one-year period;
(55)
“loss given default” or “LGD” means the ratio of the loss on an exposure related to a single facility due to the default of an obligor or, where applicable, of a credit facility to the amount outstanding at default or at a given reference date after the date of default, and, in the context of dilution risk, the loss given dilution meaning the ratio of the loss on an exposure related to a purchased receivable due to dilution, to the amount outstanding of the purchased receivable;
(56)
“conversion factor” or “credit conversion factor” or “CCF” means the ratio of the undrawn amount of a commitment from a single facility that could be drawn from that single facility from a certain point in time before default and therefore outstanding at default to the undrawn amount of the commitment from that facility, the extent of the commitment being determined by the advised limit, unless the unadvised limit is higher;’
;
(xvi)
points (58), (59) and 60 are replaced by the following:
‘(58)
“funded credit protection” or “FCP” means a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an institution is derived from the right of that institution, in the event of the default of the obligor or the credit facility, or on the occurrence of other specified credit events relating to the obligor, to liquidate, or to obtain transfer or appropriation of, or to retain certain assets or amounts, or to reduce the amount of the exposure to, or to replace it with, the amount of the difference between the amount of the exposure and the amount of a claim on the institution;
(59)
“unfunded credit protection” or “UFCP” means a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an institution is derived from the obligation of a third party to pay an amount in the event of the default of the obligor or the credit facility, or the occurrence of other specified credit events;
(60)
“cash assimilated instrument” means a certificate of deposit, a bond, including a covered bond, or any other non-subordinated instrument, which has been issued by a lending institution, for which that lending institution has already received full payment and which shall be unconditionally reimbursed by the institution at its nominal value;’
;
(xvii)
the following point is inserted:
‘(60a)
“gold bullion” means gold in the form of a commodity, including gold bars, ingots and coins, commonly accepted by the bullion market, where liquid markets for bullion exist, and the value of which is determined by the value of the gold content, defined by purity and mass, rather than by its interest to numismatists;’
;
(xviii)
the following point is inserted:
‘(74a)
“property value” means the value of a residential property or commercial immovable property determined in accordance with Article 229(1);’
;
(xix)
point (75) is replaced by the following:
‘(75)
“residential property” means any of the following:
(a)
an immovable property which has the nature of a dwelling and satisfies all applicable laws and regulations enabling the property to be occupied for housing purposes;
(b)
an immovable property which has the nature of a dwelling and is still under construction, provided that there is the expectation that the property will satisfy all applicable laws and regulations enabling the property to be occupied for housing purposes;
(c)
the right to inhabit an apartment in housing cooperatives located in Sweden;
(d)
land accessory to a property referred to in point (a), (b) or (c);’
;
(xx)
the following points are inserted:
‘(75a)
“commercial immovable property” means any immovable property that is not residential property;
(75b)
“income producing real estate exposure” or “IPRE exposure” means an exposure secured by one or more residential properties or commercial immovable properties where the fulfilment of the credit obligations related to the exposure materially depends on the cash flows generated by those immovable properties securing that exposure, rather than on the capacity of the obligor to fulfil the credit obligations from other sources; the primary source of such cash flows being lease or rental payments, or proceeds from the sale of the residential property or commercial immovable property;
(75c)
“non-income-producing real estate exposure” or “non-IPRE exposure” means any exposure secured by one or more residential properties or commercial immovable properties that is not an IPRE exposure;
(75d)
“exposure secured by residential property” or “exposure secured by a mortgage on residential property” means an exposure secured by residential property or an exposure regarded as such in accordance with Article 108(4);
(75e)
“exposure secured by commercial immovable property” or “exposure secured by a mortgage on commercial immovable property” means an exposure secured by a commercial immovable property;
(75f)
“exposure secured by immovable property” or “exposure secured by a mortgage on immovable property”, or “exposure secured by immovable property collateral” means an exposure secured by a residential property or commercial immovable property or an exposure regarded as such in accordance with Article 108(4);’
;
(xxi)
point (78) is replaced by the following:
‘(78)
“one-year default rate” means the ratio between the number of obligors or, where the definition of default is applied at credit facility level pursuant to Article 178(1), second subparagraph, credit facilities in respect of which a default is considered to have occurred during a period that starts from one year prior to a date of observation T, and the number of obligors, or where the definition of default is applied at credit facility level pursuant to Article 178(1), second subparagraph, credit facilities assigned to this grade or pool one year prior to that date of observation T;’
;
(xxii)
the following points are inserted:
‘(78a)
“land acquisition, development and construction exposures”, or “ADC exposures”, means exposures to corporates or special purpose entities financing any land acquisition for development and construction purposes, or financing the development and construction of any residential property or commercial immovable property;
(78b)
“non-ADC exposure” means any exposure secured by one or more residential properties or commercial immovable properties that is not an ADC exposure;’
;
(xxiii)
point (79) is deleted;
(xxiv)
point (114) is replaced by the following:
‘(114)
“indirect holding” means any exposure to an intermediate entity that has an exposure to capital instruments issued by a financial sector entity or to liabilities issued by an institution where, in the event the capital instruments issued by the financial sector entity or the liabilities issued by the institution were permanently written off, the loss that the institution would incur as a result would not be materially different from the loss the institution would incur from a direct holding of those capital instruments issued by the financial sector entity or of those liabilities issued by the institution;’
;
(xxv)
point (126) is replaced by the following:
‘(126)
“synthetic holding” means an investment by an institution in a financial instrument the value of which is directly linked to the value of the capital instruments issued by a financial sector entity or to the value of the liabilities issued by an institution;’
;
(xxvi)
in point (127), point (b) is replaced by the following:
‘(b)
the institutions are fully consolidated in accordance with Article 22 of Directive 2013/34/EU and are included in the supervision on a consolidated basis of an institution which is a parent institution in a Member State in accordance with Part One, Title II, Chapter 2, of this Regulation and subject to own funds requirements;’
;
(xxvii)
point (144) is replaced by the following:
‘(144)
“trading desk” means a well-identified group of dealers established by the institution in accordance with Article 104b(1) to jointly manage a portfolio of trading book positions, or the non-trading book positions referred to in paragraphs (5) and (6) of that Article, in accordance with a well-defined and consistent business strategy and operating under the same risk management structure;’
;
(xxviii)
in point (145), point (f) is replaced by the following:
‘(f)
the institution’s consolidated assets or liabilities relating to activities with counterparties located in the European Economic Area, excluding intragroup exposures in the European Economic Area, exceed 75 % of both the institution’s consolidated total assets and liabilities, excluding in both cases the intragroup exposures;’
;
(xxix)
the following points are added:
‘(151)
“revolving exposure” means any exposure whereby the borrower’s outstanding balance is permitted to fluctuate based on its decisions to borrow and repay, up to an agreed limit;
(152)
“transactor exposure” means any revolving exposure that has at least 12 months of repayment history and that is one of the following:
(a)
an exposure for which, on a regular basis of at least every 12 months, the balance to be repaid at the next scheduled repayment date is determined as the drawn amount at a predefined reference date, with a scheduled repayment date not later than after 12 months, provided that the balance has been repaid in full at each scheduled repayment date for the previous 12 months;
(b)
an overdraft facility where there have been no drawdowns over the previous 12 months;
(153)
“fossil fuel sector entity” means a company, enterprise or undertaking statistically classified as having its principal economic activity in the coal, oil or gas sector of economic activities, as set out in Annex XXXIX, Template 3, to Commission Implementing Regulation (EU) 2021/637 (*6) and as identified by reference to the statistical classification of economic activities (NACE Revision 2) codes listed in Annex I, Sections B, C, D and G, to Regulation (EC) No 1893/2006 of the European Parliament and of the Council (*7); where the principal economic activity of a company, enterprise or undertaking is not classified using the NACE Revision 2 codes set out in Regulation (EC) No 1893/2006, or a national classification derived therefrom, institutions shall conservatively determine whether such company, enterprise or undertaking has its principal activity in one of those sectors;
(154)
“exposures subject to the impact of environmental or social factors” means exposures hindering the ambition of the Union to achieve its regulatory objectives relating to ESG factors, in a way that could have a negative financial impact on institutions in the Union;
(155)
“shadow banking entity” means an entity that carries out banking activities outside the regulated framework;
(*6) Commission Implementing Regulation (EU) 2021/637 of 15 March 2021 laying down implementing technical standards with regard to public disclosures by institutions of the information referred to in Titles II and III of Part Eight of Regulation (EU) No 575/2013 of the European Parliament and of the Council and repealing Commission Implementing Regulation (EU) No 1423/2013, Commission Delegated Regulation (EU) 2015/1555, Commission Implementing Regulation (EU) 2016/200 and Commission Delegated Regulation (EU) 2017/2295 (OJ L 136, 21.4.2021, p. 1)."
(*7) Regulation (EC) No 1893/2006 of the European Parliament and of the Council of 20 December 2006 establishing the statistical classification of economic activities NACE Revision 2 and amending Council Regulation (EEC) No 3037/90 as well as certain EC Regulations on specific statistical domains (OJ L 393, 30.12.2006, p. 1).’;"
(xxx)
the following subparagraphs are added:
‘For the purposes of the first subparagraph, points (1)(b)(ii) and (iii), where the undertaking is part of a third-country group, the total assets of each branch of the third-country group authorised in the Union shall be included in the combined total value of the assets of all undertakings in the group.
For the purposes of the first subparagraph, point (1)(b)(iii), the consolidating supervisor may request all relevant information from the undertaking in order to take its decision.
For the purposes of the first subparagraph, point (52a), legal risk shall not comprise refunds to third parties or employees and goodwill payments due to business opportunities, where no breach of any rules or ethical conduct has occurred and where the institution has fulfilled its obligations on a timely basis. Nor shall legal risk comprise external legal costs where the event giving rise to those external costs is not an operational risk event.
For the purposes of the first subparagraph, point (145)(e), of this paragraph, an institution may exclude derivative positions it entered with its non-financial clients and the derivative positions it uses to hedge those positions, provided that the combined value of the excluded positions calculated in accordance with Article 273a(3) does not exceed 10 % of the institution’s total on- and off-balance-sheet assets.’
;
(b)
the following paragraph is added:
‘5. By 10 January 2026, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, specifying the criteria for the identification of activities referred to in paragraph 1, first subparagraph, point (18) of this Article.’
;
(2)
Article 5 is amended as follows:
(a)
point (3) is replaced by the following:
‘(3)
“expected loss” or “EL” means the ratio, related to a single facility, of the amount expected to be lost on an exposure from any of the following:
(a)
a potential default of an obligor over a one-year period to the amount outstanding at default;
(b)
a potential dilution event over a one-year period to the amount outstanding at the date of occurrence of the dilution event;’
;
(b)
the following points are added:
‘(4)
“credit obligation” means any obligation arising from a credit contract, including principal, accrued interest and fees, owed by an obligor;
(5)
“credit exposure” means any on- or off -balance-sheet item, that results, or may result, in a credit obligation;
(6)
“facility” or “credit facility” means a credit exposure arising from a contract or a set of contracts between an obligor and an institution;
(7)
“margin of conservatism” means an add-on incorporated in risk parameter estimates to account for the expected range of estimation errors stemming from identified deficiencies in data, methods, models, and changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, as well as from general estimation error;
(8)
“appropriate adjustment” means the impact on risk parameter estimates resulting from the application of methodologies within the estimation of risk parameters to correct the identified deficiencies in data and in estimation methods, and to account for changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, to the extent possible in order to avoid biases in risk parameter estimates;
(9)
“small and medium-sized enterprise” or “SME” means a company, enterprise or undertaking which, according to its most recent consolidated accounts, has an annual turnover not exceeding EUR 50 000 000;
(10)
“commitment” means any contractual arrangement that an institution offers to a client, and is accepted by that client, to extend credit, purchase assets or issue credit substitutes; and any such arrangement that can be unconditionally cancelled by an institution at any time without prior notice to an obligor or any arrangement that can be cancelled by an institution where an obligor fails to meet the conditions set out in the facility documentation, including conditions that are required to be met by the obligor prior to any initial or subsequent drawdown under the arrangement, unless contractual arrangements meet all of the following conditions:
(a)
contractual arrangements where the institution receives no fees or commissions to establish or maintain those contractual arrangements;
(b)
contractual arrangements where the client is required to apply to the institution for the initial and each subsequent drawdown under those contractual arrangements;
(c)
contractual arrangements where the institution has full authority, regardless of the fulfilment by the client of the conditions set out in the contractual arrangement documentation, over the execution of each drawdown;
(d)
the contractual arrangements allow the institution to assess the creditworthiness of the client immediately prior to deciding on the execution of each drawdown and the institution has implemented and applies internal procedures that ensure that such an assessment is being made before the execution of each drawdown;
(e)
contractual arrangements that are offered to a corporate entity, including an SME, that is closely monitored on an ongoing basis;
(11)
“unconditionally cancellable commitment” means any commitment the terms of which permit the institution to cancel that commitment to the full extent allowable under consumer protection and related legal acts, where applicable, at any time without prior notice to the obligor or that effectively provide for automatic cancellation due to a deterioration in a borrower’s creditworthiness.’
;
(3)
the following article is inserted:
‘Article 5a
Definitions specific to crypto-assets
For the purposes of this Regulation, the following definitions apply:
(1)
“crypto-asset” means a crypto-asset as defined in Article 3(1), point (5), of Regulation (EU) 2023/1114 of the European Parliament and of the Council (*8) that is not a central bank digital currency;
(2)
“electronic money token” or “e-money token” means an electronic money token or e-money token as defined in Article 3(1), point (7), of Regulation (EU) 2023/1114;
(3)
“crypto-asset exposure” means an asset or an off-balance-sheet item related to a crypto-asset that gives rise to credit risk, counterparty credit risk, market risk, operational risk or liquidity risk;
(4)
“traditional asset” means any asset other than a crypto-asset, including:
(a)
financial instruments as defined in Article 4(1), point (50), of this Regulation;
(b)
funds as defined in Article 4, point (25), of Directive (EU) 2015/2366;
(c)
deposits as defined in Article 2(1), point (3), of Directive 2014/49/EU of the European Parliament and of the Council (*9), including structured deposits;
(d)
securitisation positions in the context of a securitisation as defined in Article 2, point (1), of Regulation (EU) 2017/2402;
(e)
non-life or life insurance products falling within the classes of insurance listed in Annexes I and II to Directive 2009/138/EC or reinsurance and retrocession contracts referred to in that Directive;
(f)
pension products that, under national law, are recognised as having the primary purpose of providing the investor with an income in retirement and that entitle the investor to certain benefits;
(g)
officially recognised occupational pension schemes within the scope of Directive (EU) 2016/2341 of the European Parliament and of the Council (*10) or Directive 2009/138/EC;
(h)
individual pension products for which a financial contribution from the employer is required by national law and where the employer or the employee has no choice as to the pension product or provider;
(i)
a pan-European Personal Pension Product as defined in Article 2, point (2), of Regulation (EU) 2019/1238 of the European Parliament and of the Council (*11);
(j)
social security schemes covered by Regulation (EC) No 883/2004 of the European Parliament and of the Council (*12) and Regulation (EC) No 987/2009 of the European Parliament and of the Council (*13);
(5)
“tokenised traditional asset” means a type of crypto-asset that represents a traditional asset, including an e-money token;
(6)
“asset-referenced token” means an asset-referenced token as defined in Article 3(1), point (6), of Regulation (EU) 2023/1114;
(7)
“crypto-asset service” means a crypto-asset service as defined in Article 3(1), point (16), of Regulation (EU) 2023/1114.
(*8) Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (OJ L 150, 9.6.2023, p. 40)."
(*9) Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, p. 149)."
(*10) Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs) (OJ L 354, 23.12.2016, p. 37)."
(*11) Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a pan-European Personal Pension Product (PEPP) (OJ L 198, 25.7.2019, p. 1)."
(*12) Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems (OJ L 166, 30.4.2004, p. 1)."
(*13) Regulation (EC) No 987/2009 of the European Parliament and of the Council of 16 September 2009 laying down the procedure for implementing Regulation (EC) No 883/2004 on the coordination of social security systems (OJ L 284, 30.10.2009, p. 1).’;"
(4)
Article 10a is replaced by the following:
‘Article 10a
Application of prudential requirements on a consolidated basis where investment firms are parent undertakings
For the purposes of this Chapter, investment firms and investment holding companies shall be considered to be parent financial holding companies in a Member State or EU parent financial holding companies where such investment firms or investment holding companies are parent undertakings of an institution or of an investment firm subject to this Regulation that is referred to in Article 1(2) or (5) of Regulation (EU) 2019/2033.’
;
(5)
in Article 13(1), the second subparagraph is replaced by the following:
‘Large subsidiaries of EU parent institutions shall disclose the information specified in Articles 437, 438, 440, 442, 449a, 449b, 450, 451, 451a and 453 on an individual basis or, where applicable in accordance with this Regulation and Directive 2013/36/EU, on a sub-consolidated basis.’
;
(6)
Article 18 is amended as follows:
(a)
paragraph 2 is deleted;
(b)
paragraph 4 is replaced by the following:
‘4. Participations in institutions and financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation shall be consolidated proportionally according to the share of capital held, where the liability of those undertakings is limited to the share of the capital they hold.’
;
(c)
in paragraph 6, the second subparagraph is replaced by the following:
‘In particular, competent authorities may permit or require the use of the method provided for in Article 22(7), (8) and (9) of Directive 2013/34/EU.’
;
(d)
in paragraph 7, the first subparagraph is replaced by the following:
‘Where an institution has a subsidiary which is an undertaking other than an institution or a financial institution or holds a participation in such an undertaking, it shall apply the equity method to that subsidiary or participation. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis.’
;
(e)
in paragraph 8, the introductory wording is replaced by the following:
‘Competent authorities may require full or proportional consolidation of a subsidiary or an undertaking in which an institution holds a participation where that subsidiary or undertaking is not an institution or a financial institution and where all of the following conditions are met:’
;
(f)
the following paragraph is inserted:
‘10. EBA shall submit a report to the Commission by 10 July 2025 on the completeness and appropriateness of the definitions and provisions of this Regulation concerning the supervision of all types of risks to which institutions are exposed at a consolidated level. EBA shall assess in particular any possible remaining discrepancies in those definitions and provisions alongside their interaction with the applicable accounting framework, and any remaining aspect that might pose unintended constraints to a consolidated supervision that is comprehensive and adaptable to new sources or types of risks or structures that might lead to regulatory arbitrage. EBA shall update its report at least once every two years.
In light of EBA’s findings, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal to make adjustments to the relevant definitions or the scope of prudential consolidation.’
;
(7)
Article 19 is amended as follows:
(a)
in paragraph 1, the introductory wording is replaced by the following:
‘An institution or a financial institution which is a subsidiary or an undertaking in which a participation is held, need not to be included in the consolidation where the total amount of assets and off-balance-sheet items of the undertaking concerned is less than the smaller of the following two amounts:’
;
(b)
in paragraph 2, the introductory wording is replaced by the following:
‘The competent authorities responsible for exercising supervision on a consolidated basis pursuant to Article 111 of Directive 2013/36/EU may on a case-by-case basis decide in the following cases that an institution, or a financial institution which is a subsidiary or in which a participation is held need not be included in the consolidation:’
;
(8)
Article 20 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
in the first subparagraph, point (a) is replaced by the following:
‘(a)
in the case of applications for the permissions referred to in Article 143(1), Article 151(9), Article 283 and Article 325az submitted by an EU parent institution and its subsidiaries, or jointly by the subsidiaries of an EU parent financial holding company or EU parent mixed financial holding company, to decide whether or not to grant the permission sought and to determine the terms and conditions, if any, to which such permission should be subject;’
;
(ii)
the third subparagraph is deleted;
(b)
paragraph 6 is replaced by the following:
‘6. Where an EU parent institution and its subsidiaries, the subsidiaries of an EU parent financial holding company or an EU parent mixed financial holding company use the IRB Approach referred to in Article 143 on a unified basis, the competent authorities shall allow the parent and its subsidiaries, considered together, to meet the qualifying criteria set out in Part Three, Title II, Chapter 3, Section 6 in a way that is consistent with the structure of the group and its risk management systems, processes and methodologies.’
;
(c)
paragraph 8 is replaced by the following:
‘8. EBA shall develop draft implementing technical standards to specify the joint decision process referred to in paragraph 1, point (a), of this Article with regard to the applications for permissions referred to in Article 143(1), Article 151(9) and Articles 283 and 325az with a view to facilitating joint decisions.
EBA shall submit those draft implementing technical standards to the Commission by 10 July 2025.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph of this paragraph in accordance with Article 15 of Regulation (EU) No 1093/2010.’
;
(9)
Article 22 is replaced by the following:
‘Article 22
Sub-consolidation in the case of entities in third countries
1. Subsidiary institutions or subsidiary intermediate financial holding companies or subsidiary intermediate mixed financial holding companies shall apply the requirements laid down in Articles 89, 90 and 91 and Parts Three, Four and Seven and the associated reporting requirements laid down in Part Seven A on the basis of their sub-consolidated situation if they have an institution or a financial institution as a subsidiary in a third country, or hold a participation in such an undertaking.
2. By way of derogation from paragraph 1 of this Article, subsidiary institutions or subsidiary intermediate financial holding companies or subsidiary intermediate mixed financial holding companies may choose not to apply the requirements laid down in Articles 89, 90 and 91 and Parts Three, Four and Seven and the associated reporting requirements laid down in Part Seven A on the basis of their sub-consolidated situation where the total assets and off-balance-sheet items of the subsidiaries and participations in third countries are less than 10 % of the total amount of the assets and off-balance-sheet items of the subsidiary institution or subsidiary intermediate financial holding company or subsidiary intermediate mixed financial holding company.’
;
(10)
in Article 27(1), point (a), point (v) is deleted;
(11)
Article 34 is replaced by the following:
‘Article 34
Additional value adjustments
1. Institutions shall apply the requirements of Article 105 to all their assets measured at fair value when calculating the amount of their own funds and shall deduct from Common Equity Tier 1 capital the amount of any additional value adjustments necessary.
2. By way of derogation from paragraph 1, in extraordinary circumstances, the existence of which shall be determined by an opinion provided by EBA in accordance with paragraph 3, institutions may reduce the total additional value adjustments in the calculation of the total amount to be deducted from Common Equity Tier 1 capital.
3. For the purpose of providing the opinion referred to in paragraph 2, EBA shall monitor the market conditions to assess whether extraordinary circumstances have occurred and, if so, shall notify the Commission thereof immediately.
4. EBA, in consultation with ESMA, shall develop draft regulatory technical standards to specify the indicators and conditions that EBA will use to determine the extraordinary circumstances referred to in paragraph 2 and to specify the reduction of the total aggregated additional value adjustments referred to in that paragraph.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(12)
Article 36 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
point (d) is replaced by the following:
‘(d)
for institutions calculating risk-weighted exposure amounts using the Internal Ratings Based Approach (the IRB Approach), the IRB shortfall, where applicable, calculated in accordance with Article 159;’
;
(ii)
point (k) is amended as follows:
(1)
point (v) is deleted;
(2)
the following point is added:
‘(vi)
exposures in the form of units or shares in a CIU that are assigned a risk weight of 1 250 % in accordance with Article 132(2), second subparagraph.’
;
(b)
the following paragraph is added:
‘5. For the sole purpose of calculating the applicable amount of insufficient coverage for non-performing exposures in accordance with paragraph 1, point (m), of this Article, by way of derogation from Article 47c and after having notified the competent authority, the applicable amount of insufficient coverage for non-performing exposures purchased by a specialised debt restructurer shall be zero. The derogation set out in this subparagraph shall apply on an individual basis and, in the case of groups in which all institutions qualify as specialised debt restructurers, on a consolidated basis.
For the purposes of this paragraph, “specialised debt restructurer” means an institution that, during the preceding financial year, complied with all of the following conditions on both an individual and on a consolidated basis:
(a)
the main activity of the institution is the purchase, management and restructuring of non-performing exposures in accordance with a clear and effective internal decision process implemented by its management body;
(b)
the accounting value measured without taking into account any credit risk adjustments of its own originated loans does not exceed 15 % of its total assets;
(c)
at least 5 % of the accounting value measured without taking into account any credit risk adjustments’ of its own originated loans constitutes a total or partial refinancing, or the adjustment of relevant terms, of the purchased non-performing exposures that qualifies as a forbearance measure in accordance with Article 47b;
(d)
the total value of the assets of the institution does not exceed EUR 20 billion;
(e)
the institution maintains, on an ongoing basis, a net stable funding ratio of at least 130 %;
(f)
the sight deposits of the institution do not exceed 5 % of the total liabilities of the institution.
The specialised debt restructurer shall notify the competent authority, without delay, if one or more of the conditions set out in the second subparagraph are no longer met. Competent authorities shall notify EBA at least on an annual basis of the application of this paragraph by institutions under their supervision.
EBA shall establish, maintain, and publish a list of specialised debt restructurers. EBA shall monitor the activity of specialised debt restructurers and shall report by 31 December 2028 to the Commission on the results of such monitoring and, where appropriate, shall advise the Commission as to whether the conditions to qualify as “specialised debt restructurer” are sufficiently risk-based and appropriate in view of favouring the secondary market for non-performing loans, and assess if additional conditions are necessary.’
;
(13)
in Article 46(1), point (a), point (ii) is replaced by the following:
‘(ii)
the deductions referred to in Article 36(1), points (a) to (g), points (k)(ii) to (vi) and points (l), (m) and (n), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences;’
;
(14)
Article 47c is amended as follows:
(a)
paragraph 4 is amended as follows:
(i)
the introductory wording is replaced by the following:
‘By way of derogation from paragraph 3 of this Article, the following factors shall apply to the part of the non-performing exposure guaranteed or counter-guaranteed by an eligible protection provider referred to in Article 201(1), points (a) to (e), the unsecured exposures to which would be assigned a risk weight of 0 % under Part Three, Title II, Chapter 2:’
;
(ii)
point (b) is replaced by the following:
‘(b)
1 for the secured part of the non-performing exposure to be applied as of the first day of the eighth year following its classification as non-performing, unless the eligible protection provider agreed to fulfil all payment obligations of the obligor towards the institution in full and in accordance with the original contractual payment schedule, in which case a factor of 0 for the secured part of the non-performing exposure shall apply.’
;
(b)
the following paragraph is inserted:
‘4a. By way of derogation from paragraph 3, the part of the non-performing exposure guaranteed or insured by an official export credit agency shall not be subject to the requirements laid down in this Article.’
;
(15)
in Article 48, paragraph 1 is amended as follows:
(a)
in point (a), point (ii) is replaced by the following:
‘(ii)
Article 36(1), points (a) to (h), points (k)(ii) to (vi) and points (l), (m) and (n), excluding deferred tax assets that rely on future profitability and arise from temporary differences;’
;
(b)
in point (b), point (ii) is replaced by the following:
‘(ii)
Article 36(1), points (a) to (h), points (k)(ii) to (vi) and points (l), (m) and (n), excluding deferred tax assets that rely on future profitability and arise from temporary differences.’
;
(16)
in Article 49, paragraph 4 is replaced by the following:
‘4. The holdings in respect of which deduction is not made in accordance with paragraph 1 shall qualify as exposures and shall be risk weighted in accordance with Part Three, Title II, Chapter 2.
The holdings in respect of which deduction is not made in accordance with paragraph 2 or 3 shall qualify as exposures and shall be risk weighted at 100 %.’
;
(17)
in Article 60(1), in point (a), point (ii) is replaced by the following:
‘(ii)
Article 36(1), points (a) to (g), points (k)(ii) to (vi) and points (l), (m) and (n), excluding deferred tax assets that rely on future profitability and arise from temporary differences;’
;
(18)
in Article 62, first paragraph, point (d) is replaced by the following:
‘(d)
for institutions calculating risk-weighted exposure amounts in accordance with Part Three, Title II, Chapter 3, the IRB excess, where applicable, gross of tax effects, calculated in accordance with Article 159, of up to 0,6 % of risk-weighted exposure amounts calculated in accordance with Part Three, Title II, Chapter 3.’
;
(19)
in Article 70(1), in point (a), point (ii) is replaced by the following:
‘(ii)
Article 36(1), points (a) to (g), points (k)(ii) to (vi) and points (l), (m) and (n), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences;’
;
(20)
in Article 72b(3), first subparagraph, the introductory wording is replaced by the following:
‘In addition to the liabilities referred to in paragraph 2 of this Article, the resolution authority may permit liabilities to qualify as eligible liabilities instruments up to an aggregate amount that does not exceed 3,5 % of the total risk exposure amount calculated in accordance with Article 92(3), provided that:’
;
(21)
in Article 72i(1), in point (a), point (ii) is replaced by the following:
‘(ii)
Article 36(1), points (a) to (g), points (k)(ii) to (vi) and points (l), (m) and (n), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences;’
;
(22)
Article 74 is replaced by the following:
‘Article 74
Holdings of capital instruments issued by regulated financial sector entities that do not qualify as regulatory capital
Institutions shall not deduct from any element of own funds direct, indirect or synthetic holdings of capital instruments issued by a regulated financial sector entity that do not qualify as regulatory capital of that entity. Institutions shall apply risk weights to such holdings in accordance with Part Three, Title II, Chapter 2.’
;
(23)
Article 84 is amended as follows:
(a)
paragraph 1 is amended as follows;
(i)
in the first subparagraph, point (a) is replaced by the following:
‘(a)
the Common Equity Tier 1 capital of the subsidiary minus the lower of the following:
(i)
the amount of Common Equity Tier 1 capital of that subsidiary required to meet the following:
(1)
where the subsidiary is one of those listed in Article 81(1), point (a), of this Regulation but not an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 92(1), point (a), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by Common Equity Tier 1 capital;
(2)
where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries, insofar as those requirements are to be met by Common Equity Tier 1 capital;
(ii)
the amount of consolidated Common Equity Tier 1 capital that relates to that subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in Article 92(1), point (a), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries, insofar as those requirements are to be met by Common Equity Tier 1 capital;’
;
(ii)
the following subparagraph is added:
‘By way of derogation from the first subparagraph, point (a), the competent authority may allow an institution to subtract either of the amounts referred to in point (a)(i) or (ii), once that institution has demonstrated to the satisfaction of the competent authority that the additional amount of minority interest is available to absorb losses at consolidated level.’
;
(b)
in paragraph 5, point (c) is replaced by the following:
‘(c)
it consolidates a subsidiary institution in which it has only a minority holding by virtue of the control relationship within the meaning of Article 4(1), point (37);’
;
(24)
in Article 85, paragraph 1 is amended as follows:
(a)
point (a) is replaced by the following:
‘(a)
the Tier 1 capital of the subsidiary minus the lower of the following:
(i)
the amount of Tier 1 capital of the subsidiary required to meet the following:
(1)
where the subsidiary is one of those listed in Article 81(1), point (a), of this Regulation but not an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 92(1), point (b), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 capital;
(2)
where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 capital;
(ii)
the amount of consolidated Tier 1 capital that relates to that subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in Article 92(1), point (b), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries, insofar as those requirements are to be met by Tier 1 capital;’
;
(b)
the following subparagraph is added:
‘By way of derogation from the first subparagraph, point (a), the competent authority may allow an institution to subtract either of the amounts referred to in point (a)(i) or (ii), once that institution has demonstrated to the satisfaction of the competent authority that the additional amount of Tier 1 capital is available to absorb losses at consolidated level.’
;
(25)
in Article 87, paragraph 1 is amended as follows:
(a)
point (a) is replaced by the following:
‘(a)
the own funds of the subsidiary minus the lower of the following:
(i)
the amount of own funds of the subsidiary required to meet the following:
(1)
where the subsidiary is one of those listed in Article 81(1), point (a), of this Regulation but not an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 92(1), point (c), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by own funds;
(2)
where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries insofar as those requirements are to be met by own funds;
(ii)
the amount of own funds that relates to that subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in Article 92(1), point (c), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries, insofar as those requirements are to be met by own funds;’
;
(b)
the following subparagraph is added:
‘By way of derogation from the first subparagraph, point (a), the competent authority may allow an institution to subtract either of the amounts referred to in point (a)(i) or (ii), once that institution has demonstrated to the satisfaction of the competent authority that the additional amount of own funds is available to absorb losses at consolidated level.’
;
(26)
the following article is inserted:
‘Article 88b
Undertakings in third countries
For the purposes of this Title, the terms “investment firm” and “institution” shall be understood to include undertakings established in third countries, which would, if established in the Union, fall under the definitions of those terms in this Regulation.’
;
(27)
Article 89 is amended as follows:
(a)
paragraphs 1 and 2 are replaced by the following:
‘1. A qualifying holding, the amount of which exceeds 15 % of the eligible capital of the institution, in an undertaking which is not a financial sector entity, shall be subject to the provisions laid down in paragraph 3.
2. The total amount of the qualifying holdings of an institution in undertakings other than those referred to in paragraph 1 that exceeds 60 % of its eligible capital shall be subject to paragraph 3.’
;
(b)
paragraph 4 is deleted;
(28)
Article 92 is amended as follows:
(a)
paragraphs 3 and 4 are replaced by the following:
‘3. Institutions shall calculate the total risk exposure amount as follows:
TREA = max{U-TREA; x ∙ S-TREA}
where:
TREA
= the total risk exposure amount of the entity;
U-TREA
= the un-floored total risk exposure amount of the entity calculated in accordance with paragraph 4;
S-TREA
= the standardised total risk exposure amount of the entity calculated in accordance with paragraph 5;
x
= 72,5 %.
By way of derogation from the first subparagraph of this paragraph, a Member State may decide that the total risk exposure amount shall be the un-floored total risk exposure amount, calculated in accordance with paragraph 4, for institutions which are part of a group with a parent institution in the same Member State, provided that that parent institution or, in the case of groups composed of a central body and permanently affiliated institutions, the whole as constituted by the central body together with its affiliated institutions, calculates its total risk exposure amount in accordance with the first subparagraph of this paragraph on a consolidated basis.
4. The un-floored total risk exposure amount shall be calculated as the sum of points (a) to (g) of this paragraph after having taken into account paragraph 6 of this Article:
(a)
the risk-weighted exposure amounts for credit risk, including counterparty credit risk, and dilution risk, calculated in accordance with Title II of this Part and Article 379, in respect of all business activities of an institution, excluding risk-weighted exposure amounts from the trading-book business of the institution;
(b)
the own funds requirements for the trading-book business of an institution for the following:
(i)
market risk, calculated in accordance with Title IV of this Part;
(ii)
large exposures exceeding the limits specified in Articles 395 to 401, to the extent that an institution is permitted to exceed those limits, as determined in accordance with Part Four;
(c)
the own funds requirements for market risk, calculated in accordance with Title IV of this Part for all non-trading book business activities that are subject to foreign exchange risk or commodity risk;
(d)
the own funds requirements for settlement risk, calculated in accordance with Articles 378 and 380;
(e)
the own funds requirements for credit valuation adjustment risk, calculated in accordance with Title VI of this Part;
(f)
the own funds requirements for operational risk, calculated in accordance with Title III of this Part;
(g)
the risk-weighted exposure amounts for counterparty credit risk arising from the trading book business of the institution for the following types of transactions and agreements, calculated in accordance with Title II of this Part:
(i)
contracts listed in Annex II and credit derivatives;
(ii)
repurchase transactions, securities or commodities lending or borrowing transactions based on securities or commodities;
(iii)
margin lending transactions based on securities or commodities;
(iv)
long settlement transactions.’
;
(b)
the following paragraphs are added:
‘5. The standardised total risk exposure amount shall be calculated as the sum of paragraph 4, points (a) to (g), after having taken into account paragraph 6 and the following requirements:
(a)
the risk-weighted exposure amounts for credit risk, including counterparty credit risk, and dilution risk, referred to in paragraph 4, point (a), and for counterparty credit risk arising from the trading book business of the institution as referred to in point (g) of that paragraph shall be calculated without using any of the following approaches:
(i)
the internal model approach for master netting agreements set out in Article 221;
(ii)
the Internal Ratings Based Approach set out in Title II, Chapter 3;
(iii)
the Securitisation Internal Ratings Based Approach set out in Articles 258, 259 and 260 and the Internal Assessment Approach set out in Article 265;
(iv)
the Internal Model Method set out in Title II, Chapter 6, Section 6;
(b)
the own funds requirements for market risk for the trading book business referred to in paragraph 4, point (b)(i), shall be calculated without using:
(i)
the alternative internal model approach set out in Title IV, Chapter 1b; or
(ii)
any approach listed under point (a) of this paragraph, where applicable;
(c)
the own funds requirements for all non-trading book business activities of an institution that are subject to foreign exchange risk or commodity risk referred to in paragraph 4, point (c), of this Article shall be calculated without using the alternative internal model approach set out in Title IV, Chapter 1b.
6. The following provisions shall apply to the calculations of the un-floored total risk exposure amount referred to in paragraph 4 and of the standardised total risk exposure amount referred to in paragraph 5:
(a)
the own funds requirements referred to in paragraph 4, points (d), (e) and (f), shall include those arising from all business activities of an institution;
(b)
institutions shall multiply the own funds requirements set out in paragraph 4, points (b) to (f), by 12,5.’
;
(29)
in Article 92a(1), point (a) is replaced by the following:
‘(a)
a risk-based ratio of 18 %, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total risk exposure amount calculated in accordance with Article 92(3);’
;
(30)
Article 94 is amended as follows:
(a)
in paragraph 1, the introductory wording is replaced by the following:
‘By way of derogation from Article 92(4), point (b), and Article 92(5), point (b), institutions may calculate the own funds requirement for their trading-book business in accordance with paragraph 2 of this Article, provided that the size of the institutions’ on- and off-balance-sheet trading-book business is equal to or less than both of the following thresholds on the basis of an assessment carried out on a monthly basis using the data as of the last day of the month:’
;
(b)
in paragraph 2, points
(a) and
(b) are replaced by the following:
‘(a)
for the contracts listed in Annex II, point 1, contracts relating to equities which are referred to in point 3 of that Annex and credit derivatives, institutions may exempt those positions from the own funds requirement referred to in Article 92(4), point (b), and Article 92(5), point (b);
(b)
for trading book positions other than those referred to in point (a) of this paragraph, institutions may replace the own funds requirement referred to in Article 92(4), point (b), and Article 92(5), point (b), with the requirement calculated in accordance with Article 92(4), point (a), and Article 92(5), point (a).’
;
(c)
paragraph 3 is amended as follows:
(i)
in the first subparagraph, point (c) is replaced by the following:
‘(c)
the absolute value of the aggregated long position shall be summed with the absolute value of the aggregated short position.’
;
(ii)
the following subparagraphs are added:
‘For the purposes of the first subparagraph, a long position is one where the market value of the position increases when the value of its main risk driver increases, and a short position is one where the market value of the position decreases when the value of its main risk driver increases.
For the purposes of the first subparagraph, the value of the aggregated long (short) position shall be equal to the sum of the values of the individual long (short) positions included in the calculation in accordance with point (a).’
;
(d)
the following paragraph is added:
‘10. EBA shall develop draft regulatory technical standards to specify the method for identifying the main risk driver of a position and for determining whether a transaction represents a long or a short position as referred to in paragraph 3 of this Article, and Articles 273a(3) and 325a(2).
In developing those draft regulatory technical standards, EBA shall take into consideration the method developed for the regulatory technical standards mandated in accordance with Article 279a(3), point (b).
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(31)
in Article 95(2), point (a) is replaced by the following:
‘(a)
the sum of the items referred to in Article 92(4), points (a) to (e) and point (g), after applying Article 92(6);’
;
(32)
in Article 96(2), point (a) is replaced by the following:
‘(a)
Article 92(4), points (a) to (e) and point (g), after applying Article 92(6);’
;
(33)
in Article 102, paragraph 4 is replaced by the following:
‘4. For the purpose of calculating the own funds requirements for market risk in accordance with the approach referred to in Article 325(1), point (b), trading book positions shall be assigned to trading desks.’
;
(34)
Article 104 is replaced by the following:
‘Article 104
Inclusion in the trading book
1. An institution shall have in place clearly defined policies and procedures for determining which positions to include in the trading book to calculate its own funds requirements, in accordance with Article 102 and this Article, taking into account its risk management capabilities and practices. An institution shall fully document its compliance with those policies and procedures, shall subject them to an internal audit on at least a yearly basis and shall make the results of that audit available to the competent authorities.
An institution shall have in place an independent risk control function which shall evaluate, on an ongoing basis, whether its instruments are being properly assigned to the trading book or the non-trading book.
2. Institutions shall assign positions in the following instruments to the trading book:
(a)
instruments that meet the criteria set out in Article 325(6), (7) and (8), for the inclusion in the alternative correlation trading portfolio (ACTP);
(b)
instruments that would give rise to a net short credit or net short equity position in the non-trading book, with the exception of the own liabilities of the institution, unless such positions meet the criteria referred to in point (e);
(c)
instruments resulting from securities underwriting commitments, where those underwriting commitments relate only to securities that are expected to be purchased by the institution on the settlement date;
(d)
instruments classified unambiguously as having a trading purpose under the accounting framework applicable to the institution;
(e)
instruments resulting from market-making activities;
(f)
positions held with trading intent in CIUs, provided that those CIUs meet at least one of the conditions set out in paragraph 8;
(g)
listed equities;
(h)
trading-related securities financing transactions;
(i)
options, or other derivatives, embedded in the own liabilities of the institution in the non-trading book that relate to credit risk or equity risk.
For the purposes of the first subparagraph, point (b), an institution shall have a net short equity position where a decrease in the equity’s price results in a profit for the institution. An institution shall have a net short credit position where the credit spread increase, or the deterioration in the creditworthiness of the issuer or group of issuers, results in a profit for the institution. Institutions shall continuously monitor whether instruments give rise to a net short credit or net short equity position in the non-trading book.
For the purposes of the first subparagraph, point (i), an institution shall split the embedded option, or other derivative, from its own liability in the non-trading book that relates to credit risk or equity risk. It shall assign the embedded option, or other derivative, to the trading book and shall leave the own liability in the non-trading book. Where, due to its nature, it is not possible to split the instrument, an institution shall assign the whole instrument to the trading book. In such a case, it shall duly document the reason for applying that treatment.
3. Institutions shall not assign positions in the following instruments to the trading book:
(a)
instruments designated for securitisation warehousing;
(b)
real estate holdings-related instruments;
(c)
unlisted equities;
(d)
instruments related to retail and SME credit;
(e)
positions in other CIUs than those referred to in paragraph 2, point (f);
(f)
derivative contracts and CIUs with one or more of the underlying instruments referred to in points (a) to (d) of this paragraph;
(g)
instruments held for hedging a particular risk of one or more positions in an instrument referred to in points (a) to (f), (h) and (i) of this paragraph;
(h)
own liabilities of the institution, unless such instruments meet the criteria referred to in paragraph 2, point (e), or the criteria referred to in paragraph 2, third subparagraph;
(i)
instruments in hedge funds.
4. By way of derogation from paragraph 2, an institution may assign to the non-trading book a position in an instrument referred to in points (d) to (i) of that paragraph, subject to the approval of its competent authority. The competent authority shall give its approval where the institution has demonstrated to the satisfaction of its competent authority that the position is not held with trading intent or does not hedge positions held with trading intent.
5. By way of derogation from paragraph 3, an institution may assign to the trading book a position in an instrument referred to in point (i) of that paragraph, subject to the approval of its competent authority. The competent authority shall give its approval where the institution has demonstrated to the satisfaction of its competent authority that the position is held with trading intent, or hedges positions held with trading intent, and that the institution meets at least one of the conditions set out in paragraph 8 for that position.
6. Where an institution has assigned to the trading book a position in an instrument other than the instruments referred to in paragraph 2, point (a), (b) or (c), the institution’s competent authority may ask the institution to provide evidence to justify such assignment. Where the institution fails to provide suitable evidence, its competent authority may require the institution to reassign that position to the non-trading book.
7. Where an institution has assigned to the non-trading book a position in an instrument other than the instruments referred to in paragraph 3, the institution’s competent authority may ask the institution to provide evidence to justify such assignment. Where the institution fails to provide suitable evidence, its competent authority may require the institution to reassign that position to the trading book.
8. An institution shall assign to the trading book a position in a CIU, other than the positions referred to in paragraph 3, point (f), that is held with trading intent, where the institution meets any of the following conditions:
(a)
the institution is able to obtain sufficient information about the individual underlying exposures of the CIU;
(b)
the institution is not able to obtain sufficient information about the individual underlying exposures of the CIU, but the institution has knowledge of the content of the mandate of the CIU and is able to obtain daily price quotes for the CIU.
9. EBA shall develop draft regulatory technical standards to further specify the process that institutions are to use to calculate and monitor net short credit or net short equity positions in the non-trading book referred to in the paragraph 2, point (b).
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(35)
Article 104a is amended as follows:
(a)
in paragraph 1, the second subparagraph is replaced by the following:
‘EBA shall monitor the range of supervisory practices and shall issue by 10 July 2027 guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on what exceptional circumstances entail for the purposes of the first subparagraph of this paragraph and of paragraph 5 of this Article. Until EBA issues those guidelines, competent authorities shall notify EBA of, and shall provide a rationale for, their decisions on whether or not to permit an institution to reclassify a position as referred to in paragraph 2 of this Article.’
;
(b)
paragraph 5 is replaced by the following:
‘5. The reclassification of a position in accordance with this Article shall be irrevocable, except in the exceptional circumstances referred to in paragraph 1.’
;
(c)
the following paragraph is added:
‘6. By way of derogation from paragraph 1 of this Article, an institution may reclassify a non-trading book position as a trading book position pursuant to Article 104(2), point (d), without seeking permission from its competent authority. In such a case, the requirements laid down in paragraphs 3 and 4 of this Article shall continue to apply to the institution. The institution shall immediately notify its competent authority where such a reclassification has occurred.’
;
(36)
Article 104b is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. For the purpose of calculating the own funds requirements for market risk in accordance with the approach referred to in Article 325(1), point (b), institutions shall establish trading desks and shall assign each of their trading book positions and their non-trading book positions referred to in paragraphs 5 and 6 of this Article to one of those trading desks. Trading book positions shall be attributed to the same trading desk only where those positions are in compliance with the agreed business strategy for that trading desk and are consistently managed and monitored in accordance with paragraph 2 of this Article.’
;
(b)
the following paragraphs are added:
‘5. To calculate their own funds requirements for market risk, institutions shall assign each of their non-trading book positions that are subject to foreign exchange risk or commodity risk to trading desks established in accordance with paragraph 1 that manage risks that are similar to the risks of those positions.
6. By way of derogation from paragraph 5, institutions may, when calculating their own funds requirements for market risk, establish one or more trading desks to which they assign exclusively non-trading book positions that are subject to foreign exchange risk or commodity risk. Those trading desks shall not be subject to the requirements set out in paragraphs 1, 2 and 3.’
;
(37)
the following article is inserted:
‘Article 104c
Treatment of foreign exchange risk hedges of capital ratios
1. An institution which has deliberately taken a risk position in order to hedge, at least partially, against adverse movements in foreign exchange rates on any of its capital ratios as referred to in Article 92(1), points (a), (b) and (c), may, subject to the permission of its competent authority, exclude that risk position from the own funds requirements for foreign exchange risk referred to in Article 325(1), provided that all of the following conditions are met:
(a)
the maximum amount of the risk position that is excluded from the own funds requirements for market risk is limited to the amount of the risk position that neutralises the sensitivity of any of the capital ratios to the adverse movements in foreign exchange rates;
(b)
the risk position is excluded from the own funds requirements for market risk for at least six months;
(c)
the institution has established an appropriate risk management framework for hedging the adverse movements in foreign exchange rates on any of its capital ratios, including a clear hedging strategy and governance structure;
(d)
the institution has provided to the competent authority a justification for excluding a risk position from the own funds requirements for market risk, the details of that risk position and the amount to be excluded.
2. Any exclusion of risk positions from the own funds requirements for market risk in accordance with paragraph 1 shall be applied consistently.
3. The competent authority shall approve any changes by the institution to the risk management framework referred to in paragraph 1, point (c), and to the details of the risk positions referred to in paragraph 1, point (d).
4. EBA shall develop draft regulatory technical standards to specify:
(a)
the risk positions that an institution can deliberately take in order to hedge, at least partially, against the adverse movements of foreign exchange rates on any of its capital ratios referred to in paragraph 1;
(b)
how to determine the maximum amount referred to in paragraph 1, point (a), of this Article and the manner in which an institution is to exclude that amount for each of the approaches referred to in Article 325(1);
(c)
the criteria to be met by an institution’s risk management framework referred to in paragraph 1, point (c), in order to be considered appropriate for the purposes of this Article.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.
Power is delegated to the Commission to supplement this Regulation by adopting regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(38)
Article 106 is amended as follows:
(a)
paragraphs 3 and 4 are replaced by the following:
‘3. Where an institution hedges a non-trading book credit risk exposure or counterparty risk exposure using a credit derivative booked in its trading book, that credit derivative position shall be recognised as an internal hedge of the non-trading book credit risk exposure or counterparty risk exposure for the purpose of calculating the risk-weighted exposure amounts referred to in Article 92(4), point (a), where the institution enters into another credit derivative transaction with an eligible third party protection provider that meets the requirements for unfunded credit protection in the non-trading book and perfectly offsets the market risk of the internal hedge.
Both an internal hedge recognised in accordance with the first subparagraph and the credit derivative entered into with the eligible third party protection provider shall be included in the trading book for calculating the own funds requirements for market risk. For calculating the own funds requirements for market risk using the approach referred to in Article 325(1), point (b), both positions shall be assigned to the same trading desk that manages similar risks.
4. Where an institution hedges a non-trading book equity risk exposure using an equity derivative booked in its trading book, that equity derivative position shall be recognised as an internal hedge of the non-trading book equity risk exposure for the purpose of calculating the risk-weighted exposure amounts referred to in Article 92(4), point (a), where the institution enters into another equity derivative transaction with an eligible third party protection provider that meets the requirements for unfunded credit protection in the non-trading book and perfectly offsets the market risk of the internal hedge.
Both an internal hedge recognised in accordance with the first subparagraph of this paragraph and the equity derivative entered into with the eligible third party protection provider shall be included in the trading book for calculating the own funds requirements for market risk. For calculating the own funds requirements for market risk using the approach referred to in Article 325(1), point (b), both positions shall be assigned to the same trading desk that manages similar risks.’
;
(b)
the following paragraph is inserted:
‘4a. For the purposes of paragraphs 3 and 4, the credit or equity derivative transaction entered into by an institution may be composed of multiple transactions with multiple eligible third party protection providers, provided that the resulting aggregated transaction meets the conditions set out in those paragraphs.’
;
(c)
paragraph 5 is replaced by the following:
‘5. Where an institution hedges non-trading book interest rate risk exposures using an interest rate risk position booked in its trading book, that interest rate risk position shall be considered to be an internal hedge to assess the interest rate risk arising from non-trading book positions in accordance with Articles 84 and 98 of Directive 2013/36/EU where the following conditions are met:
(a)
for calculating the own funds requirements for market risk using the approaches referred to in Article 325(1), points (a), (b) and (c), the position has been assigned to a separate portfolio from the other trading book positions, the business strategy of which is solely dedicated to managing and mitigating the market risk of internal hedges of interest rate risk exposure;
(b)
for calculating the own funds requirements for market risk using the approach referred to in Article 325(1), point (b), the position has been assigned to a trading desk the business strategy of which is solely dedicated to managing and mitigating the market risk of internal hedges of interest rate risk exposure;
(c)
the institution has fully documented how the position mitigates the interest rate risk arising from non-trading book positions for the purposes of the requirements laid down in Articles 84 and 98 of Directive 2013/36/EU.’
;
(d)
the following paragraphs are inserted:
‘5a. For the purposes of paragraph 5, point (a), the institution may assign to that portfolio other interest rate risk positions entered into with third parties, or with its own trading book, as long as the institution perfectly offsets the market risk of those interest rate risk positions entered into with its own trading book by entering into opposite interest rate risk positions with third parties.
5b. The following requirements shall apply to the trading desk referred to in paragraph 5, point (b), of this Article:
(a)
that trading desk may enter into other interest rate risk positions with third parties or with other trading desks of the institution, as long as those positions meet the requirements for inclusion in the trading book referred to in Article 104 and those other trading desks perfectly offset the market risk of those other interest rate risk positions by entering into opposite interest rate risk positions with third parties;
(b)
no trading book positions other than those referred to in point (a) of this paragraph are assigned to that trading desk;
(c)
by way of derogation from Article 104b, that trading desk shall not be subject to the requirements set out in paragraphs 1, 2 and 3 of that Article.’
;
(e)
paragraphs 6 and 7 are replaced by the following:
‘6. The own funds requirements for the market risk of all positions assigned to the separate portfolio referred to in paragraph 5, point (a), or to the trading desk referred to in point (b) of that paragraph, shall be calculated on a stand-alone basis, in addition to the own funds requirements for the other trading book positions.
7. Where an institution hedges a credit valuation adjustment (CVA) risk exposure using a derivative instrument entered into with its trading book, the position in that derivative instrument shall be recognised as an internal hedge for the CVA risk exposure for the purpose of calculating the own funds requirements for CVA risk in accordance with the approaches set out in Article 383 or 384, where the following conditions are met:
(a)
the derivative position is recognised as an eligible hedge in accordance with Article 386;
(b)
where the derivative position is subject to any of the requirements set out in Article 325c(2), point (b) or (c), or in Article 325e(1), point (c), the institution perfectly offsets the market risk of that derivative position by entering into opposite positions with third parties.
The opposite trading book position of the internal hedge recognised in accordance with the first subparagraph shall be included in the institution’s trading book to calculate the own funds requirements for market risk.’
;
(39)
in Article 107, paragraphs 1, 2 and 3 are replaced by the following:
‘1. Institutions shall apply either the Standardised Approach provided for in Chapter 2 or, where permitted by the competent authorities in accordance with Article 143, the Internal Ratings Based Approach provided for in Chapter 3 to calculate their risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g).
2. For trade exposures and for default fund contributions to a central counterparty, institutions shall apply the treatment set out in Chapter 6, Section 9, to calculate their risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g). For all other types of exposures to a central counterparty, institutions shall treat those exposures as follows:
(a)
as exposures to an institution for other types of exposures to a qualifying CCP;
(b)
as exposures to a corporate for other types of exposures to a non-qualifying CCP.
3. For the purposes of this Regulation, exposures to third-country investment firms, third-country credit institutions and third-country exchanges, as well as exposures to third-country financial institutions authorised and supervised by third-country authorities and subject to prudential requirements comparable to those applied to institutions in terms of robustness, shall be treated as exposures to an institution only if the third country applies prudential and supervisory requirements to that entity that are at least equivalent to those applied in the Union.’
;
(40)
Article 108 is replaced by the following:
‘Article 108
Use of credit risk mitigation techniques under the Standardised Approach and the IRB Approach for credit risk and dilution risk
1. For an exposure to which an institution applies the Standardised Approach under Chapter 2 or applies the IRB Approach under Chapter 3 but without using its own estimates of LGD under Article 143, the institution may take into account the effect of funded credit protection in accordance with Chapter 4 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g) and, where relevant, expected loss amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d).
2. For an exposure to which an institution applies the IRB Approach by using its own estimates of LGD under Article 143, the institution may take into account the effect of funded credit protection in accordance with Chapter 3 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g), and, where relevant, expected loss amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d).
3. Where an institution applies the IRB Approach by using its own estimates of LGD under Article 143 for both the original exposure and for comparable direct exposures to the protection provider, the institution may take into account the effect of unfunded credit protection in accordance with Chapter 3 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g), and, where relevant, expected loss amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d). In all other cases, for those purposes, the institution may take into account the effect of unfunded credit protection in the calculation of risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 4.
4. Subject to the conditions set out in paragraph 5, institutions may regard loans to natural persons as exposures secured by a mortgage on residential property, instead of being treated as guaranteed exposures, for the purposes of Title II, Chapters 2, 3 and 4, as applicable, where in a Member State the following conditions for those loans have been fulfilled:
(a)
the majority of loans to natural persons for the purchase of residential properties in that Member State are not provided as mortgages in legal form;
(b)
the majority of loans to natural persons for the purchase of residential properties in that Member State are guaranteed by a protection provider with a credit assessment by a nominated ECAI corresponding to credit quality step 1 or 2, that is required to repay the institution in full where the original borrower defaults;
(c)
the institution has the legal right to take a mortgage on the residential property in the event that the protection provider referred to in point (b) does not meet or becomes unable to meet its obligations under the guarantee provided.
Competent authorities shall inform EBA where the conditions set out in the first subparagraph, points (a), (b) and (c), of this paragraph are met in the national territories of their jurisdictions, and shall provide the names of protection providers eligible for that treatment that fulfil the conditions of this paragraph and paragraph 5.
EBA shall publish the list of all such eligible protection providers on its website and update that list yearly.
5. For the purposes of paragraph 4, loans referred to in that paragraph may be treated as exposures secured by a mortgage on residential property, instead of being treated as guaranteed exposures, where all of the following conditions are met:
(a)
for an exposure that is treated under the Standardised Approach, the exposure meets all of the requirements to be assigned to the Standardised Approach “exposures secured by mortgages on immovable property” exposure class pursuant to Articles 124 and 125 with the exception that the institution granting the loan does not hold a mortgage over the residential property;
(b)
for an exposure that is treated under the IRB Approach, the exposure meets all of the requirements to be assigned to the IRB exposure class “retail exposures secured by residential property” referred to in Article 147(2), point (d)(ii), with the exception that the institution granting the loan does not hold a mortgage over the residential property;
(c)
there is no mortgage lien on the residential property when the loan is granted and for the loans granted from 1 January 2014 the borrower is contractually committed not to grant any mortgage lien without the consent of the institution that originally granted the loan;
(d)
the protection provider is an eligible protection provider as referred to in Article 201, and has a credit assessment by a nominated ECAI corresponding to credit quality step 1 or 2;
(e)
the protection provider is an institution or a financial sector entity subject to own funds requirements comparable to those applicable to institutions or insurance undertakings;
(f)
the protection provider has established a fully-funded mutual guarantee fund or equivalent protection for insurance undertakings to absorb credit risk losses, the calibration of which is periodically reviewed by its competent authority and is subject to periodic stress testing, at least every two years;
(g)
the institution is contractually and legally empowered to take a mortgage on the residential property in the event that the protection provider does not meet or becomes unable to meet its obligations under the guarantee provided.
6. Institutions that use the option provided for in paragraph 4 for a given eligible protection provider under the mechanism referred to in that paragraph shall do so for all its exposures to natural persons guaranteed by that protection provider under that mechanism.’
;
(41)
the following article is inserted:
‘Article 110a
Monitoring of contractual arrangements that are not commitments
Institutions shall monitor contractual arrangements that meet all of the conditions set out in Article 5, points (10)(a) to (e), and shall document to the satisfaction of their competent authorities their compliance with all those conditions.’
;
(42)
Article 111 is replaced by the following:
‘Article 111
Exposure value
1. The exposure value of an asset item shall be its accounting value remaining after specific credit risk adjustments in accordance with Article 110, additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution, amounts deducted in accordance with Article 36(1), point (m), and other own funds reductions related to the asset item have been applied.
2. The exposure value of an off-balance-sheet item listed in Annex I shall be the following percentage of the item’s nominal value after the deduction of specific credit risk adjustments in accordance with Article 110 and amounts deducted in accordance with Article 36(1), point (m):
(a)
100 % for items in bucket 1;
(b)
50 % for items in bucket 2;
(c)
40 % for items in bucket 3;
(d)
20 % for items in bucket 4;
(e)
10 % for items in bucket 5.
3. The exposure value of a commitment on an off-balance-sheet item as referred to in paragraph 2 of this Article shall be the lower of the following percentages of the commitment’s nominal value after the deduction of specific credit risk adjustments and amounts deducted in accordance with Article 36(1), point (m):
(a)
the percentage referred to in paragraph 2 of this Article that is applicable to the item on which the commitment is made;
(b)
the percentage referred to in paragraph 2 of this Article that is applicable to the type of commitment.
4. Contractual arrangements offered by an institution, but not yet accepted by the client, that would become commitments if accepted by the client, shall be treated as commitments and the percentage applicable shall be the one provided for in accordance with paragraph 2.
For contractual arrangements that meet the conditions set out in Article 5, points (10)(a) to (e), the applicable percentage shall be 0 %.
5. Where an institution is using the Financial Collateral Comprehensive Method referred to in Article 223, the exposure value of securities or commodities sold, posted or lent under a securities financing transaction shall be increased by the volatility adjustment appropriate to such securities or commodities in accordance with Articles 223 and 224.
6. The exposure value of a derivative instrument listed in Annex II shall be determined in accordance with Chapter 6, taking into account the effects of contracts of novation and other netting agreements as specified in that Chapter. The exposure value of securities financing transactions and long settlement transactions may be determined in accordance with Chapter 4 or 6.
7. Where the exposure is covered by a funded credit protection, the exposure value may be amended in accordance with Chapter 4.
8. EBA shall develop draft regulatory technical standards to specify:
(a)
the criteria that institutions are to use to assign off-balance-sheet items, with the exception of items already included in Annex I, to the buckets 1 to 5 referred to in Annex I;
(b)
the factors that might constrain institutions’ ability to cancel the unconditionally cancellable commitments referred to in Annex I;
(c)
the process for notifying EBA about institutions’ classification of other off-balance-sheet items carrying similar risks as those referred to in Annex I.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(43)
Article 112 is amended as follows
(a)
point (i) is replaced by the following:
‘(i)
exposures secured by mortgages on immovable property and ADC exposures;’
;
(b)
point (k) is replaced by the following:
‘(k)
subordinated debt exposures;’
;
(44)
Article 113 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. To calculate risk-weighted exposure amounts, risk weights shall be applied to all exposures, unless those exposures are deducted from own funds or are subject to the treatment set out in Article 72e(5), first subparagraph, in accordance with the provisions of Section 2 of this Regulation. The application of risk weights shall be based on the exposure class to which the exposure is assigned and, to the extent specified in Section 2, its credit quality. Credit quality may be determined by reference to the credit assessments of ECAIs or the credit assessments of export credit agencies in accordance with Section 3. With the exception of exposures assigned to the exposure classes set out in Article 112, points (a), (b), (c) and (e), of this Regulation where the assessment in accordance with Article 79, point (b), of Directive 2013/36/EU reflects higher risk characteristics than those implied by the credit quality step to which the exposure would be assigned based on the applicable credit assessment of the nominated ECAI or export credit agency, the institution shall assign a risk weight at least one credit quality step higher than the risk weight implied by the credit assessment of the nominated ECAI or export credit agency.’
;
(b)
paragraph 3 is replaced by the following:
‘3. Where an exposure is subject to credit protection, the exposure value or the risk weight applicable to that exposure, as appropriate, may be amended in accordance with this Chapter and Chapter 4.’
;
(c)
paragraph 5 is replaced by the following:
‘5. The exposure value of any item for which no risk weight is provided for under this Chapter shall be assigned a risk weight of 100 %.’
;
(d)
in paragraph 6, the first subparagraph is amended as follows:
(i)
the introductory wording is replaced by the following:
‘With the exception of exposures giving rise to Common Equity Tier 1, Additional Tier 1 or Tier 2 items, an institution may, subject to the prior approval of the competent authorities, decide not to apply the requirements of paragraph 1 of this Article to the exposures of that institution to a counterparty which is its parent undertaking, its subsidiary, a subsidiary of its parent undertaking, or an undertaking linked to the institution by a relationship within the meaning of Article 22(7) of Directive 2013/34/EU. Competent authorities are empowered to grant approval if the following conditions are fulfilled:’
;
(ii)
point (a) is replaced by the following:
‘(a)
the counterparty is an institution or a financial institution subject to appropriate prudential requirements;’
;
(45)
Article 115 is amended as follows:
(a)
the following paragraph is inserted:
‘-1. Exposures to regional governments or local authorities for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1 which corresponds to the credit assessment of the ECAI in accordance with Article 136.
Table 1
Credit quality step
1
2
3
4
5
6
Risk weight
20 %
50 %
50 %
100 %
100 %
150 %
’;
(b)
paragraph 1 is replaced by the following:
‘1. Exposures to regional governments or local authorities for which a credit assessment by a nominated ECAI is not available shall be assigned a risk weight in accordance with the credit quality step to which exposures to the central government of the jurisdiction in which regional governments or local authorities are incorporated are assigned in accordance with Table 2.
Table 2
Credit quality step
1
2
3
4
5
6
Risk weight
20 %
50 %
100 %
100 %
100 %
150 %
For exposures referred to in the first subparagraph, a risk weight of 100 % shall be assigned where the central government of the jurisdiction in which regional governments or local authorities are incorporated is unrated.’
;
(c)
in paragraph 2, the first subparagraph is replaced by the following:
‘By way of derogation from paragraphs - 1 and 1, exposures to regional governments or local authorities shall be treated as exposures to the central government in whose jurisdiction they are established where there is no difference in risk between such exposures because of the specific revenue-raising powers of the former, and the existence of specific institutional arrangements the effect of which is to reduce their risk of default.’
;
(d)
paragraph 3 is replaced by the following:
‘3. Exposures to churches or religious communities constituted in the form of a legal person under public law shall, in so far as they raise taxes in accordance with legal acts conferring on them the right to do so, be treated as exposures to regional governments and local authorities. In that case, paragraph 2 shall not apply.’
;
(e)
in paragraph 4, the first subparagraph is replaced by the following:
‘By way of derogation from paragraphs - 1 and 1, where competent authorities of a third-country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Union treat exposures to regional governments or local authorities as exposures to their central government and there is no difference in risk between such exposures because of the specific revenue-raising powers of regional government or local authorities and to specific institutional arrangements to reduce the risk of default, institutions may risk weight exposures to such regional governments and local authorities in the same manner.’
(f)
paragraph 5 is replaced by the following:
‘5. By way of derogation from paragraphs - 1 and 1, exposures to regional governments or local authorities of the Member States that are not referred to in paragraphs 2, 3 and 4 and are denominated and funded in the domestic currency of that regional government or local authority shall be assigned a risk weight of 20 %.’
;
(46)
Article 116 is amended as follows:
(a)
paragraph 2 is replaced by the following:
‘2. Exposures to public sector entities for which a credit assessment by a nominated ECAI is available shall be treated in accordance with Article 115(-1).’
;
(b)
in paragraph 4, the following subparagraph is added:
‘EBA shall maintain a publicly available database of all public sector entities within the Union referred to in the first subparagraph.’
;
(47)
in Article 117(1), the first subparagraph is replaced by the following:
‘Exposures to multilateral development banks that are not referred to in paragraph 2 and for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1. Exposures to multilateral development banks that are not referred to in paragraph 2 for which a credit assessment by a nominated ECAI is not available shall be assigned a risk weight of 50 %.
Table 1
Credit quality step
1
2
3
4
5
6
Risk weight
20 %
30 %
50 %
100 %
100 %
150 %
’;
(48)
in Article 119, paragraphs 2 and 3 are deleted;
(49)
in Article 120, paragraphs 1 and 2 are replaced by the following:
‘1. Exposures to institutions for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1 which corresponds to the credit assessment of the ECAI in accordance with Article 136.
Table 1
Credit quality step
1
2
3
4
5
6
Risk weight
20 %
30 %
50 %
100 %
100 %
150 %
2. Exposures to institutions with an original maturity of three months or less for which a credit assessment by a nominated ECAI is available and exposures which arise from the movement of goods across national borders with an original maturity of six months or less and for which a credit assessment by a nominated ECAI is available, shall be assigned a risk weight in accordance with Table 2 which corresponds to the credit assessment of the ECAI in accordance with Article 136.
Table 2
Credit quality step
1
2
3
4
5
6
Risk weight
20 %
20 %
20 %
50 %
50 %
150 %
’;
(50)
Article 121 is replaced by the following:
‘Article 121
Exposures to unrated institutions
1. Exposures to institutions for which a credit assessment by a nominated ECAI is not available shall be assigned to one of the following grades:
(a)
where all of the following conditions are met, exposures to institutions shall be assigned to Grade A:
(i)
the institution has adequate capacity to meet its financial commitments, including repayments of principal and interest, in a timely manner, for the projected life of the assets or exposures and irrespective of economic cycles and business conditions;
(ii)
the institution meets or exceeds the requirement laid down in Article 92(1) of this Regulation, taking into account Article 458(2), points (d)(i) and (vi), and Article 459, point (a), of this Regulation where applicable, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in Article 128, point (6), of Directive 2013/36/EU, or any equivalent and additional local supervisory or regulatory requirements in third countries insofar as those requirements are published and are to be met by Common Equity Tier 1 capital, Tier 1 capital or own funds, as applicable;
(iii)
information about whether the requirements referred to in point (ii) of this point are met or exceeded by the institution is publicly disclosed or otherwise made available to the lending institution;
(iv)
the assessment performed by the lending institution in accordance with Article 79 of Directive 2013/36/EU has not revealed that the institution does not meet the conditions set out in points (i) and (ii) of this point;
(b)
where all of the following conditions are met and at least one of the conditions in point (a) of this paragraph is not met, exposures to institutions shall be assigned to Grade B:
(i)
the institution is subject to substantial credit risk, including repayment capacities that are dependent on stable or favourable economic or business conditions;
(ii)
the institution meets or exceeds the requirement laid down in Article 92(1) of this Regulation, taking into account Article 458(2), point (d)(i), and Article 459, point (a), of this Regulation, where applicable, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, or any equivalent and additional local supervisory or regulatory requirements in third countries insofar as those requirements are published and are to be met by Common Equity Tier 1 capital, Tier 1 capital or own funds, as applicable;
(iii)
information about whether the requirements referred to in point (ii) of this point are met or exceeded by the institution is publicly disclosed or otherwise made available to the lending institution;
(iv)
the assessment performed by the lending institution in accordance with Article 79 of Directive 2013/36/EU has not revealed that the institution does not meet the conditions set out in points (i) and (ii) of this point.
(c)
where exposures to institutions are not assigned to Grade A or B, or where any of the following conditions is met, exposures to institutions shall be assigned to Grade C:
(i)
the institution has material default risks and limited margins of safety;
(ii)
adverse business, financial or economic conditions are very likely to lead, or have led, to the institution’s inability to meet its financial commitments;
(iii)
where audited financial statements are required by law for the institution, the external auditor has issued an adverse audit opinion or has expressed substantial doubt about the institution’s ability to continue as a going concern in its audited financial statements or audited reports within the previous 12 months.
For the purposes of the first subparagraph, point (b)(ii), of this paragraph, equivalent and additional local supervisory or regulatory requirements shall not include capital buffers equivalent to those defined in Article 128 of Directive 2013/36/EU.
2. For exposures to financial institutions that are treated as exposures to institutions in accordance with Article 119(5), for the purpose of assessing whether the conditions set out in paragraph 1, points (a)(ii) and (b)(ii), of this Article are met by those financial institutions, institutions shall assess whether those financial institutions meet or exceed any comparable prudential requirements.
3. Exposures assigned to Grade A, B or C in accordance with paragraph 1 shall be assigned a risk weight as follows:
(a)
exposures assigned to Grade A, B or C which meet any of the following conditions shall be assigned a risk weight for short-term exposures in accordance with Table 1:
(i)
the exposure has an original maturity of three months or less;
(ii)
the exposure has an original maturity of six months or less and arises from the movement of goods across national borders;
(b)
exposures assigned to Grade A which are not short term shall be assigned a risk weight of 30 % where all of the following conditions are met:
(i)
the exposure does not meet any of the conditions set out in point (a);
(ii)
the institution’s Common Equity Tier 1 capital ratio is equal to or higher than 14 %;
(iii)
the institution’s leverage ratio is equal to or higher than 5 %;
(c)
exposures assigned to Grade A, B or C that do not meet the conditions set out in point
(a) or
(b) shall be assigned a risk weight in accordance with Table 1.
Where an exposure to an institution is not denominated in the domestic currency of the jurisdiction of incorporation of that institution, or where that institution has booked the credit obligation in a branch in a different jurisdiction and the exposure is not in the domestic currency of the jurisdiction in which the branch operates, the risk weight assigned in accordance with point (a), (b) or (c), to exposures other than those with a maturity of one year or less stemming from self-liquidating, trade-related contingent items that arise from the movement of goods across national borders shall not be lower than the risk weight of an exposure to the central government of the country where the institution is incorporated.
Table 1
Credit risk assessment
Grade A
Grade B
Grade C
Risk weight for short-term exposures
20 %
50 %
150 %
Risk weight
40 %
75 %
150 %
’;
(51)
Article 122 is amended as follows:
(a)
in paragraph 1, Table 6 is replaced by the following:
‘Table 1
Credit quality step
1
2
3
4
5
6
Risk weight
20 %
50 %
75 %
100 %
150 %
150 %
’;
(b)
paragraph 2 is replaced by the following:
‘2. Exposures for which such a credit assessment is not available shall be assigned a risk weight of 100 %.’
;
(52)
the following article is inserted:
‘Article 122a
Specialised lending exposures
1. Within the corporate exposure class referred to in Article 112, point (g), institutions shall separately identify as specialised lending exposures, exposures with all of the following characteristics:
(a)
the exposure is to an entity which was created specifically to finance or operate physical assets or is an exposure that is economically comparable to such an exposure;
(b)
the exposure is not related to the financing of residential property or commercial immovable property and is within the definitions of object finance, project finance or commodity finance exposures laid down in paragraph 3;
(c)
the contractual arrangements governing the obligation related to the exposure give the institution a substantial degree of control over the assets and the income that they generate;
(d)
the primary source of repayment of the obligation related to the exposure is the income generated by the assets being financed, rather than the independent capacity of a broader commercial enterprise.
2. Specialised lending exposures for which a directly applicable credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1.
Table 1
Credit quality step
1
2
3
4
5
6
Risk weight
20 %
50 %
75 %
100 %
150 %
150 %
3. Specialised lending exposures for which a directly applicable credit assessment by a nominated ECAI is not available shall be assigned a risk weight as follows:
(a)
where the purpose of a specialised lending exposure is to finance the acquisition of physical assets, including ships, aircraft, satellites, railcars, and fleets, and the income to be generated by those assets comes in the form of cash flows generated by the specific physical assets that have been financed and pledged or assigned to the lender (“object finance exposures”), institutions shall apply a risk weight of 100 %;
(b)
where the purpose of a specialised lending exposure is to provide for short-term financing of reserves, inventories or receivables of exchange-traded commodities, including crude oil, metals or crops, and the income to be generated by those reserves, inventories or receivables is to be the proceeds from the sale of the commodity (“commodity finance exposures”), institutions shall apply a risk weight of 100 %;
(c)
where the purpose of a specialised lending exposure is to finance an individual project, either in the form of construction of a new capital installation or refinancing of an existing installation, with or without improvements, for the development or acquisition of large, complex and expensive installations, including power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure, in which the lending institution looks primarily to the revenues generated by the financed project, both as the source of repayment and as security for the loan (“project finance exposures”), institutions shall apply the following risk weights:
(i)
130 % where the project to which the exposure is related is in the pre-operational phase;
(ii)
provided that the adjustment to own funds requirements for credit risk referred to in Article 501a is not applied, 80 % where the project to which the exposure is related is in the operational phase and the exposure meets all of the following criteria:
(1)
there are contractual restrictions on the ability of the obligor to perform activities that might be detrimental to lenders, including the restriction that new debt cannot be issued without the consent of existing debt providers;
(2)
the obligor has sufficient reserve funds fully funded in cash, or other financial arrangements with an entity, to cover the contingency funding and working capital needs over the lifetime of the project being financed, provided that the entity is assigned an ECAI rating by a recognised ECAI with a credit quality step of at least 3 or, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 3, where the entity does not have a credit assessment by a recognised ECAI, that entity is assigned with an internal credit rating equivalent to a credit quality step of at least 3 by the institution, provided that that entity is internally rated by the institution in accordance with the provisions of Chapter 3, Section 6;
(3)
the project to which the exposure is related generates cash flows that are predictable and cover all future loan repayments;
(4)
where the revenues of the obligor are not funded by payments from a large number of users, the source of repayment of the obligation depends on one main counterparty and that main counterparty is one of the following:
—
a central bank, a central government, a regional government or a local authority, provided that they are assigned a risk weight of 0 % in accordance with Articles 114 and 115, or are assigned an ECAI rating with a credit quality step of at least 3 by a recognised ECAI; or, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 3, where the central bank, central government, regional government or local authority do not have a credit assessment by a recognised ECAI, they are assigned with an internal credit rating equivalent to a credit quality step of at least 3 by the institution, provided that they are internally rated by the institution in accordance with the provisions of Chapter 3, Section 6;
—
a public sector entity, provided that that entity is assigned a risk weight of 20 % or below in accordance with Article 116, or is assigned an ECAI rating with a credit quality step of at least 3 by a recognised ECAI or, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 3, where the public sector entity does not have a credit assessment by a recognised ECAI, that public sector entity is assigned with an internal credit rating equivalent to a credit quality step of at least 3 by the institution, provided that that public sector entity is internally rated by the institution in accordance with Chapter 3, Section 6,
—
a corporate entity which has been assigned an ECAI rating with a credit quality step of at least 3 by a recognised ECAI, or, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 3, where the corporate entity does not have a credit assessment by a recognised ECAI, that corporate entity is assigned an internal credit rating equivalent to a credit quality step of at least 3 by the institution, provided that that corporate entity is internally rated by the institution in accordance with the provisions of Chapter 3, Section 6;
(5)
the contractual provisions governing the exposure to the obligor provide for a high degree of protection for the lending institution in the case of a default of the obligor;
(6)
the main counterparty, or other counterparties which similarly comply with the eligibility criteria for the main counterparty, effectively protect the lending institution against losses resulting from the termination of the project;
(7)
all assets and contracts necessary to operate the project have been pledged to the lending institution to the extent permitted by applicable law;
(8)
the lending institution is able to take control of the obligor entity in the case of a default event;
(iii)
100 % where the project to which the exposure is related is in the operational phase and the exposure does not meet the conditions set out in point (ii);
(d)
for the purposes of point (c)(ii)(3), the cash flows generated shall not be considered predictable unless a substantial part of the revenues satisfies one or more of the following conditions:
(i)
the revenues are availability-based, meaning that, once construction is completed, the obligor is entitled, as long as the contractual conditions are fulfilled, to payments from its contractual counterparties which cover operating and maintenance costs, debt service costs and equity returns as the obligor operates the project, and those payments are not subject to swings in demand, such as traffic levels, and are adjusted typically only for lack of performance or lack of availability of the asset to the public;
(ii)
the revenues are subject to a rate-of-return regulation;
(iii)
the revenues are subject to a take-or-pay contract;
(e)
for the purposes of point (c), the operational phase shall mean the phase in which the entity that was specifically created to finance the project, or that is economically comparable, meets both of the following conditions:
(i)
the entity has a positive net cash flow that is sufficient to cover any remaining contractual obligation;
(ii)
the entity has a declining long term debt.
4. EBA shall develop draft regulatory technical standards to further specify the conditions under which the criteria set out in paragraph 3, point (c)(ii), are met.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(53)
Article 123 is replaced by the following:
‘Article 123
Retail exposures
1. Exposures that comply with all of the following criteria shall be considered retail exposures:
(a)
the exposure is to one or more natural persons or to an SME;
(b)
the total amount owed to the institution, its parent undertakings and its subsidiaries, by the obligor or group of connected clients, including any exposure in default but excluding exposures secured by residential property, up to the property value shall not, to the knowledge of the institution, which shall take reasonable steps to confirm the situation, exceed EUR 1 million;
(c)
the exposure represents one of a significant number of exposures with similar characteristics, such that the risks associated with such exposure are substantially reduced;
(d)
the institution concerned treats the exposure in its risk management framework and manages the exposure internally as a retail exposure consistently over time and in a manner that is similar to the treatment by the institution of other retail exposures.
The present value of retail minimum lease payments shall be eligible for the retail exposure class.
By 10 July 2025, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to specify proportionate diversification methods under which an exposure is to be considered as one of a significant number of similar exposures as specified in the first subparagraph, point (c), of this paragraph.
2. The following exposures shall not be considered to be retail exposures:
(a)
non-debt exposures conveying a subordinated, residual claim on the assets or income of the issuer;
(b)
debt exposures and other securities, partnerships, derivatives, or other vehicles, the economic substance of which is similar to the exposures specified in point (a);
(c)
all other exposures in the form of securities.
3. Retail exposures as referred to in paragraph 1 shall be assigned a risk weight of 75 %, with the exception of transactor exposures, which shall be assigned a risk weight of 45 %.
4. Where any of the criteria referred to in paragraph 1 are not met for an exposure to one or more natural persons, the exposure shall be considered a retail exposure and shall be assigned a risk weight of 100 %.
5. By way of derogation from paragraph 3, exposures due to loans granted by an institution to pensioners or employees with a permanent contract against the unconditional transfer of part of the borrower’s pension or salary to that institution shall be assigned a risk weight of 35 %, provided that all of the following conditions are met:
(a)
to repay the loan, the borrower unconditionally authorises the pension fund or employer to make direct payments to the institution by deducting the monthly payments on the loan from the borrower’s monthly pension or salary;
(b)
the risks of death, inability to work, unemployment or reduction of the net monthly pension or salary of the borrower are properly covered through an insurance policy to the benefit of the institution;
(c)
the monthly payments to be made by the borrower on all loans that meet the conditions set out in points
(a) and
(b) do not in aggregate exceed 20 % of the borrower’s net monthly pension or salary;
(d)
the maximum original maturity of the loan is equal to or less than 10 years.’
;
(54)
the following article is inserted:
‘Article 123a
Exposures with a currency mismatch
1. For exposures to natural persons that are assigned to the exposure class referred to in Article 112, point (h), or for exposures to natural persons that qualify as exposures secured by mortgages on residential property that are assigned to the exposure class referred to in Article 112, point (i), the risk weight assigned in accordance with this Chapter shall be multiplied by a factor of 1,5, whereby the resulting risk weight shall not be higher than 150 %, where the following conditions are met:
(a)
the exposure is denominated in a currency which is different from the currency of the obligor’s source of income;
(b)
the obligor does not have a hedge for its payment risk due to the currency mismatch, either by a financial instrument or foreign currency income that matches the currency of the exposure, or the total of such hedges available to the borrower covers less than 90 % of each instalment for this exposure.
Where an institution is unable to single out those exposures with a currency mismatch, the risk weight multiplier of 1,5 shall apply to all unhedged exposures where the currency of the exposures is different from the domestic currency of the country of residence of the obligor.
2. For the purposes of this Article, source of income refers to any source that generates cash flows to the obligor, including from remittances, rental incomes or salaries, whilst excluding proceeds from selling assets or similar recourse actions by the institution.
3. By way of derogation from paragraph 1, where the pair of currencies referred to in paragraph 1, point (a), is composed of the euro and the currency of a Member State participating in the second stage of economic and monetary union (ERM II), the risk weight multiplier of 1,5 shall not apply.’
;
(55)
Articles 124, 125 and 126 are replaced by the following:
‘Article 124
Exposures secured by mortgages on immovable property
1. A non-ADC exposure that does not meet all of the conditions set out in paragraph 3, or any part of a non-ADC exposure that exceeds the nominal amount of the lien on the property, shall be treated as follows:
(a)
a non-IPRE exposure shall be risk weighted as an exposure to the counterparty that is not secured by the immovable property concerned;
(b)
an IPRE exposure shall be assigned a risk weight of 150 %.
2. A non-ADC exposure, up to the nominal amount of the lien on the property, where all of the conditions set out in paragraph 3 of this Article are met, shall be treated as follows:
(a)
where the exposure is secured by a residential property,
(i)
a non-IPRE exposure shall be treated in accordance with Article 125(1):
(ii)
an IPRE exposure shall be treated in accordance with Article 125(1) where it meets any of the following conditions:
(1)
the immovable property securing the exposure is the obligor’s primary residence, either where the immovable property as a whole constitutes a single housing unit or where the immovable property securing the exposure is a housing unit that is a separated part within the immovable property;
(2)
the exposure is to a natural person and is secured by an income-producing residential housing unit, either where the immovable property as a whole constitutes a single housing unit or where the housing unit is a separated part within the immovable property, and total exposures of the institution to that natural person are not secured by more than four immovable properties, including those which are not residential properties or which do not meet any of the criteria set out in this point, or separate housing units within immovable properties;
(3)
the exposure is to associations or cooperatives of natural persons that are regulated by national law and exist with the sole purpose of granting their members the use of a primary residence in the property securing the loan;
(4)
the exposure is to public housing companies or not-for-profit associations that are regulated by law and exist to serve social purposes and to offer tenants long-term housing;
(iii)
an IPRE exposure which does not meet any of the conditions set out in point (ii) of this point, shall be treated in accordance with Article 125(2);
(b)
where the exposure is secured by commercial immovable property, it shall be treated as follows:
(i)
a non-IPRE exposure shall be treated in accordance with Article 126(1);
(ii)
an IPRE exposure shall be treated in accordance with Article 126(2).
3. In order to be eligible for the treatment referred to in paragraph 2, an exposure secured by an immovable property shall fulfil all of the following conditions:
(a)
the immovable property securing the exposure meets any of the following conditions:
(i)
the immovable property has been fully completed;
(ii)
the immovable property is forest or agricultural land;
(iii)
the lending is to a natural person and the immovable property is either a residential property under construction or it is land upon which a residential property is planned to be constructed where that plan has been legally approved by all relevant authorities, as applicable, and where any of the following conditions is met:
(1)
the immovable property does not have more than four residential housing units and will be the primary residence of the obligor and the lending to the natural person is not indirectly financing ADC exposures;
(2)
a central government, regional government or local authority or a public sector entity is involved, exposures to which are treated in accordance with Article 115(2) or Article 116(4), respectively, and has the legal powers and ability to ensure that the property under construction will be finished within a reasonable time frame and is required, or has committed in a legally binding manner, to ensure completion where the construction would otherwise not be finished within such reasonable time frame; alternatively, there is an equivalent legal mechanism in place to ensure that the property under construction is completed within a reasonable timeframe;
(b)
the exposure is secured by a first lien held by the institution on the immovable property, or the institution holds the first lien and any sequentially lower ranking lien on that property;
(c)
the property value is not materially dependent upon the credit quality of the obligor;
(d)
all information required at origination of the exposure and for monitoring purposes is properly documented, including information on the ability of the obligor to repay and on the valuation of the property;
(e)
the requirements set out in Article 208 are met and the valuation rules set out in Article 229(1) are complied with.
For the purposes of the first subparagraph, point (c), institutions may exclude situations where purely macro-economic factors affect both the property value and the performance of the obligor.
For the purposes of the first subparagraph, point (d), institutions shall put in place underwriting policies with respect to the origination of exposures secured by immovable property that include the assessment of the ability of the borrower to repay. The underwriting policies shall include the relevant metrics for that assessment and their respective maximum levels.
4. By way of derogation from paragraph 3, point (b), in jurisdictions where junior liens provide the holder with a claim on collateral that is legally enforceable and constitutes an effective credit risk mitigant, junior liens held by an institution other than the one holding the senior lien may also be recognised, including where the institution does not hold the senior lien or does not hold a lien ranking between a more senior lien and a more junior lien both held by the institution.
For the purposes of the first subparagraph, the rules governing the liens shall ensure all of the following:
(a)
each institution holding a lien on a property can initiate the sale of the property independently from other entities holding a lien on the property;
(b)
where the sale of the property is not carried out by means of a public auction, entities holding a senior lien take reasonable steps to obtain a fair market value or the best price that may be obtained in the circumstances when exercising any power of sale on their own.
5. For the purpose of calculating risk-weighted exposure amounts for undrawn facilities, liens that satisfy all eligibility requirements set out in paragraph 3 and, where applicable, paragraph 4, may be recognised where drawing under the facility is conditional on the prior or simultaneous filing of a lien to the extent of the institution’s interest in the lien once the facility is drawn, such that the institution does not have any interest in the lien to the extent that the facility is not drawn.
6. For the purposes of Article 125(2) and Article 126(2), the exposure-to-value (“ETV”) ratio shall be calculated by dividing the gross exposure amount by the property value subject to the following conditions:
(a)
the gross exposure amount shall be calculated as the accounting value of the asset item related to the exposure secured by immovable property and any undrawn but committed amount that, once drawn, would increase the exposure value of the exposure which is secured by immovable property; that gross exposure amount shall be calculated without taking into account:
(i)
specific credit risk adjustments in accordance with Article 110;
(ii)
additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution;
(iii)
amounts deducted in accordance with Article 36(1), point (m); and
(iv)
other own funds reductions related to the asset item;
(b)
the gross exposure amount shall be calculated without taking into account any type of funded or unfunded credit protection, except for pledged deposits accounts with the lending institution that meet all requirements for on-balance-sheet netting, either under master netting agreements in accordance with Articles 196 and 206 or under other on-balance-sheet netting agreements in accordance with Articles 195 and 205 and have been unconditionally and irrevocably pledged for the sole purpose of fulfilling the credit obligation related to the exposure secured by immovable property;
(c)
for exposures that are required to be treated in accordance with Article 125(2) or Article 126(2) where a party other than the institution holds a senior lien and a junior lien held by the institution is recognised under paragraph 4 of this Article, the gross exposure amount shall be calculated as the sum of the gross exposure amount of the lien held by the institution and of the gross exposure amounts for all other liens of equal or higher ranking seniority than the lien held by the institution.
For the purposes of the first subparagraph, point (a), where an institution has more than one exposure secured by the same immovable property and those exposures are secured by liens on that immovable property that are sequential in ranking order without any lien held by a third party ranking in-between, the exposures shall be treated as a single combined exposure and the gross exposure amounts for the individual exposures shall be summed up to calculate the gross exposure amount for the single combined exposure.
For the purposes of the first subparagraph, point (c), where there is insufficient information to be able to ascertain the ranking of the other liens, the institution shall treat those liens as ranking pari passu with the junior lien held by the institution. The institution shall first determine the risk weight in accordance with Article 125(2) or Article 126(2) (the “base risk weight”), as applicable. It shall then adjust this risk weight by a multiplier of 1,25, for the purposes of calculating the risk-weighted amounts of junior liens. Where the base risk weight corresponds to the lowest exposure-to-value bucket, the multiplier shall not be applied. The risk weight resulting from multiplying the base risk weight by 1,25 shall be capped at the risk weight that would be applied to the exposure if the requirements in paragraph 3 were not met.
7. Exposures to a tenant under an immovable property leasing transaction under which the institution is the lessor and the tenant has an option to purchase shall qualify as exposures secured by immovable property and shall be treated in accordance with the treatment set out in Article 125 or 126 if the applicable conditions set out in this Article are met, provided that the exposure of the institution is secured by its ownership of the property.
8. Member States shall designate an authority to be responsible for the application of paragraph 9. That authority shall be the competent authority or the designated authority.
Where the authority designated by the Member State for the application of this Article is the competent authority, it shall ensure that the relevant national bodies and authorities which have a macroprudential mandate are duly informed of the competent authority’s intention to make use of this Article, and are appropriately involved in the assessment of financial stability concerns in its Member State in accordance with paragraph 9.
Where the authority designated by the Member State for the application of this Article is different from the competent authority, the Member State shall adopt the necessary provisions to ensure proper coordination and exchange of information between the competent authority and the designated authority for the proper application of this Article. In particular, authorities shall be required to cooperate closely and to share all information that might be necessary for the adequate performance of the duties imposed upon the designated authority pursuant to this Article. That cooperation shall aim to avoid any form of duplicative or inconsistent action between the competent authority and the designated authority, as well as to ensure that the interaction with other measures, in particular measures taken under Article 458 of this Regulation and Article 133 of Directive 2013/36/EU, is duly taken into account.
9. Based on the data collected under Article 430a and on any other relevant indicators, the authority designated in accordance with paragraph 8 of this Article shall periodically, and at least annually, assess whether the risk weights laid down in Articles 125 and 126 for exposures secured by immovable property located in the territory of the Member State of that authority are appropriately based on:
(a)
the loss experience of exposures secured by immovable property;
(b)
forward-looking immovable property market developments.
Where, on the basis of the assessment referred to in the first subparagraph, the authority designated in accordance with paragraph 8 of this Article concludes that the risk weights set out in Article 125 or 126 do not adequately reflect the actual risks related to exposures to one or more property segments secured by mortgages on residential property or on commercial immovable property located in one or more parts of the territory of the Member State of that authority, and if it considers that the inadequacy of the risk weights could adversely affect current or future financial stability in its Member State, it may increase the risk weights applicable to those exposures within the ranges determined in the fourth subparagraph of this paragraph or impose stricter criteria than those set out in paragraph 3 of this Article.
The authority designated in accordance with paragraph 8 of this Article shall notify EBA and the ESRB of any adjustments to risk weights and criteria applied pursuant to this paragraph. Within one month of receipt of that notification, EBA and the ESRB shall provide their opinion to the Member State concerned and may indicate in that opinion, where necessary, whether they consider that the adjustments to risk weights and criteria are also recommended for other Member States. EBA and the ESRB shall publish the risk weights and criteria for exposures referred to in Articles 125 and 126 and Article 199(1), point (a), as implemented by the relevant authority.
For the purposes of the second subparagraph of this paragraph, the authority designated in accordance with paragraph 8 of this Article may increase the risk weights laid down in Article 125(1), first subparagraph, Article 125(2), first subparagraph, Article 126(1), first subparagraph, or Article 126(2), first subparagraph, or impose stricter criteria than those set out in paragraph 3 of this Article for exposures to one or more property segments secured by mortgages on immovable property located in one or more parts of the territory of the Member State of that authority. That authority shall not increase those risk weights to more than 150 %.
For the purposes of the second subparagraph of this paragraph, the authority designated in accordance with paragraph 8 of this Article may also reduce the percentages of the property value referred to in Article 125(1) or Article 126(1) or the exposure-to-value percentages that define the exposure-to-value risk weight bucket set out in in Article 125(2), Table 1, or in Article 126(2), Table 1. The relevant authority shall ensure consistency across all exposure-to-value risk weight buckets, such that the risk weight of a lower exposure-to-value risk weight bucket is always lower or equal to the risk weight of an upper exposure-to-value risk weight bucket.
10. Where the authority designated in accordance with paragraph 8 sets higher risk weights or stricter criteria pursuant to paragraph 9, institutions shall have a six-month transitional period to apply them.
11. EBA, in close cooperation with the ESRB, shall develop draft regulatory technical standards to specify the types of factors to be considered for the assessment of the appropriateness of the risk weights referred to in paragraph 9.
EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
12. The ESRB may, by means of recommendations, in accordance with Article 16 of Regulation (EU) No 1092/2010, and in close cooperation with EBA, give guidance to authorities designated in accordance with paragraph 8 of this Article on both of the following:
(a)
factors which could “adversely affect current or future financial stability” referred to in paragraph 9, second subparagraph;
(b)
indicative benchmarks that the authority designated in accordance with paragraph 8 is to take into account when determining higher risk weights.
13. Institutions established in a Member State shall apply the risk weights and criteria that have been determined by the authorities of another Member State in accordance with paragraph 9 to their corresponding exposures secured by mortgages on residential property or commercial immovable property located in one or more parts of that other Member State.
14. EBA shall develop draft regulatory technical standards to specify what constitutes an “equivalent legal mechanism in place to ensure that the property under construction is completed within a reasonable timeframe”, in accordance with paragraph 3, point (a)(iii)(2).
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 125
Exposures secured by mortgages on residential property
1. For an exposure secured by residential property as referred to in Article 124(2), point (a)(i) or (ii), the part of the exposure up to 55 % of the property value shall be assigned a risk weight of 20 %.
Where an institution holds a junior lien and there are more senior liens not held by that institution, to determine the part of the institution’s exposure that is eligible for the 20 % risk weight, the amount of 55 % of the property value shall be reduced by the amount of the more senior liens not held by the institution.
Where liens not held by the institution rank pari passu with the lien held by the institution, to determine the part of the institution’s exposure that is eligible for the 20 % risk weight, the amount of 55 % of the property value, reduced by the amount of any more senior liens not held by the institution, shall be reduced by the product of:
(a)
55 % of the property value, reduced by the amount of more senior liens, if any, both held by the institution and held by other institutions; and
(b)
the amount of liens not held by the institution that rank pari passu with the lien held by the institution divided by the sum of all pari passu liens.
Where, in accordance with Article 124(9), the competent authority or designated authority has set a higher risk weight or a lower percentage of the property value than those referred to in this paragraph, institutions shall use the risk weight or percentage set in accordance with Article 124(9).
The remaining part of the exposure referred to in the first subparagraph, if any, shall be risk weighted as an exposure to the counterparty that is not secured by residential property.
2. An exposure as referred to in Article 124(2), point (a)(iii), shall be assigned the risk weight set in accordance with the respective exposure-to-value risk weight bucket in Table 1.
For the purposes of this paragraph, where, in accordance with Article 124(9), the competent authority or designated authority, has set a higher risk weight or a lower exposure-to-value percentage than those referred to in this paragraph, institutions shall use the risk weight or percentage set in accordance with Article 124(9).
Table 1
ETV
ETV ≤ 50 %
50 % < ETV ≤ 60 %
60 % < ETV ≤ 80 %
80 % < ETV ≤ 90 %
90 % < ETV ≤ 100 %
ETV > 100 %
Risk weight
30 %
35 %
45 %
60 %
75 %
105 %
By way of derogation from the first subparagraph of this paragraph, institutions may apply the treatment referred to in paragraph 1 of this Article to exposures secured by residential property which is situated within the territory of a Member State, where the competent authority of that Member State has published in accordance with Article 430a(3) loss rates for such exposures which, based on the aggregate data reported by institutions in that Member State for that national immovable property market, do not exceed any of the following limits for losses aggregated across such exposures existing in the previous year:
(a)
the aggregated amount reported by institutions under Article 430a(1), point (a), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,3 %;
(b)
the aggregated amount reported by institutions under Article 430a(1), point (b), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,5 %.
3. Institutions may also apply the derogation referred to in paragraph 2, third subparagraph, of this Article in cases where the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Union as determined in a decision of the Commission adopted in accordance with Article 107(4), publishes corresponding loss rates for exposures secured by residential property situated within the territory of that third country.
Where a competent authority of a third country does not publish corresponding loss rates for exposures secured by residential property situated within the territory of that third country, EBA may publish such information for that third country, provided that valid statistical data, that are statistically representative of the corresponding residential property market, are available.
Article 126
Exposures secured by mortgages on commercial immovable property
1. For an exposure secured by commercial immovable property as referred to in Article 124(2), point (b)(i), the part of the exposure up to 55 % of the property value shall be assigned a risk weight of 60 %.
Where an institution holds a junior lien and there are more senior liens not held by that institution, to determine the part of the institution’s exposure that is eligible for the 60 % risk weight, the amount of 55 % of the property value shall be reduced by the amount of the more senior liens not held by the institution.
Where liens not held by the institution rank pari passu with the lien held by the institution, to determine the part of the institution’s exposure that is eligible for the 60 % risk weight, the amount of 55 % of the property value, reduced by the amount of any more senior liens not held by the institution, shall be reduced by the product of:
(a)
55 % of the property value, reduced by the amount of more senior liens, if any, both held by the institution and held by other institutions; and
(b)
the amount of liens not held by the institution that rank pari passu with the lien held by the institution divided by the sum of all pari passu liens.
Where, in accordance with Article 124(9), the competent authority or designated authority, has set a higher risk weight or a lower percentage of the property value than those referred to in this paragraph, institutions shall use the risk weight or percentage set in accordance with Article 124(9).
The remaining part of the exposure referred to in the first subparagraph, if any, shall be risk weighted as an exposure to the counterparty that is not secured by commercial immovable property.
2. An exposure as referred to in Article 124(2), point (b)(ii), shall be assigned the risk weight set in accordance with the respective exposure-to-value risk weight bucket in Table 1.
For the purposes of this paragraph, where, in accordance with Article 124(9), the competent authority or designated authority, has set a higher risk weight or a lower exposure-to-value percentage than those referred to in this paragraph, institutions shall use the risk weight or percentage set in accordance with Article 124(9).
Table 1
ETV ≤ 60 %
60 % < ETV ≤ 80 %
ETV > 80 %
Risk weight
70 %
90 %
110 %
By way of derogation from the first subparagraph of this paragraph, institutions may apply the treatment referred to in paragraph 1 of this Article to exposures secured by commercial immovable property which is situated within the territory of a Member State, where the competent authority of that Member State has published in accordance with Article 430a(3), loss rates for such exposures which, based on the aggregate data reported by institutions in that Member State for that national immovable property market, do not exceed any of the following limits for losses aggregated across such exposures existing in the previous year:
(a)
the aggregated amount reported by institutions under Article 430a(1), point (d), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,3 %;
(b)
the aggregated amount reported by institutions under Article 430a(1), point (e), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,5 %.
3. Institutions may apply the derogation referred to in paragraph 2, third subparagraph, of this Article also in cases where the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Union as determined in a decision of the Commission adopted in accordance with Article 107(4), publishes corresponding loss rates for exposures secured by commercial immovable property situated within the territory of that third country.
Where a competent authority of a third country does not publish corresponding loss rates for exposures secured by commercial immovable property situated within the territory of that third country, EBA may publish such information for a third country, provided that valid statistical data, that are statistically representative of the corresponding commercial immovable property market, are available.
4. EBA shall assess the appropriateness of adjusting the treatment of exposures secured by mortgages on commercial immovable property, including IPRE and non-IPRE exposures, taking into account the appropriateness of risk weights and the relative differences in risk of exposures secured by residential property, the differences in risk sensitivity of IPRE exposures secured by residential property referred to in in Article 125(2), Table 1, and IPRE exposures secured by commercial immovable property referred to in Table 1 in this Article and the recommendations of the ESRB on the vulnerabilities in the commercial immovable property sector in the Union. EBA shall submit a report on its findings to the Commission by 31 December 2027.
On the basis of the report referred to in the first subparagraph and taking due account of the related internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2028.’
;
(56)
the following article is inserted:
‘Article 126a
Land acquisition, development and construction exposures
1. An ADC exposure shall be assigned a risk weight of 150 %.
2. ADC exposures to residential property may be assigned a risk weight of 100 %, provided that the institution applies sound origination and monitoring standards which meet the requirements laid down in Articles 74 and 79 of Directive 2013/36/EU and where at least one of the following conditions is met:
(a)
legally binding pre-sale or pre-lease contracts for which the purchaser or tenant has made a substantial cash deposit which is subject to forfeiture if the contract is terminated or where the financing is ensured in an equivalent manner, or legally binding sale or lease contracts, including where the payment is made by instalments as the construction works progress, amount to a significant portion of total contracts;
(b)
the obligor has substantial equity at risk, which is represented as an appropriate amount of obligor-contributed equity to the residential property value upon completion.
3. By 10 July 2025, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, specifying the terms “substantial cash deposits”, “financing ensured in an equivalent manner”, “significant portion of total contracts” and “appropriate amount of obligor-contributed equity”, taking into account the specificities of institutions’ lending to public housing or not-for-profit entities across the Union that are regulated by law and that exist to serve social purposes and to offer tenants long-term housing.’
;
(57)
Article 127 is amended as follows:
(a)
in paragraph 1, the following subparagraph is added:
‘For the purpose of calculating the specific credit risk adjustments referred to in the first subparagraph for an exposure that is purchased when already in default, institutions shall include in the calculation any positive difference between the amount owed by the obligor on that exposure and the sum of the additional own funds reduction if that exposure were fully written off and any already existing own funds reductions related to that exposure.’
;
(b)
paragraphs 2 and 3 are replaced by the following:
‘2. For the purpose of determining the secured part of a defaulted exposure, collateral and guarantees shall be eligible for credit risk mitigation purposes in accordance with Chapter 4.
3. The exposure value remaining after specific credit risk adjustments of non-IPRE exposures secured by residential property or commercial immovable property in accordance with Articles 125 and 126, respectively, shall be assigned a risk weight of 100 % if a default has occurred in accordance with Article 178.’
;
(c)
paragraph 4 is deleted;
(58)
Article 128 is replaced by the following:
‘Article 128
Subordinated debt exposures
1. The following exposures shall be treated as subordinated debt exposures:
(a)
debt exposures which are subordinated to claims of ordinary unsecured creditors;
(b)
own funds instruments to the extent that those instruments are not considered to be equity exposures in accordance with Article 133(1); and
(c)
exposures arising from the institution’s holding of eligible liabilities instruments that meet the conditions set out in Article 72b.
2. Subordinated debt exposures shall be assigned a risk weight of 150 %, unless those subordinated debt exposures are deducted from own funds or subject to the treatment set out in Article 72e(5), first subparagraph.’
;
(59)
Article 129 is amended as follows:
(a)
in paragraph 1, the following subparagraph is added:
‘Without prejudice to the first subparagraph, point (c), of this paragraph, until 1 July 2027, indirect exposures to credit institutions without an external rating that guarantee mortgage loans until their registration shall be treated for the purposes of that point as exposures to credit institutions that qualify for credit quality step 1, provided that they are short-term exposures assigned to grade A under Article 121 and that the guaranteed mortgage loans will, once registered, be eligible for the preferential treatment pursuant to the first subparagraph, points (d), (e) and (f), of this paragraph.’
;
(b)
in paragraph 3, the following subparagraph is added:
‘For the purpose of valuing immovable property, the competent authorities designated pursuant to Article 18(2) of Directive (EU) 2019/2162 may allow that property to be valued at or at less than the market value, or in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, at the mortgage lending value of that property, without applying the limits set out in Article 229(1), point (e), of this Regulation;’
;
(c)
paragraphs 4 and 5 are replaced by the following:
‘4. Covered bonds for which a directly applicable credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1 which corresponds to the credit assessment of the ECAI in accordance with Article 136.
Table 1
Credit quality step
1
2
3
4
5
6
Risk weight
10 %
20 %
20 %
50 %
50 %
100 %
5. Covered bonds for which a directly applicable credit assessment by a nominated ECAI is not available shall be assigned a risk weight on the basis of the risk weight assigned to senior unsecured exposures to the institution which issues them. The following correspondence between risk weights shall apply:
(a)
if the exposures to the institution are assigned a risk weight of 20 %, the covered bond shall be assigned a risk weight of 10 %;
(aa)
if the exposures to the institution are assigned a risk weight of 30 %, the covered bond shall be assigned a risk weight of 15 %;
(ab)
if the exposures to the institution are assigned a risk weight of 40 %, the covered bond shall be assigned a risk weight of 20 %;
(b)
if the exposures to the institution are assigned a risk weight of 50 %, the covered bond shall be assigned a risk weight of 25 %;
(ba)
if the exposures to the institution are assigned a risk weight of 75 %, the covered bond shall be assigned a risk weight of 35 %;
(c)
if the exposures to the institution are assigned a risk weight of 100 %, the covered bond shall be assigned a risk weight of 50 %;
(d)
if the exposures to the institution are assigned a risk weight of 150 %, the covered bond shall be assigned a risk weight of 100 %.’
;
(60)
in Article 132a(3), the first subparagraph is replaced by the following:
‘By way of derogation from Article 92(4), point (e), institutions that calculate the risk-weighted exposure amount of a CIU’s exposures in accordance with paragraph 1 or 2 of this Article may calculate the own funds requirement for the credit valuation adjustment risk of derivative exposures of that CIU as an amount equal to 50 % of the own funds requirement for those derivative exposures calculated in accordance with Chapter 6, Section 3, 4 or 5, of this Title, as applicable.’
;
(61)
in Article 132b, paragraph 2 is replaced by the following:
‘2. Institutions may exclude from the calculations referred to in Article 132 equity exposures underlying exposures in the form of units or shares in CIUs to entities whose credit obligations are assigned a 0 % risk weight under this Chapter, including those publicly sponsored entities where a 0 % risk weight can be applied, and equity exposures referred to in Article 133(5), and instead apply the treatment set out in Article 133 to those equity exposures.’
;
(62)
in Article 132c(2), the first subparagraph is replaced by the following:
‘Institutions shall calculate the exposure value of a minimum value commitment that meets the conditions set out in paragraph 3 of this Article as the discounted present value of the guaranteed amount using a discount factor that is derived from a risk-free rate pursuant to Article 325l(2) or (3), as applicable. Institutions may reduce the exposure value of the minimum value commitment by any losses recognised with respect to the minimum value commitment under the applicable accounting standard.’
;
(63)
Article 133 is replaced by the following:
‘Article 133
Equity exposures
1. All of the following shall be classified as equity exposures:
(a)
any exposure that meets all of the following conditions:
(i)
it is irredeemable in the sense that the return of invested funds can be achieved only by the sale of the investment or sale of the rights to the investment or by the liquidation of the issuer;
(ii)
it does not embody an obligation on the part of the issuer;
(iii)
it conveys a residual claim on the assets or income of the issuer;
(b)
instruments that would qualify as Tier 1 items if issued by an institution;
(c)
instruments that embody an obligation on the part of the issuer and meet any of the following conditions:
(i)
the issuer is able to defer the settlement of the obligation indefinitely;
(ii)
the obligation requires, or permits at the issuer’s discretion, settlement by issuance of a fixed number of the issuer’s equity shares;
(iii)
the obligation requires, or permits at the issuer’s discretion, settlement by issuance of a variable number of the issuer’s equity shares and, ceteris paribus, any change in the value of the obligation is attributable to, comparable to, and in the same direction as, the change in the value of a fixed number of the issuer’s equity shares;
(iv)
the holder of the instrument has the option of requiring that the obligation be settled in equity shares, unless one of the following conditions is met:
(1)
in the case of a traded instrument, the institution has demonstrated to the satisfaction of the competent authority that the instrument is traded on the market more like the debt of the issuer than like its equity;
(2)
in the case of non-traded instruments, the institution has demonstrated to the satisfaction of the competent authority that the instrument should be treated as a debt position;
(d)
debt obligations and other securities, partnerships, derivatives or other vehicles structured in such a way that the economic substance is similar to the exposures referred to in points (a), (b) and (c), including liabilities from which the return is linked to that of equities;
(e)
equity exposures that are recorded as a loan but arise from a debt-equity swap made as part of the orderly realisation or restructuring of the debt.
For the purposes of the first subparagraph, point (c)(iii), obligations include those that require or permit settlement by issuance of a variable number of the issuer’s equity shares, for which the change in the monetary value of the obligation is equal to the change in the fair value of a fixed number of equity shares multiplied by a specified factor, where both the factor and the referenced number of shares are fixed.
For the purposes of the first subparagraph, point (c)(iv), where one of the conditions laid down in that point is met, the institution may decompose the risks for regulatory purposes, subject to the prior permission of the competent authority.
2. Equity investments shall not be treated as equity exposures in any of the following cases:
(a)
the equity investments are structured in such a way that their economic substance is similar to the economic substance of debt holdings which do not meet the criteria set out in paragraph 1;
(b)
the equity investments constitute securitisation exposures.
3. Equity exposures, other than those referred to in paragraphs 4 to 7, shall be assigned a risk weight of 250 %, unless those exposures are required to be deducted or risk weighted in accordance with Part Two.
4. The following equity exposures to unlisted companies shall be assigned a risk weight of 400 %, unless those exposures are required to be deducted or risk weighted in accordance with Part Two:
(a)
investments for short-term resale purposes;
(b)
investments in venture capital firms or similar investments which are acquired in anticipation of significant short-term capital gains.
By way of derogation from the first subparagraph of this paragraph, long-term equity investments, including investments in equities of corporate clients with which the institution has or intends to establish a long-term business relationship and debt-equity swaps for corporate restructuring purposes shall be assigned a risk weight in accordance with paragraph 3 or 5, as applicable. For the purposes of this Article, a long-term equity investment is an equity investment that is held for three years or longer or incurred with the intention to be held for three years or longer as approved by the institution’s senior management.
5. Institutions that have received the prior permission of the competent authorities may assign a risk weight of 100 % to equity exposures incurred under legislative programmes to stimulate specified sectors of the economy, up to the part of such equity exposures that in aggregate does not exceed 10 % of the institutions’ own funds, that comply with all of the following conditions:
(a)
the legislative programmes provide significant subsidies or guarantees, including by multilateral development banks, public development credit institutions as defined in Article 429a(2) or international organisations, for the investment to the institution;
(b)
the legislative programmes involve some form of government oversight;
(c)
the legislative programmes involve restrictions on the equity investment, such as limitations on the size and types of businesses in which the institution is investing, on allowable amounts of ownership interests, on the geographical location and on other relevant factors that limit the potential risk of the investment for the investing institution.
6. Equity exposures to central banks shall be assigned a risk weight of 0 %.
7. An equity holding that is recorded as a loan but that has arisen from a debt-equity swap made as part of the orderly realisation or restructuring of the debt shall not be assigned a risk weight lower than the risk weight that would apply if the equity holding were treated as a debt exposure.’
;
(64)
in Article 134, paragraph 3 is replaced by the following:
‘3. Cash items in the process of collection shall be assigned a 20 % risk weight. Cash owned and held by the institution, or in transit, and equivalent cash items shall be assigned a 0 % risk weight.’
;
(65)
in Article 135, the following paragraph is added:
‘3. By 10 July 2025, ESMA shall prepare a report on whether ESG risks are appropriately reflected in ECAI credit risk rating methodologies and submit that report to the Commission.
On the basis of that report, the Commission shall, where appropriate, submit a legislative proposal to the European Parliament and to the Council by 10 January 2026.’
;
(66)
Article 138 is amended as follows:
(a)
the following point is added:
‘(g)
for exposures to institutions, an institution shall not use an ECAI credit assessment that incorporates assumptions of implicit government support, unless the respective ECAI credit assessment refers to an institution owned by or set up and sponsored by central governments, regional governments or local authorities.’
;
(b)
the following paragraphs are added:
‘For the purposes of the first paragraph, point (g), in the case of institutions, other than institutions owned by or set up and sponsored by central governments, regional governments or local authorities, for which only ECAI credit assessments exist which incorporate assumptions of implicit government support, exposures to such institutions shall be treated as exposures to unrated institutions in accordance with Article 121.
“Implicit government support” means that the central government, regional government or local authority would act to prevent creditors of the institution from incurring losses in the event of the institution’s default or distress.’
;
(67)
in Article 139(2), points
(a) and
(b) are replaced by the following:
‘(a)
the credit assessment produces a higher risk weight than would be the case if the exposure were treated as unrated and the exposure concerned:
(i)
is not a specialised lending exposure;
(ii)
ranks pari passu or junior in all respects to the specific issuing programme or facility or to senior unsecured exposures of that issuer, as relevant;
(b)
the credit assessment produces a lower risk weight than would be the case if the exposure were treated as unrated and the exposure concerned:
(i)
is not a specialised lending exposure;
(ii)
ranks pari passu or senior in all respects to the specific issuing programme or facility or to senior unsecured exposures of that issuer, as relevant.’
;
(68)
Article 141 is replaced by the following:
‘Article 141
Domestic and foreign currency items
1. A credit assessment that refers to an item denominated in the obligor’s domestic currency shall not be used to derive a risk weight for an exposure on that same obligor that is denominated in a foreign currency.
2. By way of derogation from paragraph 1, where an exposure arises through an institution’s participation in a loan that has been extended by, or has been guaranteed against convertibility and transfer risk by, a multilateral development bank listed in Article 117(2) the preferred creditor status of which is recognised in the market, the credit assessment on the obligor’s domestic currency item may be used to derive a risk weight for an exposure on that same obligor that is denominated in a foreign currency.
For the purposes of the first subparagraph, where the exposure denominated in a foreign currency is guaranteed against convertibility and transfer risk, the credit assessment on the obligor’s domestic currency item may only be used for risk weighting purposes on the guaranteed part of that exposure. The part of that exposure that is not guaranteed shall be risk weighted based on a credit assessment on the obligor that refers to an item denominated in that foreign currency.’
;
(69)
in Article 142, paragraph 1 is amended as follows:
(a)
the following points are inserted:
‘(1a
) “exposure class” means any of the exposure classes referred to in Article 147(2), point (a), point (aa)(i) or (ii), point (b), point (c)(i), (ii) or (iii), point (d)(i), (ii), (iii) or (iv), point (e), (ea), (f) or (g);
(1b)
“corporate exposure” means an exposure assigned to any of the exposure classes referred to in Article 147(2), point (c)(i), (ii) or (iii);
(1c)
“retail exposure” means an exposure assigned to any of the exposure classes referred to in Article 147(2), point (d)(i), (ii), (iii) or (iv);
(1d)
“regional governments, local authorities and public sector entities exposure” means an exposure assigned to any of the exposure classes referred to in Article 147(2), point (aa)(i) or (ii);’
;
(b)
point (2) is replaced by the following:
‘(2)
“type of exposures” means a group of homogeneously managed exposures, which may be limited to a single entity or a single sub-set of entities within a group provided that the same type of exposures is managed differently in other entities of the group;’
;
(c)
points (4) and (5) are replaced by the following:
‘(4)
“large regulated financial sector entity” means a financial sector entity which meets all of the following conditions:
(a)
the entity’s total assets, or the total assets of its parent company where the entity has a parent company, calculated on an individual or consolidated basis, are greater than or equal to EUR 70 billion, using the most recent audited financial statement or consolidated financial statement in order to determine asset size;
(b)
the entity is subject to prudential requirements, directly on an individual or consolidated basis, or indirectly from the prudential consolidation of its parent undertaking, in accordance with this Regulation, Regulation (EU) 2019/2033, Directive 2009/138/EC, or legal prudential requirements of a third country at least equivalent to those Union acts;
(5)
“unregulated financial sector entity” means a financial sector entity that does not fulfil the condition set out in point (4)(b);’
;
(d)
the following point is inserted:
‘(5a)
“large corporate” means any corporate undertaking having consolidated annual sales of more than EUR 500 million or belonging to a group where the total annual sales for the consolidated group is more than EUR 500 million;’
;
(e)
the following points are added:
‘(8a)
“PD/LGD modelling adjustment approach” means an adjustment of the LGD or modelling an adjustment of both the PD and the LGD of the underlying exposure;
(9)
“protection-provider-RW-floor” means the risk weight applicable to a comparable, direct exposure to the protection provider;
(10)
for an exposure to which an institution applies the IRB Approach by using its own estimates of LGD under Article 143, “recognised” unfunded credit protection means an unfunded credit protection whose effect on the calculation of risk-weighted exposure amounts or expected loss amounts of the underlying exposure is taken into account with one of the following methods, in accordance with Article 108(3):
(a)
PD/LGD modelling adjustment approach;
(b)
substitution of risk parameters approach under A-IRB as defined in Article 192, point (5);
(11)
“SA-CCF” means the percentage applicable under Chapter 2 in accordance with Article 111(2);
(12)
“IRB-CCF” means own estimates of credit conversion factor.’
;
(f)
the following subparagraph is added:
‘For the purposes of the first subparagraph, point (5a), in making the assessment for the sales threshold, the amounts shall be reported, as they are, in the audited financial statements of the corporates or, for corporates that are part of consolidated groups, their consolidated groups according to the accounting standard applicable to the ultimate parent undertaking of the consolidated group. The figures shall be based on the average amounts calculated over the prior three years, or on the latest amounts updated every three years by the institution.’
;
(70)
Article 143 is amended as follows:
(a)
paragraph 2 is replaced by the following:
‘2. Prior permission to use the IRB Approach, including own estimates of LGD and IRB-CCF, shall be required for each exposure class and for each rating system and for each approach to estimating LGDs and CCFs used.’
;
(b)
in paragraph 3, first subparagraph, points
(a) and
(b) are replaced by the following:
‘(a)
material changes to the range of application of a rating system that the institution has received permission to use;
(b)
material changes to a rating system that the institution has received permission to use.’
;
(c)
paragraphs 4 and 5 are replaced by the following:
‘4. Institutions shall notify the competent authorities of all changes to rating systems.
5. EBA shall develop draft regulatory technical standards to specify the conditions for assessing the materiality of the use of an existing rating system for other additional exposures not already covered by that rating system and changes to rating systems under the IRB Approach.
EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(71)
Article 144 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
point (f) is replaced by the following:
‘(f)
the institution has validated each rating system during an appropriate period prior to the permission to use that rating system, has assessed during that period whether each rating system is suited to the range of application of that rating system, and has made the necessary changes to each rating system following from its assessment;’
;
(ii)
point (h) is replaced by the following:
‘(h)
the institution has assigned and continues to assign each exposure in the range of application of a rating system to a rating grade or pool of that rating system.’
;
(b)
paragraph 2 is replaced by the following:
‘2. EBA shall develop draft regulatory technical standards to specify the assessment methodology competent authorities are to follow when assessing the compliance of an institution with the requirements to use the IRB Approach.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(72)
Article 147 is amended as follows:
(a)
paragraph 2 is replaced by the following:
‘2. Each exposure shall be assigned to one of the following exposure classes:
(a)
exposures to central governments and central banks;
(aa)
exposures to regional governments, local authorities and public sector entities, to be assigned to the following exposure classes:
(i)
exposures to regional governments and local authorities;
(ii)
exposures to public sector entities;
(b)
exposures to institutions;
(c)
exposures to corporates, to be assigned to the following exposure classes:
(i)
general corporates;
(ii)
specialised lending exposures;
(iii)
corporate purchased receivables;
(d)
retail exposures, to be assigned to the following exposure classes:
(i)
qualifying revolving retail exposures (“QRREs”);
(ii)
retail exposures secured by residential property;
(iii)
retail purchased receivables;
(iv)
other retail exposures;
(e)
equity exposures;
(ea)
exposures in the form of units or shares in a CIU;
(f)
items representing securitisation positions;
(g)
other non credit-obligation assets.’
;
(b)
in paragraph 3, point (a) is deleted;
(c)
the following paragraph is inserted:
‘3a. By way of derogation from paragraph 2 of this Article, exposures to regional governments, local authorities and public sector entities shall be assigned to the exposure class referred to in paragraph 2, point (a), of this Article where those exposures are treated as exposures to central governments in accordance with Article 115 or 116.’
;
(d)
in paragraph 4, points
(a) and
(b) are deleted;
(e)
paragraph 5 is amended as follows:
(i)
in point (a), point (ii) is replaced by the following:
‘(ii)
exposures to an SME, provided that the total amount owed to the institution and parent undertakings and its subsidiaries, including any exposure in default, by the obligor client or group of connected clients, but excluding exposures secured by residential property, up to the property value does not, to the knowledge of the institution, which shall take reasonable steps to verify the amount of that exposure, exceed EUR 1 million;
(iii)
exposures secured by residential property, including first and subsequent liens, term loans, revolving home equity lines of credit, and exposures as referred to in Article 108(4) and (5), regardless of the exposure size, provided that the exposure is either of the following:
(1)
an exposure to a natural person;
(2)
an exposure to associations or cooperatives of individuals that are regulated under national law and exist with the sole purpose of granting their members the use of a primary residence in the property securing the loan;’
;
(ii)
point (c) is replaced by the following:
‘(c)
they are not managed just as individually as exposures in the exposure classes referred to in paragraph 2, point (c)(i), (ii) or (iii);’
;
(iii)
the following subparagraphs are added:
‘Exposures fulfilling all of the conditions set out in the first subparagraph, point (a)(iii), points (b), (c) and (d), of this paragraph shall be assigned to the exposure class referred to in paragraph 2, point (d)(ii).
By way of derogation from the third subparagraph of this paragraph, competent authorities may exclude from the exposure class referred to in paragraph 2, point (d)(ii), loans to natural persons who have mortgaged more than four immovable properties or housing units, including the loans to natural persons referred to in Article 108(4), and assign those loans to one of the exposure classes referred to in paragraph 2, point (c)(i), (ii) or (iii).’
;
(f)
the following paragraph is inserted:
‘5a. Retail exposures belonging to a type of exposures meeting all of the following conditions shall be assigned to the exposure class referred to in paragraph 2, point (d)(i):
(a)
the exposures of that type of exposures are to one or more natural persons;
(b)
the exposures of that type of exposures are revolving, unsecured, and, to the extent they are not drawn immediately and unconditionally, cancellable by the institution;
(c)
the maximum exposure in that type of exposure to a single natural person is EUR 100 000 or less;
(d)
that type of exposures has exhibited low volatility of loss rates, relative to its average level of loss rates, especially within the low PD bands;
(e)
the treatment of exposures assigned to that type of exposures as a qualifying revolving retail exposure is consistent with the underlying risk characteristics of that type of exposures.
By way of derogation from the first subparagraph, point (b), the requirement to be unsecured shall not apply in respect of collateralised credit facilities linked to a wage account. In that case, amounts recovered from the collateral shall not be taken into account in the LGD estimates.
Institutions shall identify within the exposure class referred to in paragraph 2, point (d)(i) transactor exposures (“QRRE transactors”) and exposures that are not transactor exposures (“QRRE revolvers”). In particular, QRREs with less than 12 months of repayment history shall be identified as QRRE revolvers.’
;
(g)
paragraphs 6 and 7 are replaced by the following:
‘6. Unless they are assigned to the exposure class referred to in paragraph 2, point (ea), of this Article the exposures referred to in Article 133(1) shall be assigned to the exposure class referred to in paragraph 2, point (e), of this Article.
7. Any credit obligation not assigned to the exposure classes referred to in paragraph 2, point (a), point (aa)(i) or (ii), point (b), point (d)(i), (ii), (iii) or (iv), point (e), (ea) or (f), shall be assigned to one of the exposure classes referred to in point (c)(i), (ii) or (iii) of that paragraph.’
;
(h)
in paragraph 8, the following subparagraph is added:
‘Those exposures shall be assigned to the exposure class referred to in paragraph 2, point (c)(ii), and shall be categorised as follows: “project finance” (PF), “object finance” (OF), “commodity finance” (CF) and “income-producing real estate” (IPRE).’
;
(i)
the following paragraphs are added:
‘11. EBA shall develop draft regulatory technical standards to specify the following:
(a)
the categorisation to PF, OF and CF, consistently with the definitions of Chapter 2;
(b)
the determination of the IPRE category, in particular specifying which ADC exposures and exposures secured by immovable property may or shall be categorised as IPRE.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
12. EBA shall develop draft regulatory technical standards to further specify the conditions and criteria for assigning exposures to the classes referred to in paragraph 2 and, where necessary, to further specify those exposure classes.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(73)
Article 148 is amended as follows:
(a)
paragraphs 1, 2 and 3 are replaced by the following:
‘1. An institution that is permitted to apply the IRB Approach in accordance with Article 107(1) shall, together with any parent undertaking and its subsidiaries, implement the IRB Approach for at least one of the exposure classes referred to in Article 147(2), point (a), point (aa)(i) or (ii), point (b), point (c)(i), (ii) or (iii), point (d)(i), (ii), (iii) or (iv), or point (g). Once an institution has implemented the IRB Approach for a certain type of exposures within an exposure class, it shall do so for all exposures within that exposure class, unless it has received the permission of the competent authority to use the Standardised Approach permanently in accordance with Article 150.
Subject to the prior permission of the competent authorities, implementation of the IRB Approach may be carried out sequentially across the different types of exposures within a certain exposure class within the same business unit and across different business units in the same group, or for the use of own estimates of LGD or for the use of IRB-CCF.
2. Competent authorities shall determine the period over which an institution and any parent undertaking and its subsidiaries shall be required to implement the IRB Approach for all exposures within a certain exposure class across different types of exposures within the same business unit and across different business units in the same group, or for the use of own estimates of LGD or for the use of IRB-CCF. That period shall be one that competent authorities consider to be appropriate on the basis of the nature and scale of the activities of the institution concerned, or of any parent undertaking and its subsidiaries, and the number and nature of rating systems to be implemented.
3. Institutions shall carry out implementation of the IRB Approach in accordance with conditions determined by the competent authorities. The competent authority shall design those conditions in a way that they ensure that the flexibility under paragraph 1 is not used selectively for the purpose of achieving reduced own funds requirements in respect of those types of exposures or business units that are yet to be included in the IRB Approach or in the use of own estimates of LGD or in the use of IRB-CCF.’
;
(b)
paragraphs 4, 5 and 6 are deleted;
(74)
in Article 149(1), point (a) is replaced by the following:
‘(a)
the institution has demonstrated to the satisfaction of the competent authority that the use of the Standardised Approach is not made with a view to engaging in regulatory arbitrage, including by unduly reducing the own funds requirements of the institution, is necessary on the basis of the nature and complexity of the institution’s total exposures of that type and would not have a material adverse impact on the solvency of the institution or its ability to manage risk effectively;’
;
(75)
Article 150 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. Institutions shall apply the Standardised Approach for all of the following exposures:
(a)
exposures assigned to the exposure class referred to in Article 147(2), point (e);
(b)
exposures assigned to exposure classes or belonging to types of exposures within an exposure class, for which institutions have not received the prior permission of the competent authorities to use the IRB Approach for the calculation of the risk-weighted exposure amounts and expected loss amounts.
An institution that is permitted to use the IRB Approach for the calculation of risk-weighted exposure amounts and expected loss amounts for a given exposure class may, subject to the competent authority’s prior permission, apply the Standardised Approach for some types of exposures within that exposure class, including exposures of foreign branches and different product groups, where those types of exposures are immaterial in terms of size and perceived risk profile.’
;
(b)
the following paragraph is inserted:
‘1a. In addition to the exposures referred to in paragraph 1, second subparagraph, an institution may, subject to the competent authority’s prior permission, apply the Standardised Approach for the following exposures where the IRB Approach is applied for other types of exposures within the same exposure class:
(a)
exposures to central governments and central banks of the Member States and their regional governments, local authorities, and public sector entities, provided that:
(i)
there is no difference in risk between the exposures to that central government and central bank and those other exposures because of specific public arrangements; and
(ii)
exposures to central governments and central banks are assigned a 0 % risk weight under Article 114(2) or (4);
(b)
exposures of an institution to a counterparty which is its parent undertaking, its subsidiary or a subsidiary of its parent undertaking, provided that the counterparty is an institution or a financial holding company, mixed financial holding company, financial institution, asset management company or ancillary services undertaking subject to appropriate prudential requirements or an undertaking linked by a relationship within the meaning of Article 22(7) of Directive 2013/34/EU;
(c)
exposures between institutions which meet the requirements set out in Article 113(7).
An institution that is permitted to use the IRB Approach for the calculation of risk-weighted exposure amounts for only some types of exposures within an exposure class shall apply the Standardised Approach for the remaining types of exposures within that exposure class.
In addition to the exposures referred to in paragraph 1, second subparagraph, of this Article and in this paragraph, an institution may apply the Standardised Approach for exposures to churches and religious communities which meet the requirements set out in Article 115(3).’
;
(c)
paragraph 2 is deleted;
(d)
the following paragraph is inserted:
‘2a. By 10 July 2028, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on what constitutes types of exposures that are immaterial in terms of size and perceived risk profile.’
;
(e)
paragraphs 3 and 4 are deleted;
(76)
Article 151 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. The risk-weighted exposure amounts for credit risk for exposures belonging to one of the exposure classes referred to in Article 147(2), point (a), point (aa)(i) or (ii), point (b), point (c)(i), (ii) or (iii), point (d)(i), (ii), (iii) or (iv) or point (g), shall, unless those exposures are deducted from own funds or are subject to the treatment set out in Article 72e(5), first subparagraph, be calculated in accordance with Sub-section 2.’
;
(b)
paragraph 4 is deleted;
(c)
paragraphs 7, 8 and 9 are replaced by the following:
‘7. For retail exposures, institutions shall provide own estimates of LGD, and IRB-CCF where applicable pursuant to Article 166(8) and (8b), in accordance with Article 143 and Section 6. Institutions shall use SA-CCFs where Article 166(8) and (8b) do not allow for the use of IRB-CCF.
8. For the following exposures, institutions shall apply the LGD values set out in Article 161(1) and SA-CCFs in accordance with Article 166(8), (8a) and (8b):
(a)
exposures assigned to the exposure class referred to in Article 147(2), point (b);
(b)
exposures to financial sector entities other than those referred to in point (a) of this subparagraph;
(c)
exposures to large corporates not assigned to the exposure class referred to in Article 147(2), point (c)(ii).
For exposures belonging to the exposure classes referred to in Article 147(2), point (a), point (aa)(i) or (ii) or point (c)(i), (ii) or (iii), except for the exposures referred to in the first subparagraph of this paragraph, institutions shall apply the LGD values set out in Article 161(1) and the SA-CCFs in accordance with Article 166(8), (8a) and (8b), unless they have been permitted to use their own estimates of LGD and IRB-CCF for those exposures in accordance with paragraph 9 of this Article.
9. For the exposures referred to in paragraph 8, second subparagraph, of this Article, the competent authority shall permit institutions to use own estimates of LGD, and IRB-CCF where applicable pursuant to Article 166(8) and (8b), in accordance with Article 143 and Section 6.’
;
(d)
the following paragraph is added:
‘11. For exposures in the form of shares or units in a CIU belonging to the exposure class referred to in Article 147(2), point (ea), institutions shall apply the treatment set out in Article 152, unless those exposures are deducted from own funds or are subject to the treatment set out in Article 72e(5), first subparagraph.’
;
(77)
Article 152 is amended as follows:
(a)
in paragraph 3, the first subparagraph is replaced by the following:
‘By way of derogation from Article 92(4), point (e), institutions that calculate the risk-weighted exposure amount of the CIU in accordance with paragraph 1 or 2 of this Article may calculate the own funds requirement for credit valuation adjustment risk of derivative exposures of that CIU as an amount equal to 50 % of the own funds requirement for those derivative exposures calculated in accordance with Chapter 6, Section 3, 4 or 5, of this Title, as applicable.’
;
(b)
paragraph 4 is replaced by the following:
‘4. Institutions that apply the look-through approach in accordance with paragraphs 2 and 3 of this Article and that do not use the methods set out in this Chapter or in Chapter 5, as applicable, for all or parts of the underlying exposures of the CIU shall calculate risk-weighted exposure amounts and expected loss amounts for all or those parts of the underlying exposures in accordance with the following principles:
(a)
for underlying exposures that would be assigned to the exposure class referred to in Article 147(2), point (e), institutions shall apply the Standardised Approach laid down in Chapter 2;
(b)
for exposures assigned to the items representing securitisation positions referred to in Article 147(2), point (f), institutions shall apply the treatment set out in Article 254 as if those exposures were directly held by those institutions;
(c)
for all other underlying exposures, institutions shall apply the Standardised Approach laid down in Chapter 2.’
;
(78)
Article 153 is amended as follows:
(a)
the title is replaced by the following:
‘Risk-weighted exposure amounts for exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates’
;
(b)
paragraph 1 is amended as follows:
(i)
the introductory wording is replaced by the following:
‘Subject to the application of the specific treatments laid down in paragraphs 2 and 4, the risk-weighted exposure amounts for exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates shall be calculated according to the following formulae:’
;
(ii)
point (iii) is replaced by the following:
‘(iii)
if 0 < PD < 1, then:
where:
N
= the cumulative distribution function for a standard normal random variable, i.e. N(x) equals the probability that a normal random variable with mean of 0 and variance of 1, is less than or equal to x;
G
= the inverse cumulative distribution function for a standard normal random variable, i.e. if x = G(z), x is the value such that N(x) = z;
R
= the coefficient of correlation, which is defined as:
b
= the maturity adjustment factor, which is defined as:
b = [0,11852 – 0,05478 ∙ ln(PD)]2 ;
M
= the maturity, expressed in years and determined in accordance with Article 162.’
;
(c)
paragraph 2 is replaced by the following:
‘2. For exposures to large regulated financial sector entities and to unregulated financial sector entities, the coefficient of correlation R referred to in paragraph 1, point (iii), or paragraph 4, as applicable, shall be multiplied by 1,25 when calculating the risk weights of those exposures.’
;
(d)
paragraph 3 is deleted;
(e)
paragraph 9 is replaced by the following:
‘9. EBA shall develop draft regulatory technical standards to specify how institutions are to take into account the factors referred to in paragraph 5, second subparagraph, when assigning risk weights to specialised lending exposures.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(79)
Article 154 is amended as follows:
(a)
in paragraph 1, point (ii) is replaced by the following:
‘(ii)
if PD < 1, then:
where:
N
= the cumulative distribution function for a standard normal random variable, i.e. N(x) equals the probability that a normal random variable with mean of 0 and variance of 1, is less than or equal to x;
G
= the inverse cumulative distribution function for a standard normal random variable, i.e. if x = G(z), x is the value such that N(x) = z;
R
= the coefficient of correlation, which is defined as:
’;
(b)
paragraph 2 is deleted;
(c)
paragraph 3 is replaced by the following:
‘3. For retail exposures that are not in default and are secured or partially secured by residential property, a coefficient of correlation R of 0,15 shall replace the figure produced by the coefficient of correlation formula in paragraph 1.
The risk weight calculated for an exposure partially secured by residential property pursuant to paragraph 1, point (ii), taking into account a coefficient of correlation R as set out in the first subparagraph of this paragraph, shall be applied both to the secured and the unsecured part of that exposure.’
;
(d)
paragraph 4 is replaced by the following:
‘4. For QRREs that are not in default, a coefficient of correlation R of 0,04 shall replace the figure produced by the coefficient of correlation formula in paragraph 1.
Competent authorities shall review the relative volatility of loss rates across QRREs belonging to the same type of exposures, as well as across the aggregate QRRE exposure class, and shall share information on the typical characteristics of qualifying revolving retail loss rates with Member States and with EBA.’
;
(80)
Article 155 is deleted;
(81)
in Article 157, the following paragraph is added:
‘6. EBA shall develop draft regulatory technical standards to further specify:
(a)
the methodology for the calculation of risk-weighted exposure amount for dilution risk of purchased receivables, including recognition of credit risk mitigation in accordance with Article 160(4), and the conditions for the use of own estimates and parameters of the fall-back approach;
(b)
the assessment of the immateriality criterion for the type of exposures referred to in paragraph 5.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(82)
Article 158 is amended as follows:
(a)
paragraph 5 is replaced by the following:
‘5. The expected loss (EL) and expected loss amounts for exposures to corporates, institutions, central governments and central banks, regional governments, local authorities and public sector entities and retail exposures shall be calculated in accordance with the following formulae:
expected loss (EL) = PD * LGD
expected loss amount = EL [multiplied by] exposure value.
For defaulted exposures (PD = 100 %) where institutions use own estimates of LGD, EL shall be ELBE, the institution’s best estimate of expected loss for the defaulted exposure in accordance with Article 181(1), point (h).’
;
(b)
paragraphs 7, 8 and 9 are deleted.
(83)
Article 159 is replaced by the following:
‘Article 159
Treatment of expected loss amounts, IRB shortfall and IRB excess
1. Institutions shall subtract the expected loss amounts of exposures referred to in Article 158(5), (6) and (10) from the sum of all of the following:
(a)
the general and specific credit risk adjustments related to those exposures, calculated in accordance with Article 110;
(b)
additional value adjustments due to counterparty default determined in accordance with Article 34 and related to exposures for which the expected loss amounts are calculated in accordance with Article 158(5), (6) and (10);
(c)
other own funds reductions related to those exposures other than the deductions made in accordance with Article 36(1), point (m).
Where the calculation performed in accordance with the first subparagraph results in a positive amount, the amount obtained shall be called “IRB excess”. Where the calculation performed in accordance with the first subparagraph results in a negative amount, the amount obtained shall be called “IRB shortfall”.
2. For the purposes of the calculation referred to in the paragraph 1 of this Article, institutions shall treat discounts determined in accordance with Article 166(1) on balance-sheet exposures purchased when in default in the same manner as specific credit risk adjustments. Discounts on balance-sheet exposures purchased when not in default shall not be allowed to be included in the calculation of the IRB shortfall or IRB excess. Specific credit risk adjustments on exposures in default shall not be used to cover expected loss amounts on other exposures. Expected loss amounts for securitised exposures and general and specific credit risk adjustments related to those exposures shall not be included in the calculation of the IRB shortfall or IRB excess.’
;
(84)
in Part Three, the following Sub-Section is inserted after Section 4 ‘PD, LGD and maturity’:
‘Sub-Section - 1
Exposures covered by guarantees provided by Member States’ central governments and central banks or the ECB
Article 159a
Non-application of PD, LGD and CCF input floors
For the purposes of Chapter 3, and in particular with regard to Articles 160(1), 161(4), 164(4) and 166(8c), where an exposure is covered by an eligible guarantee provided by a central government or central bank or by the ECB, the PD, LGD and CCF input floors shall not apply to the part of the exposure covered by that guarantee. However, the part of the exposure that is not covered by that guarantee shall be subject to the PD, LGD and CCF input floors concerned.’
;
(85)
in Part Three, Title II, Chapter 3, Section 4, the title of Sub-Section 1 is replaced by the following:
‘Exposures to corporates, institutions, central governments and central banks, regional governments, local authorities and public sector entities’
;
(86)
Article 160 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. For exposures assigned to the exposure classes referred to in Article 147(2), point (b), or point (c)(i), (ii) or (iii), for the sole purpose of calculating risk-weighted exposure amounts and the expected loss amounts of those exposures, in particular for the purposes of Articles 153 and 157, and Article 158(1), (5) and (10), the PD value that is used for each exposure as an input of the risk-weighted exposure amounts and expected loss formulae shall not be less than the following PD input floor value: 0,05 %.’
;
(b)
the following paragraph is inserted:
‘1a. For exposures assigned to the exposure classes referred to in Article 147(2), point (aa)(i) or (ii), for the sole purpose of calculating risk-weighted exposure amounts and the expected loss amounts of those exposures, the PD value that is used for each exposure as an input of the risk-weighted exposure amounts and expected loss formulae shall not be less than the following PD input floor value: 0,03 %.’
;
(c)
paragraph 4 is replaced by the following:
‘4. For an exposure covered by an unfunded credit protection, an institution using own estimates of LGD under Article 143 for both the exposure that is covered by the unfunded credit protection and for comparable direct exposures to the protection provider may recognise the unfunded credit protection in the PD in accordance with Article 183.’
;
(d)
paragraph 5 is deleted;
(e)
paragraphs 6 and 7 are replaced by the following:
‘6. For dilution risk of purchased corporate receivables, PD shall be set equal to the EL estimates of the institution for dilution risk. An institution that has received permission from the competent authority pursuant to Article 143 to use own estimates of LGD for corporate exposures that can decompose its EL estimates for dilution risk of purchased corporate receivables into PDs and LGDs in a manner that the competent authority considers to be reliable, may use the PD estimates that result from that decomposition. Institutions may recognise unfunded credit protection in the PD in accordance with Chapter 4.
7. An institution that has received the permission of the competent authority pursuant to Article 143 to use own estimates of LGD for dilution risk of purchased corporate receivables may recognise unfunded credit protection by adjusting PDs subject to Article 161(3).’
;
(87)
Article 161 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
point (a) is replaced by the following:
‘(a)
senior exposures without eligible funded credit protection to central governments and central banks, to financial sector entities and to regional governments, local authorities and public sector entities: 45 %;’
;
(ii)
the following point is inserted:
‘(aa)
senior exposures without eligible funded credit protection to corporates which are not financial sector entities: 40 %;’
;
(iii)
point (c) is deleted;
(iv)
point (e) is replaced by the following:
‘(e)
for senior purchased corporate receivables exposures where an institution is not able to estimate PDs or where the institution’s PD estimates do not meet the requirements set out in Section 6: 40 %;’
;
(v)
point (g) is replaced by the following
‘(g)
for dilution risk of purchased corporate receivables: 100 %.’
;
(b)
paragraphs 3 and 4 are replaced by the following:
‘3. For an exposure covered by an unfunded credit protection, an institution using own estimates of LGD pursuant to Article 143 for both the exposure that is covered by an unfunded credit protection and for comparable direct exposures to the protection provider may recognise the unfunded credit protection in the LGD in accordance with Article 183.
4. For exposures assigned to the exposure classes referred to in Article 147(2), point (c)(i), (ii) or (iii), for the sole purpose of calculating risk-weighted exposure amounts and the expected loss amounts of those exposures, and in particular for the purposes of Article 153(1), point (iii), Article 157, and Article 158(1), (5) and (10), where own estimates of LGD are used, the LGD values for each exposure used as an input of the risk-weighted exposure amounts and expected loss formulae shall not be less than the following LGD input floor values, calculated in accordance with paragraph 6 of this Article.
Table 1
LGD input floors (LGDfloor) for exposures belonging to the exposure classes referred to in Article 147(2), point (c)(i), (ii) or (iii)
Exposure without eligible FCP (LGDU-floor)
Exposure fully secured by eligible FCP (LGDS-floor)
25 %
financial collateral
0 %
receivables
10 %
residential property or commercial immovable property
10 %
other physical collateral
15 %
’;
(c)
the following paragraphs are added:
‘5. For exposures assigned to the exposure classes referred to in Article 147(2), point (aa)(i) or (ii), for the sole purpose of calculating risk-weighted exposure amounts and the expected loss amounts of those exposures, and in particular for the purposes of Article 153(1), point (iii), Article 157, and Article 158(1), (5) and (10), where own estimates of LGD are used, the LGD value used as an input of the risk-weighted exposure amounts and expected loss formulae for exposures without eligible FCP shall not be less than the following LGD input floor value: 5 %.
6. For the purposes of paragraph 4 of this Article, the LGD input floors in Table 1 in that paragraph for exposures fully secured by eligible funded credit protection shall apply when the value of the funded credit protection, after the application of the volatility adjustments Hc and Hfx concerned in accordance with Article 230, is equal to or exceeds the value of the underlying exposure.
For the purposes of paragraph 4 of this Article and for the purposes of the application of the relevant related adjustments, Hc and Hfx, in accordance with Article 230, funded credit protection shall be eligible pursuant to this Chapter. In that case, the type of funded credit protection “other physical collateral” in Article 230, Table 1, shall be understood as “other physical and other eligible collateral”.
The applicable LGD input floor (LGDfloor) for an exposure partially secured by FCP is calculated as the weighted average of LGDU-floor for the part of the exposure without FCP and LGDS-floor for the fully secured part, as follows:
where:
LGDU-floor and LGDS-floor are the relevant floor values in Table 1;
E, ES, EU and HE are determined in accordance with Article 230.
7. Where an institution that uses own estimates of LGD for a given type of unsecured exposures to corporates and unsecured exposures to regional governments, local authorities and public sector entities is not able to take into account the effect of the funded credit protection securing one of the exposures of that type of exposures in the own estimate of LGD due to lack of data on recoveries for that funded credit protection, the institution shall be permitted to apply the formula set out in Article 230, with the exception that the LGDU in that formula shall be the institution’s own estimate of LGD for unsecured exposures. In that case, the funded credit protection shall be eligible in accordance with Chapter 4 and the institution’s own estimate of LGD used as LGDU shall be calculated based on underlying loss data excluding any recoveries arising from that funded credit protection.’
;
(88)
Article 162 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. For exposures for which an institution has not received permission from the competent authority to use own estimates of LGD, the maturity value (M) shall be applied consistently and, either be set at 2,5 years, except for exposures arising from securities financing transactions, for which M shall be 0,5 years, or, alternatively, be calculated in accordance with paragraph 2.’
;
(b)
paragraph 2 is amended as follows:
(i)
the introductory wording is replaced by the following:
‘For exposures for which an institution applies own estimates of LGD, the maturity value (M) shall be calculated using periods expressed in years, as set out in this paragraph and subject to paragraphs 3, 4 and 5 of this Article. M shall be no greater than five years, except in the cases specified in Article 384(2) where M as specified therein shall be used. M shall be calculated as follows in each of the following cases:’
;
(ii)
the following points are inserted:
‘(da)
for secured lending transactions which are subject to a master netting agreement, M shall be the weighted average remaining maturity of the transactions where M shall be at least 20 days; the notional amount of each transaction shall be used for weighting the maturity;
(db)
for a master netting agreement including more than one of the transaction types corresponding to point (c), (d) or (da) of this paragraph, M shall be the weighted average remaining maturity of the transactions where M shall be at least the longest holding period, expressed in years, applicable to such transactions as provided for in Article 224(2), either 10 days or 20 days, depending on the cases; the notional amount of each transaction shall be used for weighting the maturity;’
;
(iii)
point (f) is replaced by the following:
‘(f)
for any instrument other than those referred to in this paragraph or when an institution is not in a position to calculate M as set out in point (a), M shall be the maximum remaining time, in years, that the obligor is permitted to take to fully discharge its contractual obligations, including the principal, interest, and fees, where M shall be at least one year;’
;
(iv)
points (i) and (j) are replaced by the following:
‘(i)
for institutions using the approaches referred to in Article 382a(1), point (a) or (b), to calculate the own funds requirements for the CVA risk of transactions with a given counterparty, M shall be no greater than 1 in the formula set out in Article 153(1), point (iii), for the purpose of calculating the risk-weighted exposure amounts for counterparty risk for the same transactions, as referred to in Article 92(4), point (a) or (g), as applicable;
(j)
for revolving exposures, M shall be determined using the maximum contractual termination date of the facility; institutions shall not use the repayment date of the current drawing if that date is not the maximum contractual termination date of the facility.’
;
(c)
paragraph 3 is amended as follows:
(i)
in the first subparagraph, the introductory wording is replaced by the following:
‘Where the documentation requires daily re-margining and daily revaluation and includes provisions that allow for the prompt liquidation or set off of collateral in the event of default or failure to remargin, M shall be the weighted average remaining maturity of the transactions and M shall be at least one day for:’
;
(ii)
the second subparagraph is amended as follows:
(1)
point (b) is replaced by the following:
‘(b)
self-liquidating short-term trade finance transactions and corporate purchased receivables, provided that the respective exposures have a residual maturity of up to one year;’
;
(2)
the following point is added:
‘(e)
issued as well as confirmed letters of credit that are short term, that is, they have a maturity below one year, and are self-liquidating.’
;
(d)
paragraph 4 is replaced by the following:
‘4. For exposures to corporates established in the Union which are not large corporates, institutions may choose to set for all such exposures M as set out in paragraph 1 instead of applying paragraph 2.’
;
(e)
the following paragraph is added:
‘6. For the purpose of expressing in years the minimum numbers of days referred to in paragraph 2, points (c) to (db), and paragraph 3, the minimum numbers of days shall be divided by 365,25.’
;
(89)
Article 163 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. For the sole purpose of calculating risk-weighted exposure amounts and the expected loss amounts of those exposures, and in particular for the purposes of Articles 154 and 157, and Article 158(1), (5) and (10), the PD for each exposure that is used as an input of the risk-weighted exposure amounts and expected loss formulae shall be the higher of the one-year PD associated with the internal borrower grade or pool to which the retail exposure is assigned and the following PD input floor values:
(a)
0,1 % for QRRE revolvers;
(b)
0,05 % for retail exposures which are not QRRE revolvers.’
;
(b)
paragraph 4 is replaced by the following:
‘4. For an exposure covered by an unfunded credit protection, an institution using own estimates of LGD under Article 143 for comparable direct exposures to the protection provider may recognise the unfunded credit protection in the PD in accordance with Article 183.’
;
(90)
Article 164 is amended as follows:
(a)
paragraphs 1 and 2 are replaced by the following:
‘1. Institutions shall provide own estimates of LGD subject to the requirements specified in Section 6 of this Chapter and to permission of the competent authorities granted in accordance with Article 143. For dilution risk of purchased receivables, an LGD value of 100 % shall be used. Where an institution can decompose its expected loss estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the institution may use its own estimates of LGD.
2. Institutions using own estimates of LGD pursuant to Article 143 for comparable direct exposures to the protection provider may recognise the unfunded credit protection in the LGD in accordance with Article 183.’
;
(b)
paragraph 3 is deleted;
(c)
paragraph 4 is replaced by the following:
‘4. For the sole purpose of calculating risk-weighted exposure amounts and expected loss amounts for retail exposures, and in particular pursuant to Article 154(1), point (ii), Article 157, and Article 158(1), (5) and (10), the LGD values for each exposure used as an input of the risk-weighted exposure amounts and expected loss formulae shall not be less than the LGD input floor values set out in Table 1, calculated in accordance with paragraph 4a of this Article:
Table 1
LGD input floors (LGDfloor) for retail exposures
Exposure without FCP (LGDU-floor)
Exposure secured by FCP (LGDS-floor)
Retail exposure secured by residential property
N/A
Retail exposure secured by residential property
5 %
QRRE
50 %
QRRE
N/A
Other retail exposure
30 %
Other retail exposure secured by financial collateral
0 %
Other retail exposure secured by receivables
10 %
Other retail exposure secured by residential property or commercial immovable property
10 %
Other retail exposure secured by other physical collateral
15 %
’;
(d)
the following paragraph is inserted:
‘4a. For the purposes of paragraph 4, the following shall apply:
(a)
LGD input floors in paragraph 4, Table 1 shall be applicable for exposures secured by funded credit protection when the funded credit protection is eligible pursuant to this Chapter;
(b)
except for retail exposures secured by residential property, the LGD input floors in paragraph 4, Table 1, of this Article shall be applicable to exposures fully secured by funded credit protection where the value of the FCP, after the application of the relevant volatility adjustments in accordance with Article 230, is equal to or exceeds the exposure value of the underlying exposure; for the purpose of the application of the relevant related adjustments, Hc and Hfx, in accordance with Article 230, funded credit protection shall be eligible pursuant to this Chapter;
(c)
except for retail exposures secured by residential property, the applicable LGD input floor for an exposure partially secured by funded credit protection is calculated in accordance with the formula set out in Article 161(6);
(d)
for retail exposures secured by residential property, the applicable LGD input floor shall be fixed at 5 % irrespective of the level of collateral provided by the residential property.’
;
(e)
paragraphs 6 and 7 are replaced by the following:
‘6. Based on the data collected under Article 430a and on any other relevant indicators, and taking into account forward-looking immovable property market developments the authority designated in accordance with paragraph 5 of this Article shall periodically, and at least annually, assess whether the LGD input floor values referred to in paragraph 4 of this Article are appropriate for retail exposures secured by residential property or other retail exposures secured by residential property or commercial immovable property located in one or more parts of the territory of the Member State of that authority.
Where, on the basis of the assessment referred to in the first subparagraph of this paragraph, the authority designated in accordance with paragraph 5 concludes that the LGD input floor values referred to in paragraph 4 are not adequate, and if it considers that the inadequacy of LGD input floor values could adversely affect current or future financial stability in its Member State, it may set higher LGD input floor values for those exposures located in one or more parts of the territory of the Member State of that authority. Those higher LGD input floor values may also be applied at the level of one or more property segments of such exposures.
The authority designated in accordance with paragraph 5 shall notify EBA and the ESRB before making the decision referred to in the second subparagraph of this paragraph. Within one month of receipt of that notification, EBA and the ESRB shall provide their opinion to the Member State concerned. EBA and the ESRB shall publish the higher LGD input floor values referred to in the second subparagraph of this paragraph.
7. Where the authority designated in accordance with paragraph 5 sets higher LGD input floor values pursuant to paragraph 6, institutions shall have a six-month transitional period to apply them.’
;
(91)
in Part Three, Title II, Chapter 3, Section 4, Sub-Section 3 is deleted;
(92)
Article 166 is amended as follows:
(a)
the title is replaced by the following:
‘ Exposures to corporates, institutions, central governments and central banks, regional governments, local authorities and public sector entities and retail exposures ’;
(b)
paragraph 8 is replaced by the following:
‘8. The exposure value of off-balance-sheet items which are not contracts as listed in Annex II shall be calculated by using either IRB-CCF or SA-CCFs, in accordance with paragraphs 8a and 8b of this Article and Article 151(8).
Where only the drawn balances of revolving facilities have been securitised, institutions shall ensure that they continue to hold the required amount of own funds against the undrawn balances associated with the securitisation.
An institution that has not received permission to use IRB-CCF shall calculate the exposure value as the committed but undrawn amount multiplied by the SA-CCF concerned.
An institution that uses IRB-CCF shall calculate the exposure value for undrawn commitments as the undrawn amount multiplied by IRB-CCF.’
;
(c)
the following paragraphs are inserted:
‘8a. For an exposure for which an institution has not received permission to use IRB-CCF, the applicable CCF shall be the SA-CCF as provided for in Chapter 2 for the same types of items as laid down in Article 111. The amount to which the SA-CCF is to be applied shall be the lower of the value of the committed but undrawn amount and the value that reflects any possible constraining of the availability of the facility, including the existence of an upper limit on the potential lending amount which is related to an obligor’s reported cash flow. Where a facility is constrained in that way, the institution shall have sufficient line monitoring and management procedures to support the existence of that constraining.
8b. Subject to the permission of competent authorities, institutions that meet the requirements for the use of IRB-CCF as specified in Section 6 shall use IRB-CCF for exposures arising from undrawn revolving commitments treated under the IRB Approach provided that those exposures would not be subject to a SA-CCF of 100 % under the Standardised Approach. SA-CCFs shall be used for:
(a)
all other off-balance-sheet items, in particular undrawn non-revolving commitments;
(b)
exposures where the minimum requirements for calculating IRB-CCF as specified in Section 6 are not met by the institution or where the competent authority has not permitted the use of IRB-CCF.
For the purposes of this Article, a commitment shall be deemed “revolving” where it lets an obligor obtain a loan where the obligor has the flexibility to decide how often to withdraw from the loan and at what intervals, allowing the obligor to drawdown, repay and redraw loans advanced to it. Contractual arrangements that allow prepayments and subsequent redraws of those prepayments shall be considered revolving.
8c. Where IRB-CCF are used for the sole purpose of calculating risk-weighted exposure amounts and expected loss amounts of exposures arising from revolving commitments other than exposures assigned to the exposure class in accordance with Article 147(2), point (a), in particular pursuant to Article 153(1), Article 157 and Article 158(1), (5) and (10), the exposure value for each exposure used as an input of the risk-weighted exposure amount and expected loss formulae shall not be less than the sum of:
(a)
the drawn amount of the revolving commitment;
(b)
50 % of the off-balance exposure amount of the remaining undrawn part of the revolving commitment calculated using the applicable SA-CCF provided for in Article 111.
The sum of points
(a) and
(b) shall be referred to as the “CCF input floor”.’
;
(d)
paragraph 10 is deleted;
(93)
Article 167 is deleted;
(94)
in Article 169(3), the following subparagraph is added:
‘EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on how to apply in practice the requirements on model design, risk quantification, validation and application of risk parameters using continuous or very granular rating scales for each risk parameter.’
;
(95)
Article 170 is amended as follows:
(a)
in paragraph 1, the introductory wording is replaced by the following:
‘The structure of rating systems for exposures to corporates, institutions, central governments and central banks, and regional governments, local authorities and public sector entities shall comply with the following requirements:’
;
(b)
in paragraph 4, point (b) is replaced by the following:
‘(b)
transaction risk characteristics, including product and funded credit protection types, recognised unfunded credit protection, loan-to-value measures, seasoning and seniority; institutions shall explicitly address cases where several exposures benefit from the same funded or unfunded credit protection;’
;
(96)
in Article 171, the following paragraph is added:
‘3. Institutions shall use a time horizon longer than one year in assigning ratings. An obligor rating shall represent the institution’s assessment of the obligor’s ability and willingness to contractually perform despite adverse economic conditions or the occurrence of unexpected events. Rating systems shall be designed in such a way that idiosyncratic changes and, where they are material drivers of risk for the type of exposure, industry-specific changes are a driver of migrations from one grade or pool to another. Business cycle effects may also be a driver of migrations.’
;
(97)
in Article 172, paragraph 1 is amended as follows:
(a)
the introductory wording is replaced by the following:
‘For exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates, the assignment of exposures shall be carried out in accordance with the following criteria:’
;
(b)
point (d) is replaced by the following:
‘(d)
each separate legal entity to which the institution is exposed shall be separately rated;’
;
(c)
the following subparagraphs are added:
‘For the purposes of the first subparagraph, point (d), an institution shall have appropriate policies for the treatment of individual obligor clients and groups of connected clients. Those policies shall contain a process for the identification of Specific Wrong-Way risk for each legal entity to which the institution is exposed.
For the purposes of Chapter 6, transactions with counterparties where a Specific Wrong-Way risk has been identified shall be treated differently when calculating their exposure value.’
;
(98)
Article 173 is amended as follows:
(a)
in paragraph 1, the introductory wording is replaced by the following:
‘For exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates, the assignment process shall meet the following requirements:’
;
(b)
paragraph 3 is replaced by the following:
‘3. EBA shall develop draft regulatory technical standards setting out the methodologies of the competent authorities to assess the integrity of the assignment process and the regular and independent assessment of risks.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(99)
Article 174 is amended as follows:
(a)
the introductory wording is replaced by the following:
‘Institutions shall use statistical or other mathematical methods (“models”) to assign exposures to obligor or facility grades or pools. The following requirements shall be met:’
;
(b)
point (a) is replaced by the following:
‘(a)
the model shall have good predictive power and own funds requirements shall not be distorted as a result of its use;’
;
(c)
the following paragraph is added:
‘For the purposes of the first paragraph, point (a), the input variables shall form a reasonable and effective basis for the resulting predictions. The model shall not have material biases. There shall be a functional link between the inputs and the outputs of the model, which may be determined through expert judgement, where appropriate.’
;
(100)
Article 176 is amended as follows:
(a)
in paragraph 2, the introductory wording is replaced by the following:
‘For exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates, institutions shall collect and store:’
;
(b)
paragraph 3 is replaced by the following:
‘3. For exposures for which this Chapter allows the use of own estimates of LGD or the use of IRB-CCF but for which institutions do not use own estimates of LGD or IRB-CCF, institutions shall collect and store data on comparisons between realised LGDs and the values as set out in Article 161(1), and between realised CCFs and SA-CCFs as set out in Article 166(8a).’
;
(101)
Article 177 is amended as follows:
(a)
the following paragraph is inserted:
‘2a. The scenarios used under paragraph 2 shall also include ESG risk drivers, in particular physical risk and transition risk drivers stemming from climate change.
EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on the application of paragraph 2 and 2a.’
;
(b)
paragraph 3 is deleted;
(102)
Article 178 is amended as follows:
(a)
the title is replaced by the following:
‘Default of an obligor or credit facility’
;
(b)
in paragraph 1, point (b) is replaced by the following:
‘(b)
the obligor is more than 90 days past due on any material credit obligation to the institution, the parent undertaking or any of its subsidiaries.’
;
(c)
in paragraph 3, point (d) is replaced by the following:
‘(d)
the institution consents to a forbearance measure as referred to in Article 47b of the credit obligation where that measure is likely to result in a diminished financial obligation due to the material forgiveness, or postponement, of principal, interest or, where relevant, fees;’
;
(d)
in paragraph 7, the following subparagraphs are added:
‘By 10 July 2025, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to update the guidelines referred to in the first subparagraph of this paragraph. In particular, that update shall take due account of the necessity to encourage institutions to engage in proactive, preventive and meaningful debt restructuring to support obligors.
In developing those guidelines, EBA shall duly consider the need for granting a sufficient flexibility to institutions when specifying what constitutes a diminished financial obligation for the purposes of paragraph 3, point (d).’
;
(103)
in Article 179(1), point (f) is replaced by the following:
‘(f)
to overcome biases, an institution shall include appropriate adjustments in its estimates to the extent possible; after having included an appropriate adjustment, it shall add to its estimates a sufficient margin of conservatism that is related to the expected range of estimation errors; where methods and data are considered to be less satisfactory, the expected range of errors is larger, and the margin of conservatism shall be larger.’
;
(104)
Article 180 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
the introductory wording is replaced by the following:
‘In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements specific to PD estimation to exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates:’
;
(ii)
point (e) is replaced by the following:
‘(e)
to the extent that an institution uses data on internal default experience for the estimation of PDs, the estimates shall be reflective of current underwriting standards and of any differences in the rating system that generated the data and the current rating system; where underwriting standards or rating systems have changed, after including an appropriate adjustment, the institution shall add a greater margin of conservatism in its estimate of PD related to the expected range of estimation errors that is not already covered by the appropriate adjustment;’
;
(iii)
point (h) is replaced by the following:
‘(h)
irrespective of whether an institution is using external, internal, or pooled data sources, or a combination of the three, for its PD estimation, the length of the underlying historical observation period used shall be at least five years for at least one source;’
;
(iv)
the following point is added:
‘(i)
irrespective of the method used to estimate PD, institutions shall estimate a PD for each rating grade based on the observed historical average one-year default rate that is an arithmetic average based on the number of obligors (count weighted); other approaches, including exposure-weighted averages, shall not be permitted.’
;
(v)
the following subparagraph is added:
‘For the purposes of the first subparagraph, point (h), of this paragraph where the available observation period spans a longer period for any source, and where those data are relevant, that longer period shall be used. The data shall include a representative mix of good and bad years of the economic cycle relevant for the type of exposures. Subject to the permission of competent authorities, institutions which have not received the permission of the competent authority pursuant to Article 143 to use own estimates of LGD or to use IRB-CCF, may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until relevant data cover at least five years.’
;
(b)
paragraph 2 is amended as follows:
(i)
point (a) is replaced by the following:
‘(a)
institutions shall estimate PDs by obligor or facility grade or pool from long run averages of one-year default rates, and default rates shall be calculated at facility level only where the definition of default is applied at individual credit facility level pursuant to Article 178(1), second subparagraph;’
;
(ii)
point (e) is replaced by the following:
‘(e)
irrespective of whether an institution is using external, internal or pooled data sources, or a combination of the three, for its PD estimation, the length of the underlying historical observation period used shall be at least five years for at least one source;’
;
(iii)
the following subparagraphs are added:
‘For the purposes of the first subparagraph, point (a), the PD shall be based on the observed historical average one-year default rate.
For the purposes of the first subparagraph, point (e), where the available observation spans a longer period for any source, and where those data are relevant, that longer period shall be used. The data shall include a representative mix of good and bad years of the economic cycle relevant for the type of exposures. Subject to the permission of the competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until relevant data cover at least five years.’
(c)
paragraph 3 is replaced by the following:
‘3. EBA shall develop draft regulatory technical standards to specify the methodologies in accordance with which competent authorities shall assess the methodology of an institution for estimating PD pursuant to Article 143.
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(105)
Article 181 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
points (c) to (g) are replaced by the following:
‘(c)
an institution shall consider the extent of any dependence between, on the one hand, the risk of the obligor and, on the other hand, that of funded credit protection, other than master netting agreements and on-balance-sheet netting of loans and deposits, or its provider;
(d)
currency mismatches between the underlying obligation and the funded credit protection other than master netting agreements and on-balance-sheet netting of loans and deposits shall be treated conservatively in the institution’s assessment of LGD;
(e)
to the extent that LGD estimates take into account the existence of funded credit protection other than master netting agreements and on-balance-sheet netting of loans and deposits, those estimates shall not solely be based on the estimated market value of the funded credit protection;
(f)
to the extent that LGD estimates take into account the existence of funded credit protection other than master netting agreements and on-balance-sheet netting of loans and deposits, institutions shall establish internal requirements for the management, legal certainty and risk management of that funded credit protection, and those requirements shall be generally consistent with those set out in Chapter 4, Section 3, Sub-section 1;
(g)
to the extent that an institution recognises funded credit protection other than master netting agreements and on-balance-sheet netting of loans and deposits for determining the exposure value for counterparty credit risk in accordance with Chapter 6, Section 5 or 6, any amount expected to be recovered from that funded credit protection shall not be taken into account in the LGD estimates;’
;
(ii)
points (i) and (j) are replaced by the following:
‘(i)
to the extent that fees for late payments, imposed on the obligor before the time of default, have been capitalised in the institution’s income statement, they shall be added to the institution's measure of exposure and loss;
(j)
for exposures to corporates, institutions, central governments and central banks, and regional governments, local authorities and public sector entities, estimates of LGD shall be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source, if the available observation period spans a longer period for any source, and the data are relevant, that longer period shall be used.’
;
(iii)
the following subparagraphs are added:
‘For the purposes of the first subparagraph, point (a), of this paragraph institutions shall adequately take into account recoveries realised in the course of the relevant recovery processes from any type of funded credit protection as well as from unfunded credit protection not falling under the definition in Article 142(1), point (10).
For the purposes of the first subparagraph, point (c), cases where there is a significant degree of dependence shall be addressed in a conservative manner.
For the purposes of the first subparagraph, point (e), LGD estimates shall take into account the effect of the potential inability of institutions to expeditiously gain control of their collateral and liquidate it.’
;
(b)
paragraph 2 is amended as follows:
(i)
in the first subparagraph, point (b) is replaced by the following:
‘(b)
reflect future drawings either in their conversion factors or in their LGD estimates;’
;
(ii)
the following subparagraph is inserted after the first subparagraph:
‘For the purposes of the first subparagraph, point (b), where institutions include future additional drawings in their conversion factors, those should be taken into account in the LGD in both the numerator and the denominator. Where institutions do not include future additional drawings in their conversion factors, those should be taken into account in the LGD numerator only.’
;
(iii)
the second subparagraph is replaced by the following:
‘For retail exposures, estimates of LGD shall be based on data over a minimum of five years. Subject to the permission of the competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until relevant data cover at least five years.’
;
(c)
the following paragraphs are added:
‘4. EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to clarify the treatment of any type of funded credit protection and unfunded credit protection for the purposes of paragraph 1, point (a), of this Article and for the purposes of the application of the LGD parameters.
5. For the purpose of calculating loss, EBA shall, by 31 December 2025, issue updated guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on the following:
(a)
with regard to cases that return to non-defaulted status, specifying how artificial cash flow is to be treated and whether it is more appropriate for institutions to discount the artificial cash flow over the actual period of default;
(b)
assessing whether the calibration and application of the discount rate is appropriate for the calculation of economic loss across all exposures.’
;
(106)
Article 182 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
point (c) is replaced by the following:
‘(c)
institutions’ IRB-CCF shall reflect the possibility of additional drawings by the obligor up to and after the time a default event is triggered;’
;
(ii)
the following points are added:
‘(g)
institutions’ IRB-CCF shall be estimated using a 12-month fixed-horizon approach;
(h)
institutions’ IRB-CCF shall be based on reference data that reflect the obligor, facility and bank management practice characteristics of the exposures to which the estimates are applied.’
;
(iii)
the following subparagraphs are added:
‘For the purposes of the first subparagraph, point (a), where institutions observe a negative realised conversion factor on their default observations, the realised conversion factor on those observations shall be equal to zero for the purpose of quantification of their IRB-CCF. Institutions may use the information of the negative realised conversion factor in the process of model development for the purpose of risk differentiation.
For the purposes of the first subparagraph, point (c), IRB-CCF shall incorporate a greater margin of conservatism where a stronger positive correlation can reasonably be expected between the default frequency and the magnitude of the conversion factor.
For the purposes of the first subparagraph, point (g), each default shall be linked to relevant obligor and facility characteristics at the fixed reference date defined as 12 months prior to the date of default.’
;
(b)
the following paragraphs are inserted:
‘1a. For the purposes of paragraph 1, point (h), IRB-CCF applied to particular exposures shall not be based on data that comingle the effects of disparate characteristics or data from exposures that exhibit materially different risk characteristics. IRB-CCF shall be based on appropriately homogenous segments. For that purpose, the following practices shall only be allowed on the basis of a detailed scrutiny and justification by an institution:
(a)
SME/mid-market underlying data being applied to large corporate obligors;
(b)
data from commitments with a small unused limit availability being applied to facilities with a large unused limit availability;
(c)
data from delinquent obligors or blocked for further drawdowns at the reference date being applied to obligors with no known delinquency or relevant restrictions;
(d)
data that have been affected by changes in the obligors’ mix of borrowing and other credit-related products over the observation period unless those data have been effectively adjusted by removing the effects of the changes in the product mix.
1b. For the purposes of paragraph 1a, point (d), institutions shall demonstrate to the competent authorities that they have a detailed understanding of the impact of changes in customer product mix on the exposures reference data sets and associated IRB-CCF, and that the impact is immaterial or has been effectively mitigated within their estimation process. In that regard, the following shall not be deemed appropriate:
(a)
setting floors or caps to CCF or exposure value observations, with the exception of the realised conversion factor equal to zero, in accordance with paragraph 1, second subparagraph;
(b)
using obligor-level estimates that do not fully cover the relevant product transformation options or that inappropriately combine products with very different characteristics;
(c)
adjusting only material observations affected by product transformation;
(d)
excluding observations affected by product profile transformation.
1c. Institutions shall ensure that their IRB-CCF are effectively quarantined from the potential effects of region of instability caused by a facility being close to being fully drawn at the reference date.
1d. Reference data shall not be capped at the principal amount outstanding of a facility or the available facility limit. Accrued interest, other due payments and drawings in excess of facility limits shall be included in the reference data.’
;
(c)
paragraph 2 is replaced by the following:
‘2. For exposures to corporates, institutions, central governments and central banks, and regional governments, local authorities and public sector entities, estimates of conversion factors shall be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source. If the available observation period spans a longer period for any source, and the data are relevant, that longer period shall be used.’
;
(d)
in paragraph 3, the second subparagraph is replaced by the following:
‘For retail exposures, estimates of conversion factors shall be based on data over a minimum of five years. Subject to the permission of competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until relevant data cover at least five years.’
;
(e)
the following paragraph is added:
‘5. By 31 December 2026, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to specify the methodology that institutions are to apply in order to estimate IRB-CCF.’
;
(107)
Article 183 is amended as follows
(a)
the title is replaced by the following:
‘Requirements for assessing the effect of unfunded credit protection for exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, and exposures to corporates, where own estimates of LGD are used and for retail exposures’
;
(b)
paragraph 1 is amended as follows:
(i)
point (c) is replaced by the following:
‘(c)
the guarantee shall be evidenced in writing, non-cancellable and non-changeable on the part of the guarantor, in force until the obligation is satisfied in full, to the extent of the amount and tenor of the guarantee, and legally enforceable against the guarantor in a jurisdiction where the guarantor has assets to attach and enforce a judgement;’
(ii)
the following point is added:
‘(d)
the guarantee shall be unconditional.’
;
(iii)
the following subparagraphs are added:
‘For the purposes of the first subparagraph, point (d), an “unconditional guarantee” means a guarantee where the credit protection contract does not contain any clause the fulfilment of which is outside the direct control of the lending institution and that could prevent the guarantor from being obliged to pay out in a timely manner pursuant to the qualifying default of the obligor or to the non-payment by the original obligor. A clause in the credit protection contract providing that a flawed due diligence or fraud by the lending institution cancels or diminishes the extent of the guarantee offered by the guarantor shall not disqualify that guarantee from being considered unconditional.
Guarantees where the payment by the guarantor is subject to the lending institution first having to pursue the obligor and that only cover losses remaining after the institution has completed the workout process shall be considered unconditional.’
;
(c)
the following paragraph is inserted:
‘1a. Institutions may recognise unfunded credit protection by using either the PD/LGD modelling adjustment approach, in accordance with this Article and subject to the requirement set out in paragraph 4 of this Article, or the substitution of risk parameters approach under A-IRB in accordance with Article 236a and subject to the eligibility requirements of Chapter 4. Institutions shall have clear policies for assessing the effects of unfunded credit protection on risk parameters. The policies of the institutions shall be consistent with their internal risk management practices and shall reflect the requirements of this Article. Those policies shall clearly specify which of the specific methods described in this paragraph are used for each rating system, and institutions shall apply those policies consistently over time.’
;
(d)
in paragraph 3, the following subparagraph is added:
‘First-to-default credit derivatives may be recognised as eligible unfunded credit protection. However, second-to-default and all other nth-to-default credit derivatives shall not be recognised as eligible unfunded credit protection.’
;
(e)
paragraph 4 is replaced by the following:
‘4. Where institutions recognise unfunded credit protection by the PD/LGD modelling adjustment approach, the covered part of the underlying exposure shall not be assigned a risk weight which would be lower than the protection-provider-RW-floor. For that purpose, the protection-provider-RW-floor shall be calculated using the same PD, LGD and risk weight function as the ones applicable to comparable direct exposure to the protection provider as referred to in Article 236a.’
;
(f)
paragraph 6 is deleted;
(108)
in Part Three, Title II, Chapter 3, Section 6, Sub-Section 4 is deleted;
(109)
in Article 192, the following point is added:
‘(5)
“substitution of risk parameters approach under A-IRB” means the substitution, in accordance with Article 236a, of both the PD and LGD risk parameters of the underlying exposure with the corresponding PD and LGD that would be assigned under the IRB approach using own estimates of LGD to a comparable direct exposure to the protection provider.’
;
(110)
in Article 193, the following paragraph is added:
‘7. Collateral that satisfies all eligibility requirements set out in this Chapter can be recognised even for exposures associated with undrawn facilities, where drawing under the facility is conditional on the prior or simultaneous purchase or reception of collateral to the extent of the institution’s interest in the collateral once the facility is drawn, such that the institution does not have any interest in the collateral to the extent the facility is not drawn.’
;
(111)
in Article 194, paragraph 10 is deleted;
(112)
Article 197 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
points (b) to (e) are replaced by the following:
‘(b)
debt securities, issued by central governments or central banks, which have a credit assessment by an ECAI or export credit agency where:
(i)
the ECAI or export credit agency has been nominated by the institution for the purposes of Chapter 2; and
(ii)
the credit assessment has been determined by EBA to be associated with credit quality step 1, 2, 3 or 4 under the rules for the risk weighting of exposures to central governments and central banks under Chapter 2;
(c)
debt securities, issued by institutions, which have a credit assessment by an ECAI where:
(i)
the ECAI has been nominated by the institution for the purposes of Chapter 2; and
(ii)
the credit assessment has been determined by EBA to be associated with credit quality step 1, 2 or 3 under the rules for the risk weighting of exposures to institutions under Chapter 2;
(d)
debt securities, issued by other entities, which have a credit assessment by an ECAI where:
(i)
the ECAI has been nominated by the institution for the purposes of Chapter 2; and
(ii)
the credit assessment has been determined by EBA to be associated with credit quality step 1, 2 or 3 under the rules for the risk weighting of exposures to corporates under Chapter 2;
(e)
debt securities having a short-term credit assessment by an ECAI where:
(i)
the ECAI has been nominated by the institution for the purposes of Chapter 2; and
(ii)
the credit assessment has been determined by EBA to be associated with credit quality step 1, 2 or 3 under the rules for the risk weighting of short-term exposures under Chapter 2;’
;
(ii)
point (g) is replaced by the following:
‘(g)
gold bullion;’
;
(b)
in paragraph 6, the first subparagraph is replaced by the following:
‘For the purposes of paragraph 5 of this Article, where a CIU (the “original CIU”) or any of its underlying CIUs are not limited to investing in instruments that are eligible under paragraphs 1 and 4 of this Article, the following shall apply:
(a)
where the institutions apply the look-through approach referred to in Article 132a(1) or Article 152(2) for direct exposures to a CIU, they may use units or shares in that CIU as collateral up to the amount equal to the value of the instruments held by that CIU that are eligible under paragraphs 1 and 4 of this Article;
(b)
where institutions apply the mandate-based approach referred to in Article 132a(2) or 152(5) for direct exposures to a CIU, they may use units or shares in that CIU as collateral up to the amount equal to the value of the instruments held by that CIU that are eligible under paragraphs 1 and 4 of this Article under the assumption that that CIU or any of its underlying CIUs have invested in non-eligible instruments to the maximum extent allowed under their respective mandates.’
;
(113)
in Article 198, paragraph 2 is replaced by the following:
‘2. Where the CIU or any underlying CIU are not limited to investing in instruments that are eligible for recognition under Article 197(1) and (4) and in the items referred to in paragraph 1, point (a), of this Article, the following shall apply:
(a)
where institutions apply the look-through approach referred to in Article 132a(1) or 152(2) for direct exposures to a CIU, they may use units or shares in that CIU as collateral up to the amount equal to the value of the instruments held by that CIU, that are eligible under Article 197(1) and (4), and the items referred to in paragraph 1, point (a), of this Article;
(b)
where institutions apply the mandate-based approach referred to in Article 132a(2) or 152(5) for direct exposures to a CIUs, they may use units or shares in that CIU as collateral up to the amount equal to the value of the instruments held by that CIU, that are eligible under Article 197(1) and (4), and the items referred to in paragraph 1, point (a), of this Article under the assumption that that CIU or any of its underlying CIUs have invested in non-eligible instruments to the maximum extent allowed under their respective mandates.
Where non-eligible instruments can have a negative value due to liabilities or contingent liabilities resulting from ownership, institutions shall do both of the following:
(a)
calculate the total value of the non-eligible instruments;
(b)
where the amount obtained under point (a) is negative, subtract the absolute value of that amount from the total value of the eligible instruments.’
;
(114)
Article 199 is amended as follows:
(a)
paragraph 2 is replaced by the following:
‘2. Unless otherwise specified under Article 124(9), institutions may use as eligible collateral residential property which is or will be occupied or let by the owner, or the beneficial owner in the case of personal investment companies, and commercial immovable property, including offices and other commercial premises, where both of the following conditions are met:
(a)
the property value does not materially depend upon the credit quality of the obligor;
(b)
the risk of the borrower does not materially depend upon the performance of the underlying property or project, but on the underlying capacity of the borrower to repay the debt from other sources, and as a consequence the repayment of the facility does not materially depend on any cash flow generated by the underlying property serving as collateral.
For the purposes of the first subparagraph, point (a), institutions may exclude situations where purely macro-economic factors affect both the property value and the performance of the borrower.’
;
(b)
in paragraph 3, points
(a) and
(b) are replaced by the following:
‘(a)
the aggregated amount reported by institutions under Article 430a(1), point (a), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,3 %;
(b)
the aggregated amount reported by institutions under Article 430a(1), point (b), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,5 %.’
;
(c)
in paragraph 4, points
(a) and
(b) are replaced by the following:
‘(a)
the aggregated amount reported by institutions under Article 430a(1), point (d), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,3 %;
(b)
the aggregated amount reported by institutions under Article 430a(1), point (e), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,5 %.’
;
(d)
the following paragraph is inserted:
‘4a. Institutions may also apply the derogations referred to in paragraphs 3 and 4 of this Article in cases where the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Union as determined in a decision of the Commission adopted in accordance with Article 107(4), publishes corresponding loss rates for exposures secured by residential property or commercial immovable property situated within the territory of that third country.’
;
(e)
in paragraph 5, the following subparagraph is added:
‘Where a public development credit institution as defined in Article 429a(2) of this Regulation issues a promotional loan as defined in Article 429a(3) of this Regulation to another institution, or to a financial institution that is authorised to carry out activities as referred to in Annex I, point 2 or 3, to Directive 2013/36/EU and that meets the conditions set out in Article 119(5) of this Regulation, and where that other institution or financial institution passes through directly or indirectly that promotional loan to an ultimate obligor and cedes the receivable from the promotional loan as collateral to the public development credit institution, the public development credit institution may use the ceded receivable as eligible collateral, regardless of the original maturity of the ceded receivable.’
;
(f)
in paragraph 6, point (d) is replaced by the following:
‘(d)
the institution demonstrates that in at least 90 % of all liquidations for a given type of collateral the realised proceeds from the collateral are not below 70 % of the collateral value; where there is material volatility in the market prices, the institution demonstrates to the satisfaction of the competent authority that its valuation of the collateral is sufficiently conservative.’
;
(115)
Article 201 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
point (d) is replaced by the following:
‘(d)
international organisations to which a 0 % risk weight is assigned in accordance with in Article 118;’
;
(ii)
the following point is inserted:
‘(fa)
regulated financial sector entities;’
;
(iii)
point (g) is replaced by the following:
‘(g)
where the credit protection is not provided to a securitisation exposure, other undertakings, that have a credit assessment by a nominated ECAI, including parent undertakings, subsidiaries or affiliated entities of the obligor where a direct exposure to those parent undertakings, subsidiaries or affiliated entities has a lower risk weight than the exposure to the obligor;’
;
(iv)
the following subparagraph is added:
‘For the purposes of the first subparagraph, point (fa), of this Article, “regulated financial sector entity” means a financial sector entity meeting the condition set out in Article 142(1), point (4)(b).’
;
(b)
paragraph 2 is replaced by the following:
‘2. In addition to the protection providers listed in paragraph 1, corporate entities that are internally rated by the institution in accordance with Chapter 3, Section 6, shall be eligible providers of unfunded credit protection where the institution uses the IRB approach for exposures to those corporate entities.’
;
(116)
Article 202 is deleted;
(117)
in Article 204, the following paragraph is added:
‘3. First-to-default and all other nth-to-default credit derivatives shall not be eligible types of unfunded credit protection under this Chapter.’
;
(118)
in Article 207(4), point (d) is replaced by the following:
‘(d)
they shall calculate the market value of the collateral, and revalue it accordingly, at least once every six months and whenever they have reason to believe that a significant decrease in the market value of the collateral has occurred; ESG-related considerations shall prompt an assessment of whether a significant decrease in the market value of the collateral has occurred;’
;
(119)
Article 208 is amended as follows:
(a)
paragraph 3 is amended as follows:
(i)
point (b) is replaced by the following:
‘(b)
the property valuation is reviewed when information available to institutions indicates that the property value may have declined materially relative to general market prices and that review is carried out by a valuer who possesses the necessary qualifications, ability and experience to execute a valuation and who is independent from the credit decision process; ESG-related considerations, including those related to limitations imposed by the relevant Union and Member States regulatory objectives and legal acts, as well as, where relevant for internationally active institutions, third-country legal and regulatory objectives, shall be considered to be an indication that the property value might have declined materially, relative to general market prices; for loans exceeding EUR 3 million or 5 % of the own funds of an institution, the property valuation shall be reviewed by such valuer at least every three years.’
;
(ii)
the second subparagraph is deleted;
(b)
the following paragraph is inserted:
‘3a. Institutions may monitor the value of the immovable property and identify the immovable property in need of revaluation, in accordance with paragraph 3, by means of advanced statistical or other mathematical methods (“models”), provided that those methods are developed independently from the credit decision process and all of the following conditions are met:
(a)
the institutions set out, in their policies and procedures, the criteria for using models to monitor the values of collateral and to identify the properties that should be revaluated; those policies and procedures shall account for such models’ proven track record, property-specific variables considered, the use of minimum available and accurate information, and the models’ uncertainty;
(b)
the institutions ensure that the models used are:
(i)
property- and location-specific at a sufficient level of granularity;
(ii)
valid and accurate, and subject to robust and regular back-testing against the actual observed transaction prices;
(iii)
based on a sufficiently large and representative sample, based on observed transaction prices;
(iv)
based on up-to-date data of high quality;
(c)
the institutions are ultimately responsible for the appropriateness and performance of the models;
(d)
the institutions ensure that the documentation of the models is up to date;
(e)
the institutions have in place adequate IT processes, systems and capabilities and have sufficient and accurate data for any model-based monitoring of the value of immovable property collateral and identification of property in need of revaluation;
(f)
the estimates of models are independently validated and the validation process is generally consistent with the principles set out in Article 185, where applicable.’
;
(c)
paragraph 5 is replaced by the following:
‘5. The immovable property taken as credit protection shall be adequately insured against the risk of damage and institutions shall have in place procedures to monitor the adequacy of the insurance.
By way of derogation from Article 92(5), point (a)(ii), and without prejudice to the derogation set out in Article 92(3), second subparagraph, for exposures secured by immovable property granted before 1 January 2025, institutions that apply the IRB Approach referred to in Chapter 3 of this Title by using their own estimates of LGD shall not be required to apply the provisions set out in the first subparagraph of this paragraph.’
;
(120)
Article 210 is amended as follows:
(a)
point (g) is replaced by the following:
‘(g)
when conducting valuation and revaluation, institutions shall take fully into account any deterioration or obsolescence of the collateral, paying particular attention to the effects of the passage of time on fashion- or date-sensitive collateral; for physical collateral, obsolescence of collateral shall also include ESG-related valuation considerations related to prohibitions or limitations imposed by the relevant Union and Member States regulatory objectives and legal acts, as well as, where relevant for internationally active institutions, third-country legal and regulatory objectives;’
;
(b)
the following paragraph is added:
‘Where general security agreements, or other forms of floating charge, provide the lending institution with a registered claim over a company’s assets and where that claim contains both assets that are not eligible as collateral under the IRB Approach and assets that are eligible as collateral under the IRB Approach, the institution may recognise those latter assets as eligible funded credit protection. In that case, that recognition shall be conditional on those assets meeting the requirements for eligibility of collateral under the IRB Approach as set out in this Chapter.’
;
(121)
in Article 213, paragraph 1 is replaced by the following:
‘1. Subject to Article 214(1), credit protection deriving from a guarantee or credit derivative shall qualify as eligible unfunded credit protection where all of the following conditions are met:
(a)
the credit protection is direct;
(b)
the extent of the credit protection is clearly set out and incontrovertible;
(c)
the credit protection contract does not contain any clause, the fulfilment of which is outside the direct control of the lending institution, that:
(i)
would allow the protection provider to cancel or change the credit protection unilaterally;
(ii)
would increase the effective cost of the credit protection as a result of a deterioration in the credit quality of the protected exposure;
(iii)
could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original obligor fails to make any payments due, or where the leasing contract has expired for the purpose of recognising guaranteed residual value under Articles 134(7) and 166(4);
(iv)
could allow the maturity of the credit protection to be reduced by the protection provider;
(d)
the credit protection contract is legally effective and enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement.
For the purposes of the first subparagraph, point (c), a clause in the credit protection contract providing that flawed due diligence or fraud by the lending institution cancels or diminishes the extent of the credit protection offered by the guarantor, shall not disqualify that credit protection from being eligible.
For the purposes of the first subparagraph, point (c), the protection provider may make one lump sum payment of all monies due under the claim, or may assume the future payment obligations of the obligor covered by the credit protection contract.’
;
(122)
Article 215 is amended as follows:
(a)
paragraph 1 is amended as follows:
(i)
point (a) is replaced by the following:
‘(a)
on the qualifying default of or non-payment by the obligor, the lending institution has the right to pursue, in a timely manner, the guarantor for any monies due under the claim in respect of which the protection is provided;’
;
(ii)
the following subparagraphs are added:
‘The payment by the guarantor shall not be subject to the lending institution first having to pursue the obligor.
In the case of unfunded credit protection covering residential mortgage loans, the requirements in Article 213(1), point (c)(iii), and in the first subparagraph, point (a), of this paragraph, shall only be required to be satisfied within 24 months.’
;
(b)
paragraph 2 is replaced by the following:
‘2. In the case of guarantees provided in the context of mutual guarantee schemes or provided by or counter-guaranteed by entities as listed in Article 214(2), the requirements in paragraph 1, point (a), of this Article and in Article 213(1), point (c)(iii), shall be considered to be satisfied where either of the following conditions is met:
(a)
pursuant to the qualifying default of or non-payment by the original obligor, the lending institution has the right to obtain in a timely manner a provisional payment by the guarantor that meets both the following conditions:
(i)
the provisional payment represents a robust estimate of the amount of the loss that the lending institution is likely to incur, including losses resulting from the non-payment of interest and other types of payment which the borrower is obliged to make;
(ii)
the provisional payment is proportional to the coverage of the guarantee;
(b)
the lending institution can demonstrate to the satisfaction of the competent authority that the effects of the guarantee, which shall also cover losses resulting from the non-payment of interest and other types of payments which the borrower is obliged to make, justify such treatment; that justification shall be properly documented and subject to dedicated internal approval and audit procedures.’
;
(123)
in Article 216, the following paragraph is added:
‘3. By way of derogation from paragraph 1, for a corporate exposure covered by a credit derivative, the credit event referred to in point (a)(iii) of that paragraph shall not be required to be specified in the derivative contract, provided that all of the following conditions are met:
(a)
a 100 % vote is needed to amend the maturity, principal, coupon, currency or seniority status of the underlying corporate exposure;
(b)
the legal domicile in which the corporate exposure is governed has a well-established bankruptcy code that allows for a company to reorganise and restructure, and provides for an orderly settlement of creditor claims.
Where the conditions set out in points
(a) and
(b) of this paragraph are not met, the credit protection may nonetheless be eligible subject to a reduction in the value as specified in Article 233(2).’
;
(124)
Article 217 is deleted;
(125)
Article 219 is replaced by the following:
‘Article 219
On-balance-sheet netting
Loans to and deposits with the lending institution subject to on-balance-sheet netting shall be treated by that institution as cash collateral for the purpose of calculating the effect of funded credit protection for those loans and deposits of the lending institution subject to on-balance-sheet netting.’
;
(126)
Article 220 is amended as follows:
(a)
the title is replaced by the following:
‘Using the Supervisory Volatility Adjustments Approach for master netting agreements’
;
(b)
paragraph 1 is replaced by the following:
‘1. Institutions that calculate the “fully adjusted exposure value” (E*) for the exposures subject to an eligible master netting agreement covering securities financing transactions or other capital market-driven transactions shall calculate the volatility adjustments that they need to apply by using the Supervisory Volatility Adjustments Approach set out in Articles 223 to 227 for the Financial Collateral Comprehensive Method.’
;
(c)
in paragraph 2, point (c) is replaced by the following:
‘(c)
apply the value of the volatility adjustment, or, where relevant, the absolute value of the volatility adjustment appropriate for a given group of securities or for a given type of commodities, to the absolute value of the positive or negative net position in the securities in that group of securities, or to the commodities from that type of commodities;’
;
(d)
paragraph 3 is replaced by the following:
‘3. Institutions shall calculate E* in accordance with the following formula:
where:
i
= the index that denotes all separate securities, commodities or cash positions under the agreement that are either lent, sold with an agreement to repurchase, or posted by the institution to the counterparty;
j
= the index that denotes all separate securities, commodities or cash positions under the agreement that are either borrowed, purchased with an agreement to resell, or held by the institution;
k
= the index that denotes all separate currencies in which any securities, commodities or cash positions under the agreement are denominated;
Ei
= the exposure value of a given security, commodity or cash position i, that is either lent, sold with an agreement to repurchase, or posted to the counterparty under the agreement that would apply in the absence of credit protection, where institutions calculate the risk-weighted exposure amounts in accordance with Chapter 2 or 3, as applicable;
Cj
= the value of a given security, commodity or cash position j that is either borrowed, purchased with an agreement to resell, or held by the institution under the agreement;
= the net position (positive or negative) in a given currency k other than the settlement currency of the agreement as calculated in accordance with paragraph 2, point (b);
= the foreign exchange volatility adjustment for currency k;
Enet
= the net exposure of the agreement, calculated as follows:
where:
l
= the index that denotes all distinct groups of the same securities and all distinct types of the same commodities under the agreement;
= the net position (positive or negative) in a given group of securities l, or a given type of commodities l, under the agreement, calculated in accordance with paragraph 2, point (a);
= the volatility adjustment appropriate to a given group of securities l, or a given type of commodities l, determined in accordance with paragraph 2, point (c); the sign of
shall be determined as follows:
(a)
it shall have a positive sign where the group of securities l is lent, sold with an agreement to repurchase, or transacted in a manner similar to either a securities lending or a repurchase agreement;
(b)
it shall have a negative sign where the group of securities l is borrowed, purchased with an agreement to resell, or transacted in a manner similar to either a securities borrowing or a reverse repurchase agreement;
N
= the total number of distinct groups of the same securities and distinct types of the same commodities under the agreement; for the purposes of this calculation, those groups and types
for which
is less than
shall not be counted;
Egross
= the gross exposure of the agreement, calculated as follows:
.’
;
(127)
Article 221 is amended as follows:
(a)
paragraphs 1, 2 and 3 are replaced by the following:
‘1. For the purpose of calculating risk-weighted exposure amounts and expected loss amounts for securities financing transactions or other capital market-driven transactions other than derivative transactions covered by an eligible master netting agreement that meets the requirements set out in Chapter 6, Section 7, an institution may calculate the fully adjusted exposure value (E*) of the agreement using the internal model approach, provided that the institution meets the conditions set out in paragraph 2.
2. An institution may use the internal model approach where all of the following conditions are met:
(a)
the institution uses that approach only for exposures for which the risk-weighted exposures amounts are calculated under the IRB Approach set out in Chapter 3;
(b)
the institution is granted the permission to use that approach by its competent authority.
3. An institution that uses an internal model approach shall do so for all counterparties and securities, with the exception of immaterial portfolios for which it may use the Supervisory Volatility Adjustments Approach laid down in Article 220.’
;
(b)
paragraph 8 is deleted;
(128)
in Article 222, paragraph 3 is replaced by the following:
‘3. Institutions shall assign to those portions of exposure values that are collateralised by the market value of eligible collateral the risk weight that they would assign under Chapter 2 where the lending institution had a direct exposure to the collateral instrument. For that purpose, the exposure value of an off-balance-sheet item listed in Annex I shall be equal to 100 % of the item’s value rather than the exposure value indicated in Article 111(2).’
;
(129)
Article 223 is amended as follows
(a)
paragraph 4 is replaced by the following:
‘4. For the purpose of calculating E in paragraph 3, the following shall apply:
(a)
for institutions calculating risk-weighted exposure amounts under the Standardised Approach, the exposure value of an off-balance-sheet item listed in Annex I shall be 100 % of that item’s value rather than the exposure value indicated in Article 111(2);
(b)
for off-balance-sheet items other than derivatives treated under the IRB Approach, institutions shall calculate their exposure values using a CCF of 100 % instead of the SA-CCF or IRB-CCF provided for in Article 166(8), (8a) and (8b).’
;
(b)
paragraph 6 is replaced by the following:
‘6. Institutions shall calculate volatility adjustments by using the Supervisory Volatility Adjustments Approach referred to in Articles 224 to 227.’
;
(130)
in Article 224, paragraph 1, Tables 1 to 4 are replaced by the following:
‘Table 1
Credit quality step with which the credit assessment of the debt security is associated
Residual maturity (m), expressed in years
Volatility adjustments for debt securities issued by entities as referred to in Article 197(1), point (b)
Volatility adjustments for debt securities issued by entities as referred to in Article 197(1), points (c) and (d)
Volatility adjustments for securitisation positions and meeting the criteria laid down in Article 197(1), point (h)
20-day liquidation period (%)
10-day liquidation period (%)
5-day liquidation period (%)
20-day liquidation period (%)
10-day liquidation period (%)
5-day liquidation period (%)
20-day liquidation period (%)
10-day liquidation period (%)
5-day liquidation period (%)
1
m ≤ 1
0,707
0,5
0,354
1,414
1
0,707
2,828
2
1,414
1 < m ≤ 3
2,828
2
1,414
4,243
3
2,121
11,314
8
5,657
3 < m ≤ 5
2,828
2
1,414
5,657
4
2,828
11,314
8
5,657
5 < m ≤ 10
5,657
4
2,828
8,485
6
4,243
22,627
16
11,314
m > 10
5,657
4
2,828
16,971
12
8,485
22,627
16
11,314
2 to 3
m ≤ 1
1,414
1
0,707
2,828
2
1,414
5,657
4
2,828
1 < m ≤ 3
4,243
3
2,121
5,657
4
2,828
16,971
12
8,485
3 < m ≤ 5
4,243
3
2,121
8,485
6
4,243
16,971
12
8,485
5 < m ≤ 10
8,485
6
4,243
16,971
12
8,485
33,941
24
16,971
m > 10
8,485
6
4,243
28,284
20
14,142
33,941
24
16,971
4
all
21,213
15
10,607
N/A
N/A
N/A
N/A
N/A
N/A
Table 2
Credit quality step with which the credit assessment of a short term debt security is associated
Residual maturity (m), expressed in years
Volatility adjustments for debt securities issued by entities as referred to in Article 197(1), point (b), with short-term credit assessments
Volatility adjustments for debt securities issued by entities as referred to in Article 197(1), points (c) and (d), with short-term credit assessments
Volatility adjustments for securitisation positions and meeting the criteria laid down in Article 197(1), point (h), with short-term credit assessments
20-day liquidation period (%)
10-day liquidation period (%)
5-day liquidation period (%)
20-day liquidation period (%)
10-day liquidation period (%)
5-day liquidation period (%)
20-day liquidation period (%)
10-day liquidation period (%)
5-day liquidation period (%)
1
0,707
0,5
0,354
1,414
1
0,707
2,828
2
1,414
2 to 3
1,414
1
0,707
2,828
2
1,414
5,657
4
2,828
Table 3
Other collateral or exposure types
20-day liquidation period (%)
10-day liquidation period (%)
5-day liquidation period (%)
Main index equities, main index convertible bonds
28,284
20
14,142
Other equities or convertible bonds listed on a recognised exchange
42,426
30
21,213
Cash
0
0
0
Gold bullion
28,284
20
14,142
Table 4
Volatility adjustment for currency mismatch (Hfx)
20-day liquidation period (%)
10-day liquidation period (%)
5-day liquidation period (%)
11,314
8
5,657
’;
(131)
Article 225 is deleted;
(132)
Article 226 is replaced by the following:
‘Article 226
Scaling up of volatility adjustment under the Financial Collateral Comprehensive Method
The volatility adjustments set out in Article 224 are the volatility adjustments an institution shall apply where there is daily revaluation. Where the frequency of revaluation is less than daily, institutions shall apply larger volatility adjustments. Institutions shall calculate them by scaling up the daily revaluation volatility adjustments, using the following square-root-of-time formula:
where:
H
= the volatility adjustment to be applied;
HM
= the voatility adjustment where there is daily revaluation;
NR
= the actual number of business days between revaluations;
TM
= the liquidation period for the type of transaction in question.’
;
(133)
in Article 227, paragraph 1 is replaced by the following:
‘1. Institutions that use the Supervisory Volatility Adjustments Approach referred to in Article 224, may, for repurchase transactions and securities lending or borrowing transactions, apply a 0 % volatility adjustment instead of the volatility adjustments calculated under Articles 224 and 226, provided that the conditions set out in paragraph 2, points (a) to (h), of this Article are satisfied. Institutions that use the internal model approach set out in Article 221 shall not use the treatment set out in this Article.’
;
(134)
Article 228 is replaced by the following:
‘Article 228
Calculating risk-weighted exposure amounts under the Financial Collateral Comprehensive method for exposures treated under the Standardised Approach
Under the Standardised Approach, institutions shall use E* as calculated under Article 223(5) as the exposure value for the purposes of Article 113. In the case of off-balance-sheet items listed in Annex I, institutions shall use E* as the value to which the percentages indicated in Article 111(2) shall be applied to arrive at the exposure value.’
;
(135)
Article 229 is amended as follows:
(a)
the title is replaced by the following:
‘ Valuation principles for eligible collateral other than financial collateral ’;
(b)
paragraph 1 is replaced by the following:
‘1. The valuation of immovable property shall meet all of the following requirements:
(a)
the value is appraised independently from an institution’s mortgage acquisition, loan processing and loan decision process by an independent valuer who possesses the necessary qualifications, ability and experience to execute a valuation;
(b)
the value is appraised using prudently conservative valuation criteria which meet all of the following requirements:
(i)
the value excludes expectations on price increases;
(ii)
the value is adjusted to take into account the potential for the current market value to be significantly above the value that would be sustainable over the life of the loan;
(c)
the value is documented in a transparent and clear manner;
(d)
the value is not higher than a market value for the immovable property where such market value can be determined;
(e)
where the property is revalued, the property value does not exceed the average value measured for that property, or for a comparable property over the last six years for residential property or eight years for commercial immovable property or the value at origination, whichever is higher.
For the purpose of calculating the average value, institutions shall take the average across property values observed at equal intervals and the reference period shall include at least three data points.
For the purpose of calculating the average value, institutions may use the results of the monitoring of property values in accordance with Article 208(3). The property value may exceed that average value or the value at origination, as applicable, in the case of modifications made to the property that unequivocally increase its value, such as improvements of the energy performance or improvements to the resilience, protection and adaptation to physical risks of the building or housing unit. The property value shall not be revalued upward if institutions do not have sufficient data to calculate the average value except if the value increase is based on modifications that unequivocally increase its value.
The valuation of immovable property shall take account of any prior claims on the property, unless a prior claim is taken into account in the calculation of the gross exposure amount pursuant to Article 124(6), point (c), or as reducing the amount of 55 % of the property value pursuant to Article 125(1) or Article 126(1), and reflect, where applicable, the results of the monitoring required under Article 208(3).’
;
(c)
the following paragraph is added:
‘4. EBA shall develop draft regulatory technical standards to specify the criteria and factors to be considered for the assessment of the term “comparable property”, as referred to in paragraph 1, point (e).
EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.’
;
(136)
Article 230 is replaced by the following:
‘Article 230
Calculating risk-weighted exposure amounts and expected loss amounts for an exposure with an eligible funded credit protection under the IRB Approach
1. Under the IRB Approach, except for those exposures that fall under the scope of Article 220, institutions shall use the effective LGD (LGD*) as the LGD for the purposes of Chapter 3 to recognise funded credit protection eligible pursuant to this Chapter. Institutions shall calculate LGD* as follows:
where:
E
= the exposure value before taking into account the effect of the funded credit protection; for an exposure secured by financial collateral eligible in accordance with this Chapter, that amount shall be calculated in accordance with Article 223(3); in the case of securities lent or posted, that amount shall be equal to the cash lent or securities lent or posted; for securities that are lent or posted, the exposure value shall be increased by applying the volatility adjustment (HE) in accordance with Articles 223 to 227;
ES
= the current value of the funded credit protection received after the application of the volatility adjustment applicable to that type of funded credit protection (HC) and the application of the volatility adjustment for currency mismatches (Hfx) between the exposure and the funded credit protection, in accordance with paragraphs 2 and 3; ES shall be capped at the following value: E·(1+HE);
EU
= E·(1+HE) – ES;
LGDU
= the applicable LGD for an unsecured exposure as set out in Article 161(1);
LGDS
= the applicable LGD to exposures secured by the type of eligible FCP used in the transaction, as specified in paragraph 2, Table 1.
2. Table 1 specifies the values of LGDS and Hc applicable in the formula set out in paragraph 1.
Table 1
Type of FCP
LGDS
Volatility adjustment (Hc)
Financial collateral
0 %
Volatility adjustment Hc as set out in Articles 224 to 227
Receivables
20 %
40 %
Residential property and commercial immovable property
20 %
40 %
Other physical collateral
25 %
40 %
Ineligible FCP
Not applicable
100 %
3. Where an eligible funded credit protection is denominated in a different currency than that of the exposure, the volatility adjustment for currency mismatch (Hfx) shall be the same as the one that applies pursuant to Articles 224 to 227.
4. As an alternative to the treatment set out in paragraphs 1 and 2 of this Article, and subject to Article 124(9), institutions may assign a 50 % risk weight to the part of the exposure that is, within the limits set out in Article 125(1), first subparagraph, and Article 126(1), first subparagraph, respectively, fully collateralised by residential property or commercial immovable property situated within the territory of a Member State where all of the conditions set out in Article 199(3) or (4) are met.
5. To calculate risk-weighted exposure amounts and expected loss amounts for IRB exposures that fall within the scope of Article 220, institutions shall use E* in accordance with Article 220(4) and shall use LGD for unsecured exposures, as set out in Article 161(1), points (a), (aa) and (b).’
;
(137)
Article 231 is replaced by the following:
‘Article 231
Calculating risk-weighted exposure amounts and expected loss amounts in the case of pools of eligible funded credit protection for an exposure treated under the IRB Approach
Institutions that have obtained multiple types of funded credit protection may, for exposures treated under the IRB Approach, apply the formula set out in Article 230, sequentially for each individual type of collateral. For that purpose, those institutions shall, after each step of recognising one individual type of FCP, reduce the remaining value of the unsecured exposure (EU) by the adjusted value of the collateral (ES) recognised in that step. In accordance with Article 230(1), the total of ES across all funded credit protection types shall be capped at the value of E·(1+HE), resulting in the following formula:
where:
LGDS,i
= the LGD applicable to FCP i, as specified in Article 230(2);
ES,i
= the current value of FCP i received after the application of the volatility adjustment applicable for the type of FCP (Hc) pursuant to Article 230(2).’
;
(138)
Article 232 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. Where the conditions set out in Article 212(1) are met, cash on deposit with, or cash assimilated instruments held by, a third-party institution in a non-custodial arrangement and pledged to the lending institution, may be treated as a guarantee provided by the third-party institution.’
;
(b)
in paragraph 3, the following point is inserted:
‘(ba)
a risk weight of 52,5 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 75 %;’
;
(139)
in Article 233, paragraph 4 is replaced by the following:
‘4. Institutions shall base the volatility adjustments for any currency mismatch on a 10 business day liquidation period, assuming daily revaluation, and shall calculate those adjustments based on the Supervisory Volatility Adjustments Approach as set out in Article 224. Institutions shall scale up the volatility adjustments in accordance with Article 226.’
;
(140)
Article 235 is amended as follows:
(a)
the title is replaced by the following:
‘ Calculating risk-weighted exposure amounts under the substitution approach where the guaranteed exposure is treated under the Standardised Approach ’;
(b)
paragraph 1 is replaced by the following:
‘1. For the purposes of Article 113(3), institutions shall calculate the risk-weighted exposure amounts for exposures with unfunded credit protection to which those institutions apply the Standardised Approach, irrespective of the treatment of comparable direct exposure to the protection provider, in accordance with the following formula:
max {0, E – GA} · r + GA · g
where:
E
= the exposure value calculated in accordance with Article 111; for that purpose, the exposure value of an off-balance-sheet item listed in Annex I shall be 100 % of its value rather than the exposure value indicated in Article 111(2);
GA
= the amount of credit protection adjusted for foreign exchange risk (G*) as calculated under Article 233(3) further adjusted for any maturity mismatch as laid down in Section 5 of this Chapter;
r
= the risk weight of exposures to the obligor as specified in Chapter 2;
g
= the risk weight applicable to a direct exposure to the protection provider as specified in Chapter 2.’
;
(c)
paragraph 3 is replaced by the following:
‘3. Institutions may extend the preferential treatment set out in Article 114(4) and (7), to exposures or parts of exposures guaranteed by the central government or the central bank as if those exposures were direct exposures to the central government or the central bank, provided that the conditions set out in Article 114(4) or (7), as applicable, are met for such direct exposures.’
;
(141)
the following article is inserted:
‘Article 235a
Calculating risk-weighted exposure amounts and expected loss amounts under the substitution approach where the guaranteed exposure is treated under the IRB Approach and a comparable direct exposure to the protection provider is treated under the Standardised Approach
1. For exposures with unfunded credit protection to which an institution applies the IRB Approach set out in Chapter 3 and where comparable direct exposures to the protection provider are treated under the Standardised Approach, institutions shall calculate the risk-weighted exposure amounts in accordance with the following formula:
max {0, E – GA} · r + GA · g
where:
E
= the exposure value determined in accordance with Chapter 3, Section 5; for that purpose, institutions shall calculate the exposure value for off-balance-sheet items other than derivatives treated under the IRB Approach using a CCF of 100 % instead of the SA-CCFs or IRB-CCF provided for in Article 166(8), (8a) and (8b);
GA
= the amount of credit protection adjusted for foreign exchange risk (G*) as calculated in accordance with Article 233(3) further adjusted for any maturity mismatch as laid down in Section 5 of this Chapter;
r
= the risk weight of exposures to the obligor as specified in Chapter 3;
g
= the risk weight applicable to a direct exposure to the protection provider as specified in Chapter 2.
2. Where the amount of credit protection (GA) is less than the exposure value (E), institutions may apply the formula specified in paragraph 1 only where the protected and unprotected parts of the exposure are of equal seniority.
3. Institutions may extend the preferential treatment set out in Article 114(4) and (7), to exposures or parts of exposures guaranteed by the central government or the central bank as if those exposures were direct exposures to the central government or the central bank, provided that the conditions set out in Article 114(4) or (7), as applicable, are met for such direct exposures.
4. The expected loss amount for the covered part of the exposure value shall be zero.
5. For any uncovered part of the exposure value (E), institutions shall use the risk weight and the expected loss corresponding to the underlying exposure. For the calculation set out in Article 159, institutions shall assign any general or specific credit risk adjustments or additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution or other own funds reductions related to the exposure other than the deductions made in accordance with Article 36(1), point (m), to the uncovered part of the exposure value.’
;
(142)
Article 236 is replaced by the following:
‘Article 236
Calculating risk-weighted exposure amounts and expected loss amounts under the substitution approach where the guaranteed exposure is treated under the IRB Approach without the use of own estimates of LGD and a comparable direct exposure to the protection provider is treated under the IRB Approach
1. For an exposure with unfunded credit protection to which an institution applies the IRB Approach set out in Chapter 3, but without using its own estimates of LGD, and where comparable direct exposures to the protection provider are treated under the IRB Approach set out in Chapter 3, the institution shall determine the covered part of the exposure as the lower of the exposure value (E) and the adjusted value of the unfunded credit protection (GA).
1a. Institutions that apply the IRB Approach to comparable direct exposures to the protection provider using own estimates of PD shall calculate the risk-weighted exposure amount and the expected loss amount for the covered part of the exposure value by using the PD of the protection provider and the LGD applicable for a comparable direct exposure to the protection provider as referred to in Article 161(1), in accordance with paragraph 1b of this Article. For subordinated exposures and non-subordinated unfunded credit protection, the LGD to be applied by institutions to the covered part of the exposure value shall be the LGD associated with senior claims and the institutions may account for any funded credit protection securing the unfunded credit protection in accordance with this Chapter.
1b. Institutions shall calculate the risk weight and expected loss applicable to the covered part of the underlying exposure using the PD, the LGD specified in paragraph 1a of this Article, and the same risk weight function as the ones used for a comparable direct exposure to the protection provider, and shall, where applicable, use the maturity (M) related to the underlying exposure, calculated in accordance with Article 162.
1c. Institutions that apply the IRB Approach to comparable direct exposures to the protection provider using the method provided for in Article 153(5) shall use the risk weight and expected loss applicable to the covered part of the exposure that correspond to the ones provided for in Articles 153(5) and 158(6).
1d. Notwithstanding paragraph 1c of this Article, institutions that apply the IRB Approach to guaranteed exposures using the method provided for in Article 153(5) shall calculate the risk weight and expected loss applicable to the covered part of the exposure using the PD, the LGD applicable for a comparable direct exposure to the protection provider as referred to in Article 161(1), in accordance with paragraph 1b of this Article, and the same risk weight function as the ones used for a comparable direct exposure to the protection provider, and shall, where applicable, use the maturity (M) related to the underlying exposure, calculated in accordance with Article 162. For subordinated exposures and non-subordinated unfunded credit protection, the LGD to be applied by institutions to the covered part of the exposure value shall be the LGD associated with senior claims and the institutions may account for any funded credit protection securing the unfunded credit protection in accordance with this Chapter.
2. For any uncovered part of the exposure value (E), institutions shall use the risk weight and the expected loss corresponding to the underlying exposure. For the calculation set out in Article 159, institutions shall assign any general or specific credit risk adjustments or additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution or other own funds reductions related to the exposure other than the deductions made in accordance with Article 36(1), point (m), to the uncovered part of the exposure value.
3. For the purposes of this Article, (GA) is the amount of credit protection adjusted for foreign exchange risk (G*) as calculated under Article 233(3) further adjusted for any maturity mismatch as laid down in Section 5 of this Chapter. The exposure value (E) is the exposure value determined in accordance with Chapter 3, Section 5. Institutions shall calculate the exposure value for off-balance-sheet items other than derivatives treated under the IRB Approach using a CCF of 100 % instead of the SA-CCFs or IRB-CCF provided for in Article 166(8), (8a) and (8b).’
;
(143)
the following article is inserted:
‘Article 236a
Calculating risk-weighted exposure amounts and expected loss amounts under the substitution approach where the guaranteed exposure is treated under the IRB Approach using own estimates of LGD and a comparable direct exposure to the protection provider is treated under the IRB Approach
1. For an exposure with unfunded credit protection to which an institution applies the IRB Approach set out in Chapter 3 using its own estimates of LGD and where comparable direct exposures to the protection provider are treated under the IRB Approach set out in Chapter 3, but without using its own estimates of LGD, the institution shall determine the covered part of the exposure as the lower of the exposure value (E) and the adjusted value of the unfunded credit protection (GA), calculated in accordance with Article 235a(1). The institution shall calculate the risk-weighted exposure amount and the expected loss amount for the covered part of the exposure value by using the PD, the LGD and the same risk weight function as the ones used for a comparable direct exposure to the protection provider, and shall, where applicable, use the maturity (M) related to the underlying exposure, calculated in accordance with Article 162.
2. Institutions that apply the IRB Approach set out in Chapter 3, but without using their own estimates of LGD to comparable direct exposures to the protection provider, shall determine the LGD in accordance with Article 161(1). For subordinated exposures and non-subordinated unfunded credit protection, the LGD to be applied by institutions to the covered part of the exposure value shall be the LGD associated with senior claims and the institutions may account for any funded credit protection securing the unfunded credit protection in accordance with this Chapter.
3. Institutions that apply the IRB Approach set out in Chapter 3 using their own estimates of LGD to comparable direct exposures to the protection provider shall calculate the risk weight and the expected loss applicable to the covered part of the underlying exposure using the PD, the LGD and the same risk weight function as the ones used for a comparable direct exposure to the protection provider, and shall, where applicable, use the maturity (M) related to the underlying exposure, calculated in accordance with Article 162.
4. Institutions that apply the IRB Approach to comparable direct exposures to the protection provider using the method provided for in Article 153(5) shall use the risk weight and expected loss applicable to the covered part of the exposure that correspond to the ones provided in Articles 153(5) and 158(6).
5. For any uncovered part of the exposure value (E), institutions shall use the risk weight and the expected loss corresponding to the underlying exposure. For the calculation set out in Article 159, institutions shall assign any general or specific credit risk adjustments or additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution or other own funds reductions related to the exposure other than the deductions made in accordance with Article 36(1), point (m), to the uncovered part of the exposure value.’
;
(144)
in Part Three, Title II, Chapter 4, Section 6 is deleted;
(145)
in Article 252, point (b), the definition of RW* is replaced by the following:
‘RW* = risk-weighted exposure amounts for the purposes of Article 92(4), point (a);’
(146)
Article 273 is amended as follows:
(a)
in paragraph 1, the first subparagraph is replaced by the following:
‘Institutions shall calculate the exposure value for the contracts listed in Annex II and for credit derivatives, with the exception of the credit derivatives referred to in paragraphs 3 and 5 of this Article, on the basis of one of the methods set out in Sections 3 to 6 in accordance with this Article.’
;
(b)
in paragraph 3, point (b) is replaced by the following:
‘(b)
in accordance with Article 183, where permission has been granted in accordance with Article 143.’
;
(147)
in Article 273a, paragraph 3 is amended as follows:
(a)
in the first subparagraph, point (b) is replaced by the following:
‘(b)
the absolute value of the aggregated long position shall be summed with the absolute value of the aggregated short position;’
;
(b)
the following subparagraphs are added:
‘For the purposes of the first subparagraph, the meaning of long and short positions is the same as that set out in Article 94(3).
For the purposes of the first subparagraph, the value of the aggregated long (short) position shall be equal to the sum of the values of the individual long (short) positions included in the calculation in accordance with point (c).’
;
(148)
Article 273b is amended as follows:
(a)
the title is replaced by the following:
‘Non-compliance with the conditions for using simplified methods for calculating the exposure value of derivatives and the simplified approach for calculating the own funds requirements for CVA risk’
;
(b)
in paragraph 2, the introductory wording is replaced by the following:
‘Institutions shall cease to calculate the exposure values of their derivative positions in accordance with Section 4 or 5 and to calculate the own funds requirements for CVA risk in accordance with Article 385, as applicable, within three months of the occurrence of one of the following:’
;
(c)
paragraph 3 is replaced by the following:
‘3. Institutions that have ceased to calculate the exposure values of their derivative positions in accordance with Section 4 or 5 and to calculate the own funds requirements for CVA risk in accordance with Article 385, as applicable, shall only be permitted to resume calculating the exposure value of their derivative positions as set out in Section 4 or 5 and the own funds requirements for CVA risk in accordance with Article 385 where they demonstrate to the competent authority that all of the conditions set out in Article 273a(1) or (2), have been met for an uninterrupted period of one year.’
;
(149)
Article 274 is amended as follows:
(a)
paragraph 4 is replaced by the following:
‘4. Where multiple margin agreements apply to the same netting set, or the same netting set includes both transactions subject to a margin agreement and transactions not subject to a margin agreement, an institution shall calculate its exposure value as follows:
(a)
the institution shall establish the hypothetical sub-netting sets concerned, composed of transactions included in the netting set, as follows:
(i)
all transactions subject to a margin agreement and to the same margin period of risk as determined in accordance with Article 285(2) to (5), shall be allocated to the same sub-netting set;
(ii)
all transactions not subject to a margin agreement shall be allocated to the same sub-netting set, distinct from the sub-netting sets established in accordance with point (i) of this paragraph;
(b)
the institution shall calculate the replacement cost of the netting set in accordance with Article 275(2), taking into account all transactions within the netting set, whether or not subject to a margin agreement, and apply all of the following:
(i)
CMV shall be calculated for all transactions within a netting set gross of any collateral held or posted where positive and negative market values are netted in computing the CMV;
(ii)
NICA, VM, TH, and MTA, where applicable, shall be calculated separately as the sum across the same inputs applicable to each individual margin agreement of the netting set;
(c)
the institution shall calculate the potential future exposure of the netting set referred to in Article 278 by applying all of the following:
(i)
the multiplier referred to in Article 278(1) shall be based on the inputs CMV, NICA and VM, as applicable, in accordance with point (b) of this paragraph;
(ii)
shall be calculated in accordance with Article 278, separately for each hypothetical sub-netting set referred to in point (a) of this paragraph.’
;
(b)
in paragraph 6, the following subparagraphs are added:
‘By way of derogation from the first subparagraph, institutions shall replace a vanilla digital option the strike of which equals K with the relevant collar combination of two sold and bought vanilla call or put options that meet the following requirements:
(a)
the two options of the collar combination have:
(i)
the same expiry date and the same spot or forward price of the underlying instrument as the vanilla digital option;
(ii)
strikes equal to 0,95∙K and 1,05∙K respectively;
(b)
the collar combination replicates exactly the vanilla digital option payoff outside the range between the two strikes referred to in point (a).
The risk position of the two options of the collar combination referred to in the second subparagraph shall be calculated separately in accordance with Article 279.’
;
(150)
in Article 276(1), point (d) is replaced by the following:
‘(d)
the volatility-adjusted value of any type of collateral received or posted shall be calculated in accordance with Article 223;’
;
(151)
in Article 277a(2), the following subparagraph is added:
‘For the purposes of the first subparagraph, point (a), of this paragraph, institutions shall assign transactions to a separate hedging set of the relevant risk category following the same hedging set construction set out in paragraph 1.’
;
(152)
Article 279a is amended as follows:
(a)
in paragraph 1, point (a), the introductory wording is replaced by the following:
‘(a)
for call and put options that entitle the option buyer to purchase or sell an underlying instrument at a positive price on a single or multiple dates in the future, except where those options are mapped to the interest rate risk or commodity risk category, institutions shall use the following formula:’
;
(b)
paragraph 3 is amended as follows:
(i)
in the first subparagraph, point (a) is replaced by the following:
‘(a)
in accordance with international regulatory developments, the formulae that institutions shall use to calculate the supervisory delta of call and put options mapped to the interest rate risk or commodity risk category compatible with market conditions in which interest rates or commodity prices may be negative and the supervisory volatility that is suitable for those formulae;’
;
(ii)
the second subparagraph is replaced by the following:
‘EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.’
;
(153)
Article 285 is amended as follows:
(a)
paragraph 7 is replaced by the following:
‘7. If an institution is not able to model collateral jointly with the exposure, it shall not recognise in its exposure value calculations for OTC derivatives the effect of collateral other than cash of the same currency as the exposure itself, unless the institution uses the volatility adjustments under the standard Supervisory Volatility Adjustments Approach in accordance with Chapter 4.’
;
(b)
the following paragraph is inserted:
‘7a. If an institution is not able to model collateral jointly with the exposure, it shall not recognise in its exposure value calculations for securities financing transactions the effect of collateral other than cash of the same currency as the exposure itself.’
;
(154)
in Article 291(5), point (f) is replaced by the following:
‘(f)
to the extent that the calculation uses existing market risk calculations for own funds requirements for default risk as set out in Title IV, Chapter 1a, Section 4 or 5, or for default risk using an internal default risk model as set out in Title IV, Chapter 1b, Section 3, that already contain an LGD assumption, the LGD in the formula used shall be 100 %.’
;
(155)
in Part Three, Title III is replaced by the following:
‘TITLE III
OWN FUNDS REQUIREMENT FOR OPERATIONAL RISK